-
8/17/2019 Political environment and civil engineering work A.pdf
1/22
POLITICAL ENVIRONMENT AND CIVIL
ENGINEERING WORK – PUBLIC – PRIVATE SECTOR INVOLVEMENT
CE 3231 – Project Formulation
Ganga Samarasekara
1
-
8/17/2019 Political environment and civil engineering work A.pdf
2/22
Course Description
1. Private and Public Sector Involvement in infrastructurefunding
a) Features of Public sector involvementb) Features of Private sector involvement
2. Institutional arrangements for infrastructure provisiona) Option A – Public Provision
b) Option B – Delegate to private sector
c) Option C – Private Provision
d) Option D - Communal (supportive) arrangement, self help
2
-
8/17/2019 Political environment and civil engineering work A.pdf
3/22
Learning Outcomes
Understand the capabilities & incapabilities of the
private and public sector in providing infrastructure
Be aware of the options available for public
private sector involvement
3
-
8/17/2019 Political environment and civil engineering work A.pdf
4/22
References
World Development Report 1994, Infrastructure for
Development , Oxford University Press.
http://go.worldbank.org/PIZVDKP300
Yuzo Akastuka, Tsunaki Yoshida. 1999. Systems for
Infrastructure Development, Japan’s Experience. Japan
International Cooperation Publishing Co., Ltd.
4
http://go.worldbank.org/PIZVDKP300http://go.worldbank.org/PIZVDKP300
-
8/17/2019 Political environment and civil engineering work A.pdf
5/22
1. Private and Public Sector
Involvement in Civil Engineering work
The mechanism of funding/ management may come
through
Public sector
Private sector
5
-
8/17/2019 Political environment and civil engineering work A.pdf
6/22
Features of public sector involvement
The developer of most infrastructure projects (Table1)
Autonomous (i.e. self-government or beingindependent or full control)
Capacity to handle different stages of the
development process (Box 1) Creditworthiness
Governments are entrusted with the Adjusting of thedistribution of resources & Distribution of income (tax
revenues) – infrastructure is one way of such distribution Prioritizes the equal distribution of resources over
and above profit motives
6
-
8/17/2019 Political environment and civil engineering work A.pdf
7/22
Features of public sector involvement
Specifically participate in the provision of
- Pure public goods ( where there is neither competitionnor exclusion of use)
- Projects to provide facilities or services public in nature
and which involves a considerable investment risk- Large projects for the provision of public goods for
which the initial capital cannot be supplied by theprivate sector
- Facilities which alleviate the negative consequencescertain other public goods - Ex. Environment pollutionby private industries
7
-
8/17/2019 Political environment and civil engineering work A.pdf
8/22
Features of private sector involvement
Plays a supportive role for most infrastructure projects
Managerial skills - rapid and flexible decision making due to aclear structure of incentives (individual rewards based onperformance)
Productive efficiency- private sectors are less constrained thanpublic sector by bureaucratic or political issues regardingprocurement (i.e. acquisition) and labor practices (resulting frommotivation to make profit)
Dynamic efficiency – motivation to invest in and maintain capitalneeded to expand and introduce technological improvements
Accountability to customers – motivation and flexibility to adaptproduction to changing markets and achieve better service qualityand customer satisfactions
8
-
8/17/2019 Political environment and civil engineering work A.pdf
9/22
Public sector Vs Private Sector
Public sector is expected to provide the services at anaffordable price to everyone.
Prioritizing such social objectives may lead to
losses. Further they may lack of innovation, suffer frombureaucracy and political intervention.
Private sector has capabilities to improve efficiency,innovative skills, is more flexible and accountable to
the customers.But they may not have the capacity (financial and
operational) and do not prioritize social objectives.
