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it Historical Perspective on Private Sector in Infrastructure

Session on Private Sector Participation

Yong Hee KongPPP Resource & Research Centre, Kuala Lumpur

The views expressed here are those of the presenter and do not necessarily reflect the views or

policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they

represent.

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itPrivate Sector Participation Is Not New

• Many PSP even in ancient times - harbours, public markets, public baths

• Book 50 of Digeste (published AD 530) - existence of concession laws

• Disappeared 5th century with fall of Roman Empire

• Reappeared Middle Ages - construction of fortified towns (France)

• 16th and 17th century, sovereigns conceded public works to private investors

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itPrivate Sector Participation (continued)

• Works included riverbeds, canal constructions and concessions (Oxford Canal 1791), road paving, waste collection, public lighting, mail distribution, public transportation

• Concessions took off in 19th century - railroads, urban services

• 20th century - trend reversed due to wars. State-owned companies took over to avoid long-term contracts.

• Reversal (again) in last 15 years (Session 4.3)

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itShifts Between Public and PSP in the USA

• USA saw the see-sawing of shifts between the public and PSP. Main reasons:

Judgments of political leadersRise of environmental concernsChanging ideas concerning role of the state in

society (e.g. nationalization of electric utilities after World War II due to national security concerns)

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itUSA Roads and Streets

• Initially driven by the desire to increase the property values and road access.

• State issued land grants to private turnpike companies to ‘subsidise’ their costs in addition to the tolls collected

• Private turnpike companies flourished early 19th century

• 1930s and 1940s - States took over role, using fuel, road, etc. taxes and charged tolls

• Inner city roads mainly public-owned due to sensitivity of public to user-charged systems

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itUSA Roads and Streets (continued)

• Residential neighbourhoods - generally, private sector builds and hand over to public to maintain (except for gated communities)

• Others - privately-owned (commercial districts, malls, residential) - better control over development

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itUSA - Sewerage

• Originally, privately owned

• By 1820s, state had some control over periodic emptying of vaults or tanks

• By late 19th century, effective sewerage systems owned by municipals (80%), funded through general taxes

• Some treatment plants were contracted out for periods of time (e.g. 25 years)

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itUSA - Urban Mass Transport

• In early days, costs were recovered through user fees and increase in property values by private owners

• Electrification, technology and capital intensive investment - back to public-owned

• Rise of the automobile and fare restrictions - decline of private-ownerships

• Niche market - express bus services

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itUSA - Water Works

• Initially privately-owned and operated dominated

• By 1896, only 9 out of 50 city facilities were privately-owned

• As of 1989, 75% of USA served by public waters

• Most privately owned facilities are small, except for some suburban New Jersey areas

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itUSA - Electric Utilities

• This service has always been funded by user fees

• Mainly privately-owned, government played regulator role

• In early low-tech years, barriers to entry were low

• New legislation allows regulator to order access to transmission for new entrants (IPPs), and to buy from small existing IPPs

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itUSA - Telephones

• From the beginning till 1984, dominated by a single company (AT&T)

• Many anti-trust suits against AT&T

• Long-distance monopoly opened to competition

• Technology is the prime change driver

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itUK and France - Comparatives

• UK - Water 1945 Act amalgamated to 187 systems1973 Act reduced them to 10 regional water bodiesPrivatised through flotation on the London Stock

Exchange (LSE)Regulated by Water Services Regulation Authority

(OFWAT)

• France - Water Public-owned, private-operated contract

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itUK - Electricity

• Public-owned companies merged into 2 generating companies and floated on LSE

• IPPs allowed entry

• Government saw the need to preserve the national transmission grid - used pooling system

• Regulated by DG of Electricity Supply

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itConclusion

• The choice of public/private ownerships are shaped by various factors including: political actors, public perception, national interests/security, and environmental considerations

• Commonalities in private ownershipsLack of direct competition, capital intensiveLong tenure - incumbent advantages