KEY INFRASTRUCTURE CONCEPTS. Dr. Allen Eisendrath Office of Infrastructure & Engineering, USAID/Washington

Transcription

1 KEY INFRASTRUCTURE CONCEPTS Dr. Allen Eisendrath Office of Infrastructure & Engineering, USAID/Washington 1

2 SOME THINK OF INFRASTRUCTURE AS JUST THE PHYSICAL FACLITIES THAT PROVIDE SERVICE 2

3 INFRASTRUCTURE IS MORE THAN JUST PIPES, WIRES, AND CONCRETE Infrastructure is not just physical facilities; it is often a set of businesses that own, operate, renew and expand infrastructure facilities; Most infrastructure businesses have 3 main building blocks: physical assets, businesses that operate and maintain the system; enabling environment 3

4 Infrastructure Reform means: (1) establishing an appropriate sector structure; (2) building an effective legal & regulatory environment; (3) for public infrastructure, establishing a framework for good corporate governance, and (4) in some cases, building a rational approach to sector financing. 4

5 KEY FEATURES OF INFRASTRUCTURE Enabling Environment Corporate Governance Laws Regulation Infrastructure Facilities Customers Public Funding Infrastructure Business & Institutions Capital Markets 5

6 KEY FEATURES OF INFRASTRUCTURE Typical Infrastructure System: Infrastructure is often a network business; it enjoys economies of scale, and it often has monopoly segments. Water Rights Market Bulk - Wholesale Market Retail Market Surface Water Supply Pumps Groundwater & stream bed supply Storage Pumps Water Treatment Individual Groundwater Wells Distribution Network Elevated service reservoirs W A T E R U S E R S Septic Tanks Sewerage Drains Water Resource Management Bulk Water Supply Distribution Services Sanitation Services 6

7 THE TYPICAL SITUATION WITH UNREFORMED INFRASTRUCTURE Cycle of Physical & Commercial Decline Declining revenues Unpaid bills Inability to access financing Declining credit rating and investment 7

8 INFRASTRUCTURE IN DEVELOPING COUNTRIES HAS A COMPLEX WIRING DIAGRAM INFRASTRUCTURE BEFORE REFORM SHAREHOLDERS POLITICIANS BOARD REGULATORS UN- ORGANIZED CRIME ORGANIZED CRIME THE INFRASTRUCTURE BUSINESS CUSTOMERS 8

9 INFRASTRUCTURE IN DEVELOPING COUNTRIES HAS A COMPLEX WIRING DIAGRAM INFRASTRUCTURE AFTER REFORM SHAREHOLDERS POLITICIANS BOARD REGULATORS THE INFRASTRUCTURE BUSINESS CUSTOMERS 9

10 INFRASTRUCTURE COSTS INCLUDE OPEX AND CAPEX OPERATING COSTS Salaries Energy Cost of goods sold (fuel, bulk water) Maintenance IT + CAPITAL COSTS Debt (interest and principal) Equity (dividends and principal) Replacing worn out facilities Buying new facilities = Cost of the Infrastructure Business There is capital cost to the business even if donors build the facilities on a grant basis!!! 10

11 CAPITAL IS JUST ONE PART OF THE INFRASTRUCTURE BUSINESS! Defunct wastewater treatment plant, Armenia Broken secondary pipe, Romania Corroded pipes, chlorination station, Armenia Indonesian illegal water connections 11

12 Is low cost recovery a cause or a symptom of a troubled utility? What Happens If Cost Recovery is Low? 12

13 EXAMPLE OF THE KABUL ELECTRICITY SYSTEM 13

14 THE KABUL ELECTRICITY UTILITY S CASH LOSSES WILL GROW DRAMATICALLY Kabul Utility DABM Gross Profit (50.0) Million USD (100.0) (150.0) (200.0) (250.0) ICE Secretariat and AEIC And this doesn t include the huge underspend on maintenance & salaries! Base Case 14

15 CAN LAGOS STATE WATER CORP PAY FOR MAINTENANCE & REPLACEMENT OF ITS CAPITAL ASSETS? 1997 $ million 1998 $ million Comments Water Sales $3.3 $5.9 Cash basis accounting Risk of incomplete reporting State subvention $5.7 $6.1 No reconciliation Total revenues $9.0 $ % Total expenses $16.5 $ % Deficit of the year ($7.5) ($18.0) + 146% Deficit/Sales ~2 times ~3 times Source: Arthur Andersen 15

16 A Healthy Utility: Defining Bankability WHAT IS A BANKABLE UTILITY? A UTILITY THAT: has cash to pay all its costs, including it s actual operational & capital costs has cost-reflective tariffs & a mechanism that regularly sets these has control over its management and finances can deal with the financial risks that are bound to happen 16

17 Social Issue 1: The Poor Can t Pay! (But they already do!) 700 Naira/m 3 Unit Price of Water in Lagos 600 LSWC Rate (N 50/m 3 ) Tankers Illegal Connections Open Wells Source: Deloitte Touche Tohmatsu Pushcarts 17

18 Social Issue 2: Subsidies & Fiscal Space In 2008, the cost of fuel subsidies was five times the amount that Government of Pakistan spent on health & education combined! What is the likely impact of this on human capital development? What is the likely impact of this on the insurgency? Armed members of a private militia, known locally as a lashkar, celebrate after a raid in Matta. Photo by AP. 18

19 KEY CONCEPTS Infrastructure is often a set of businesses that own and operate physical assets. These businesses enjoy economies of scale and have monopoly characteristics even in conflict environments; The enabling environment is critically important even in conflict environments; Cost recovery (bankability) requires recovering both operating and capital costs even in conflict environments; Reform involves fixing the corporate form and governance, getting the sector structure and enabling environment right. 19