9
-
8/17/2019 Political environment and civil engineering work A.pdf
10/22
Table 3: Common management
Problems10
-
8/17/2019 Political environment and civil engineering work A.pdf
11/22
Box 2 - Botswana’s Water Utility
Corporation (BWUC) Case
Supply portable water to the country’s principle urban areas
while operating a self supporting service
Autonomy – Use expatriates(foreigners) as managers onshort term contract
Low levels of water losses (25%) – Accountability ofmanagers and can afford higher salaries
Tariff control
- higher rates – demand control & no need of subsidies
– Increasing block tariff – fairness & demand control
- Increase when necessary – drought, inflation
11
-
8/17/2019 Political environment and civil engineering work A.pdf
12/22
Box 2 - Botswana’s Water Utility
Corporation (BWUC) Case
Credit management
- Monthly billing
- Thirty day settling period
- Immediate service termination for defaulting customers
& reconnection charges
- Government customers billed through Ministry of Finance
& deducted from cash allocations Present situation – deterioration of control, risk of losses
and increasing demand in a water scarce country
12
-
8/17/2019 Political environment and civil engineering work A.pdf
13/22
Institutional arrangements for
infrastructure provision
a) Option A – Public Provision
b) Option B – Delegate to private sector
c) Option C – Private Provision
d) Option D - Communal (supportive) arrangement, self help
13
-
8/17/2019 Political environment and civil engineering work A.pdf
14/22
Option A: Public Provision
Ownership and operation by public entity, public
enterprise, public authority, or government
department-owned controlled by the central,
regional, or local government Running on commercial principles and
encouraging competition can improve performance
EX: Irrigation Department
14
-
8/17/2019 Political environment and civil engineering work A.pdf
15/22
Option B: Delegate to Private Sector
Delegate the operation of infrastructure facilitiesconcessions or leases to the private sector
Basic legal framework of contract law, includingbelievable enforcement mechanism in place
Contracts clearly specify monitorable performancetargets, responsibilities of owner and operator,processes for periodic review (Especially to account forunforeseen changes in input costs), mechanics to resolvedisputes and sanctions (approval/penalty) for nonperformance
Contracts awarded by transparent selection process,preferably competitive bidding
15
-
8/17/2019 Political environment and civil engineering work A.pdf
16/22
Option B: Lease Contracts
Exclusive rights to operate facilities of the public sector
No responsibility for major investments
Contractor will retain all or part of the revenue
Level of risk to the private operator will be higher as heinvests the working capital and depends basically its return
from its operating performance
The public sector responsible for fixed investment and debt
servicing while the contractor normally must finance workingcapital and replacement of short-lived assets
Government reduces political risk of tariff setting
6-12 years contract
16
-
8/17/2019 Political environment and civil engineering work A.pdf
17/22
Option B: Lease Contracts
Franchise (rights given) or license
In ‘transportation’ area it is called ‘competitive
tendering’ for the rights to operate a particular route
Ex: Thailand introduced ‘competitive tendering’ for
the operation of certain passenger lines in 1985 and
as of 1990; it was found to have succeeded in
attracting the road users to the railway while
generating profit
Used for decades in urban water supply and
sewerage in France and Spain
17
-
8/17/2019 Political environment and civil engineering work A.pdf
18/22
Option B: Concession contracts
Incorporate all features of lease, but the contractorshave the additional responsibility for financingcertain specified replacements to fixed assets
Investment plans and implementation are subject toreview by the authority issuing the contract
The assets go back to the public owner uponcompletion of the concession
The contractor’s compensation is based on ‘tariffs’which are also determined according to agreement setout in the concession contract
Normally at least 15 years
18
-
8/17/2019 Political environment and civil engineering work A.pdf
19/22
Option B: Concession contracts - BOT
Built Operate and Transfer Private sector designs, builds and operates the
projects for and agreed period and then transfers
ownership of the facility to the government
Private sector gets the income from revenue Public sector develops the detail specifications of the
tender documents in order to ensure that (strongregulatory framework)
- Bids are comparable and fulfill the public interests
- A proposed BOT scheme is financially viable (i.e.traffic volume forecasts, possible governmentguarantees)
19
-
8/17/2019 Political environment and civil engineering work A.pdf
20/22
Option B: Concession contracts - BOT
Operational in Asian developing countries mainly in
‘power sector’ and ‘transportation sector’
Popularly used in ‘toll roads’ in many countries
(France 5500 km motorway as of 1990) Usually 15 – 30 years, ‘operate before transfer’
BOO (Build-Own-Operate) – facility is not
transferred but remains in private hands BTO (Build-Transfer-Operate) – Mainly grant basis
DBT (Design-Build-Transfer) – Where inability to
design and build
20
-
8/17/2019 Political environment and civil engineering work A.pdf
21/22
Option C : Private Provision
Used when there is a high potential for revenues
and when commercial risk and political risk are
low
Where there is no competition, regulations may benecessary
Better for activities with competition, such as
telecommunications, power, gas, railways, and ports(with appropriate tariff policies)
Less likely for waste disposal or rural roads
21
-
8/17/2019 Political environment and civil engineering work A.pdf
22/22
Option D: Communal arrangement, self help
Mobilizing labor and capital to construct small-
scale, local infrastructure – locals act as the full or
partial owners, financiers and suppliers
Selected, designed, and implemented locally-notimposed from outside
Independent from government oversight (omission)
Village feeder roads, water supply and sanitation,and canals, or small scale power generation off the
national grid
22