Putting chaos in order

This is the final article on the role of infrastructure in development as postulated by the World Bank over the past ten years. The demand for infrastructure services derives from the activities of both industries and individuals, thus ensuring a flow of services of at least minimum quality and quantity is often considered by governments to be of strategic importance, since any interruption of supply usually brings citizens’ protests. However, because infrastructure investments are often in large increments, it is difficult for planners to match the availability of supply with demand at all times often leading to over or under capacity.

The imposition of user fees for the volume of some utility services consumed is not practiced in many countries because the marginal supply cost was considered negligible, congestion was absent, or technological constraints, such as the absence of water meters, prevented volume pricing. However, the increasing scarcity and supply cost of water, growing congestion as network capacity becomes fully utilised, and technical innovations in metering consumption, have made it possible and desirable to price these services like private goods. In fact, Trinidad and Tobago has moved in this direction and Governments have long indicated that universal metering of water will be introduced. The World Bank analysis of how countries measure up on infrastructure coverage compared with other measures of performance is revealing. Although coverage tends to be correlated with GDP, efficiency and effectiveness of infrastructure provision are not. Performance in water, power, telecommunications, and roads, show little relationship across a wide sample of low and middle-income countries. Moreover, there is no close correlation between a country’s efficiency of provision in one sector and its performance in another.

These findings indicate that efficiency and effectiveness of infrastructure provision derive not from general conditions of economic growth and development but from the institutional environment, which often varies across sectors in individual countries. This suggests that changes in the institutional environment can lead to improved performance, even when incomes are low, because in each sector some low-income countries perform well. The World Bank argues that where infrastructure is operated inefficiently and delivers poor service, the solution cannot be simply to tell suppliers to do more maintenance and to consult users. The weaknesses in infrastructure provision are inherent in the incentives built into current institutional and organisational arrangements, in which outputs and inputs are not closely measured, monitored, or managed, and suppliers do not depend on user satisfaction for reward. This is precisely the case in Trinidad and Tobago. It was suggested that proper incentives would make managers of utilities accountable to owners and users and  would also give managers autonomy in making decisions and responsibility for success or failure. A review of experience with infrastructure, in both the private and the public sectors, suggests that three elements are essential in creating the right incentives for efficient and responsive delivery of services. These are: management based on commercial principles, competition, and involvement of users and other stakeholders. 

Infrastructure must be conceived of as a service industry, providing goods that meet customers’ demands. It has been found that this commercial orientation contrasts sharply with the situation in most government departments and state-owned public utilities, which suffer from multiple and conflicting objectives and inadequate accounting for costs or financial risk, and which put little emphasis on revenues collected and the quality of service delivered. Managers have little motivation in such circumstances to satisfy customers or to achieve a reasonable return on assets through efficient operation and adequate maintenance. The World Bank report states that providers of infrastructure are subject to pervasive interference by political authorities, which adversely affects operational decisions on investment, pricing, labour, and technological choices. Alternatively, certain infrastructure services, such as power, water, ports, airports, and telecommunications, can be viewed as potentially commercial because these services can carry  user charges to recover the costs of provision.

In fact, almost all infrastructure, even roads and sanitation, can be operated with a business orientation. The business conditions for this are: limited and well-focused performance objectives, financial and managerial autonomy (with a hard budget constraint), and clear accountability both to customers and to providers of capital. Is this on the horizon in this country? Competition promotes efficiency and provides users with options that, in turn, make infrastructure providers more accountable. Governments in most countries have not taken advantage of the potential for competition, even in activities where a natural monopoly does not exist, such as freight transport or solid waste collection. Today competition can be used directly in more infrastructure activities because of technological changes. For instance, for the volume of some utility services consumed in telecommunications, satellite, microwave, and cellular radio transmission of telephone signals is revolutionising the industry, making the economies of scale with cable-based transmission less important and therefore open to competition.

We have been waiting for a long time for the introduction of competition in telecommunications and have gone backward in television cable transmissions in Trinidad and Tobago. In many infrastructure areas, while open competition for users in the market may yet not be feasible, there are other ways of obtaining the benefits of competition. For activities with high initial capital investment such as power plants, competing for the right to operate a monopoly can capture many of these benefits. Even where the number of operators is necessarily limited, regulation can compel them to compete against performance benchmarks. This is an immediate option for Trinidad and Tobago.

The views expressed in this column are not necessarily those of Guardian Life. You are invited to send your comments to guardianlife@ghl.co.tt