(Un)Bundling Public-Private Partnership Contracts in the Water Sector: Competition in Auctions and Economies of Scale in Operation

26 Pages Posted: 20 Apr 2016

See all articles by Atsushi Iimi

Atsushi Iimi

International Monetary Fund (IMF); World Bank

Date Written: January 1, 2008

Abstract

In public-private partnership transactions in the water sector, one of the alleged concerns is that there is little market competition at the auction stage. This paper casts light on a trade-off between the competition effect at the auction level and potential economies of scale in service operation. If the authorities design a large-scale public-private partnership water transaction, it is expected to exploit operational scale economies. But the competition effect may have to be sacrificed. The paper shows a risk that the selection of the contract size could be a very restrictive condition that excludes many prospective bidders. Moreover, the paper quantifies the optimal size of public-private partnership contracts in the sector by estimating a cost function. The analysis shows that economies of scale exist but tend to diminish quickly as production increases. When the amount of water sold exceeds about 40 million m3, the statistical significance of economies of scale disappears. And there is no rationale for auctioning the water operation with annual water delivery of more than 400 million m3 under a single contract.

Keywords: Town Water Supply and Sanitation, Water Supply and Sanitation Governance and Institutions, Water and Industry, Water Conservation, Urban Water Supply and Sanitation

Suggested Citation

Iimi, Atsushi, (Un)Bundling Public-Private Partnership Contracts in the Water Sector: Competition in Auctions and Economies of Scale in Operation (January 1, 2008). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1080474

Atsushi Iimi (Contact Author)

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

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