Public Money for Private Infrastructure:

This report sets out a guidance framework for government on the provision of fiscal support for private infrastructure services, in terms of subsidies, in-kind grants, tax breaks, capital contributions, and risk guarantees. Sections consider: key objectives; other policy options; comparing the cost and accuracy of different fiscal support measures; transparency and targeting issues; and improving institutional decisionmaking processes.

Foreword

v

Abstract

vii

Acknowledgments

ix

1 Summary

1

(4)

2 Introduction

5

(2)

3 Clarifying the Objectives of Fiscal Support

7

(2)

Internalizing Externalities in Infrastructure Markets

7

(1)

Overcoming Failures in Markets for Financing Infrastructure

7

(1)

Mitigating Political-and-Regulatory Risks

8

(1)

Circumventing Political Constraints on Prices or Profits

8

(1)

Redistributing Resources to the Poor Via Infrastructure

8

(1)

4 Considering Policy Options Other Than Fiscal Support

9

(2)

5 Identifying the Instruments of Fiscal Support

11

(4)

Output-Based Cash Subsidies

11

(1)

In-Kind Grants

12

(1)

Tax Breaks

12

(1)

Capital Contributions

12

(1)

Guarantees of Risks Under the Government's Control

12

(1)

Guarantees of Risks not Under the Government's Control

13

(2)

6 Comparing the Cost of Different Instruments

15

(8)

Framework: Present Value of Expected Cash Flows

15

(1)

Output-Based Cash Subsidies

15

(1)

In-Kind Grants

16

(1)

Tax Breaks

16

(1)

Capital Contributions

16

(3)

Guarantees of Risks Not Under the Government's Control

19

(2)

Guarantees of Risks Under the Government's Control

21

(1)

Summary

22

(1)

7 Comparing the Accuracy of Different Instruments

23

(6)

Internalizing Externalities in Infrastructure Markets

23

(1)

Overcoming Failures in Markets for Financing Infrastructure

24

(1)

Mitigating Political- and-Regulatory Rrisks

25

(1)

Circumventing Political Constraints on Prices or Profits

25

(1)

Redistributing Resources to the Poor via Infrastructure

26

(3)

8 Narrowing Down the Choice by Considering Transparency and Targeting

29

(2)

9 Improving Institutions for Decisionmaking

31

(8)

Framework: Information, Incentives, and Decisions

31

(1)

Giving Responsibility to People Working on the Oobjective

32

(1)

Separating Decisionmaking from Delivery

33

(1)

Involving Those with an Interest in Minimizing Costs

34

(1)

Utilizing Decisionmaking Forums that Emphasize Tradeoffs

34

(1)

Routinely Generating Information on Costs and Benefits

35

(1)

Requiring Routine Disclosure of Information

35

(2)

Charging for Certain Types of Support

37

(1)

Ensuring Accountability for Decisions

37

(2)

10 Concluding Remarks

39

(2)

Annex: Valuing Revenue Guarantees and Variable Subsidies

41

(10)

Introduction

41

(1)

Modeling the Underlying Risk Variable

42

(1)

The Revenue Guarantee

43

(4)

The Connection Subsidy

47

(4)

References

51

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Public Money for Private Infrastructure: Deciding When to Offer Guarantees, Output-Based Subsidies, and Other Forms of Fiscal Support

Summary

Table of Contents

Supplemental Materials