Institutional Prerequisites for 3Ps in Developing Countries

Submitted to

The First Seminar ofI2ED Research Team

Aung Kyaw OoPh.D. StudentSNU-TEMAP

September 12, 2006.

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Reviewed Papers:(1)Dima Jamali, American Univ. of Beirut: A public-

private partnership in the LebaneseTelecommunications Industry: Critical Successfactors and Policy Lessons; Public Worksmanagement and Policy Vol 9, No. 2.

(2)Axel Borrmann and Matthias Busse: InstitutionalPrerequisites of Economic PartnershipAgreements; Intereconomics, July/August, 2006.

(3)Axel Borrmann, Matthias Busse and SilkeNeuhaus : Institutional Qualities and the Gainsfrom Trade; HWWA Discussion Paper 341.

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Reviewed Papers: ( Cont’d)

� Werner Heinz: Public-Private Partnerships:Principles, Opportunities and Risks; Lecturegiven in AER CENTURIO INTERREG IIIConference, May 6, 2005.

� UNIDO: Building Productive Capacity for PovertyAlleviations in LDCs; The Role of Industry–Executive Summary, 2001.

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Outline

� Definition� Public-Private Partnership� Institutional Infrastructure� Past Experiences� Prerequisites between partners� PPP in developing countries� Case Study : Lebanese Telecom � Comments on Prerequisites for PPP

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Definition:

� Institution can be defined as humanly devisedconstraints that structure political, economic andsocial interactions (North, 1990).

� A PPP is an institutionalized form of cooperationof public and private actors, who on the basis oftheir own indigenous objectives, work togethertoward a joint target (Nijkamp et al., 2002).

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Public-Private Partnership

A contractual arrangement whereby, accordingto a shared ownership agreement, theresources, risks, and rewards of both the publicagency and the private company are pooled tocreate greater efficiency in the production andprovision of public or private goods.The term classifies a spectrum of possiblerelationships oriented variously to thedevelopment and dissemination of wholly publicor relatively private goods.

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Institutional Infrastructure ( UNIDO)

Policy should focus on development of public-privateconsultation and partnership mechanisms, as well asfostering clusters and networking among enterprisesboth at national and international levels. This requiresdevelopment of appropriate regulatory regimes,appraisal of existing institutional structures and firm-and branch-level diagnostic surveys for promotion of

international institutional linkages.

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Past Experiences:

� Although private-sector participation isincreasingly invoked in the context of developingcountries, the success or failure of PPP projectshas not been systematically assessed(Roseneau, 1999).

� The opportunities and challenges posed by thesenew partnering arrangements have also notbeen systematically explored, including long-term benefits to participants as well as potentialconflicts of interest and cost-shifting problems.

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Prerequisites between the Partners

� Pongsiri (2002) emphasizes the establishment ofa transparent and sound regulatoryframework as a necessary precursor toprivate-sector participation in a PPP.

� Commitment Symmetry, Common GoalSymmetry, Resource dependency, Intensivecommunication, and Converging working cultureamong others. ( Samii et al.,2002)

� Partner Selection. ( Hagen ,2002)

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Investment in Developing Countries Applying PPP

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Case Study: Lebanese Telecomm: PPP

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Implementation of PPP :1994-1999

� In 1994, two cellular operators weregranted 10-year GSM concessions under abuild, operate, and transfer (BOT)contract (with a possible extension of 2years) that entailed an escalating revenue-sharing scheme.

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Aftermath of PPP implementation

�The alleged violations primarily relate tosurpassing the 125,000 subscriber limitspecified in each contract, unpaid fees andtaxes especially for microwave links, andinsufficient geographic and networkcoverage (Anchassi, 2000, pp. 53-55). Thegovernment has even threatened tocancel the contracts and seize the twocompanies’ assets if an agreement is notreached through negotiation.

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Aftermath ( Cont’d)� However, even the international consulting firm, Booz

Allen and Hamilton, called on to mediate and interpretthe contract, concluded that there could be two legalinterpretations of the same clause. Excerpts from theirreport indeed confirm that, in certain respects, the termsof the contracts are not transparent and the impact ofsupervening law, documentation, and discussions notclear (Vance, 2000).

� Not a single coordination meeting has been heldbetween the partners since December 1998!

� GL cancelled BOT of two operators in the late 2001ahead of (3) years’ contract terms.

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Success from PPP

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Lessons Learnt from PPP

MPT found responsible for supervising the BOTcontracts that were granted to Cellis and Libancellovernight. MPT, however, was not ready for thisresponsibility . I t did not have the technical/organizational capacity to exercise adequatecontrol and supervision over the newlyestablished GSM concessions. The conflict arosethat the operators have gone beyond the scope ofthe contract, which specified a maximum subscriberbase of 250,000. The GSM operators alsointroduced a range of new services that werenot foreseen in the contracts. (A. Oueidat,Director General, personal interview, July 21, 2002)

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Issues at Hand: Between the Partners

� Conflicts of Interest-- informational confidential for proprietary reasons

� Value for Money – Contentious –Performance measurement System by Procurer (e.g. performance, pricing, feedback from users, etc…)

� Risks transfer lies at the heart of PPP--Technical, construction, revenue, operating, financial, regulatory, environmental, etc..

� Regular and intense communication between the parties

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Partnership Results ???

� This stream of literature generally indicates thatpartnerships are high-risk strategies, particularlyat the level of implementation; however, theadvantages and/or mutual benefits, whensuccessful, by far outweigh the risks involved(Hagen, 2002;Horton, 1998).

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Comments on Prerequisites for PPP

�Technical expertise ( Fields of mutualinterest).

�Organizational Capacity ( Both parties).�Foresightedness in contractual terms

( Private actor).�Proper allocation of Risks.�Legal & Regulatory scheme should be

done favoring one’s social groundings.

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Thank you.

Q & A

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