Infrastructure Restructuring and Regulation: Building a Base for Sustainable Growth

Abstract

Reforms to make infrastructure services more competitive and to provide strong and independent economic regulation of natural monopolies create an environment more conducive to private sector participation in infrastructure investments, efficiency savings that can be passed on to consumers, and better provision of services.

The link between economic growth and better provision of infrastructure services may be unproven, but it is clear that reforms to make infrastructure services more competitive (where possible) and to provide strong and independent economic regulation of natural monopolies do create an environment more conducive to: · Private sector participation in infrastructure investments. · Companies trying to cut costs and pass the savings on to consumers. · Better provision of services (through faster rollout of infrastructure, for example, and through innovative solutions for delivering services to customers who are not connected to an existing network).

It is important that policymakers make the right decisions when deciding how to restructure infrastructure. First they should review the evidence on the impact various types of reform have had. Alexander and Estache provide an overview of the evidence from - and lessons learned in - Latin America, one of the first regions to undertake wholesale reform of its infrastructure service providers. Among their conclusions: · The reform of utility and infrastructure industries is vital to economic growth. · Apparently well-founded but wrong decisions can damage growth prospects. · Reform should combine changes in industry structure, ownership, and (through effective regulation) behavior.

To minimize the risk of misconduct by infrastructure companies, the government should introduce: · As much competition as possible (after evaluating all tradeoffs). · Rules to limit (or eliminate) vertical and horizontal ownership, which makes it difficult to regulate company behavior. · Rules to ensure that regulators get all the information they need, and that it is timely, consistent, and accurate.

This paper - a joint product of Private Participation in Infrastructure, Private Sector Development Department, and Governance, Regulation, and Finance, World Bank Institute - is based on background notes prepared for the International Development Research Centre/Trade and Industry Policy Secretariat conference presentation, The Role of Regulatory Reform and Growth: Lessons from Latin America, Johannesburg, South Africa, September 1999. The authors may be contacted at [e-mail] or [e-mail].