Beginning in the late 1980s, developing countries, with Latin American and Caribbean countries taking the lead, began allowing significant private sector participation in the provision of infrastructure services by transferring parts of utilities’ operation from government management and control to that of private enterprises. In addition to attempting to improve efficiency by better management, one of the leading reason behind the strategy to bring private sector participation in infrastructure was the urgent need for sizable investment to improve performance and coverage.
Given the scarcity of public funds for investments and the competing needs in the social sectors, most countries opted for the transfer of the provision of infrastructure services to the private sector. Private sector participation can and has been accomplished with significant success in a variety of forms, ranging from management contracts, to concessions and to full privatizations. Practically, at least in Latin America and the Caribbean region, seldom a call to the private sector to take over and operate an infrastructure service has had no taker.
In sectors such as telecommunications, and to some extent in electricity generation and gas (the often pioneer sectors), private sector participation was accomplished by outright privatization-divestiture, accompanied by structural reforms of market structure and of the regulatory framework. However, in many cases, particularly for the transport (ports, airports, roads and railroads), water and sewage sectors, and some segments of the electricity sector, legal, political and constitutional restraints hindered or made very difficult the outright sale of public infrastructure utilities to private parties, who quite often were foreign companies, making the issue even more complicated. Many countries, therefore, resorted to innovative strategies for introducing private sector participation in the provision of public infrastructure services when the state could not or did not want to transfer ownership of public assets to private agents.
Amongst the alternatives to outright privatization, concessions to the private sector for the right to operate the service for a limited length of time have emerged as the salient mode. A concession is the right to use the assets of a former state company for a limited period of time (usually 20 to 30 years), being fully responsible for all investments and having to secure a number of targets specified in the contract. At the end of the concession, all the assets go back to the government, so de facto the concession’s only asset, in contrast to privatization, is the right to the cash-flow of the users’ receipts from the service. Throughout the last 15 years, concessions have been used in 67% of the private sector participation cases worldwide, all sectors included.
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Renegotiation of Concession Contracts in Latin America
