SUSTAINING PRIVATIZATION

Abstract

This dissertation examines the factors associated with sustainable privatization of infrastructure projects. Privatization offers a way for governments to make infrastructure delivery more effective and efficient than exclusively public provision, but often the promise is fraught with peril. The three essays that constitute this dissertation seek to use empirical data and analysis to answer three selected questions regarding sustainable privatization:

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What causes the private sector to exit from infrastructure projects?

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Do Public-Private Partnerships (PPPs) provide value for money to governments?

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Does privatization lead to benign outcomes?

The first essay of this dissertation takes the broadest view, looking at cross-country, cross-sector regression analysis to unearth patterns in infrastructure privatization failures - with a view to understand as well the factors that lead to success. The second essay takes a further step from the broad overview of the first essay by looking in detail at

individual projects and examining what factors could lead to better value for money to governments. Finally, the third essay looks at the choice between asset sales and share issue privatization as two specific methods for privatization and their subsequent impact on the performance of the privatized company. The three essays thus represent a progression from survival to good health and finally to growth.

My major conclusions are:

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Project cancellation rates, though rising, are still low. Although ownership may change hands, for the most part, the private sector is staying in private infrastructure projects.

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Although trends in cancellation may not be an issue for private infrastructure projects as a whole, it is a concern in the water and sewerage sector. The high probability of cancellation and relatively low level of fresh investment in the sector suggests a declining role for the private sector in making available this essential service.

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There is value for money to governments from entering into Public-Private Partnerships in infrastructure.

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Divestment leads to significant improvement in profitability, efficiency, and real output of firms, besides providing some fiscal boost to the government. However, the impact on employment is negative.