FT: WB calls Asian infrastructure sell-off a "horror story"

[Robert Weissman <rob@essential.org>]

Not an IMF story, but highly relevant to IMF-induced privatizations the
world over.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org

Financial Times
Tuesday July 27 1999
WORLD BANK: Doubts on infrastructure sell-off
By Peter Montagnon, Asia Editor, in London
The World Bank and other international organisations were naive about the
benefits of infrastructure privatisation, which has turned into a "horror
story" in Asia in the wake of the regional economic crisis, a senior World
Bank official has admitted.
The need to build up a proper regulatory and legal framework was overlooked
in the rush to promote private financing of infrastructure earlier in the
decade, said Jean-Michel Severino, head of the World Bank's Asia-Pacific
region.
Sorting out the mess is likely to cost crisis-hit governments sums
amounting
to several percentage points of gross domestic product because of the large
debts incurred by the projects and the contingent liabilities assumed by
the
public sector. This will add to the heavy fiscal burden created by the need
to rescue banks.
A particular problem is Indonesia where PLN, the public sector electric
utility, is engaged in contract re-negotiations with some 27 private power
contractors, because the financing assumptions in the original contracts
were
wrecked by the devaluation and slump in demand. "There will be a huge cost
for the government. There is no way the company can pay," Mr Severino said
in
an interview with the Financial Times.
A separate problem is in Pakistan where National Power of the UK and other
shareholders of the Hub power project are locked in dispute with the
government amid allegations of corruption and overpricing.
"Many deals before the crisis were characterised by an overestimate of the
level of demand. In many cases there was a high level of corruption. Also
you
had a legal dimension: the deals weren't well designed," Mr Severino said.
Moreover, the need to increase tariffs has imposed additional social
burdens
on poor communities.
Mr Severino denied the Bank had been irresponsible in promoting private
infrastructure before the crisis struck. On the contrary it had warned of
the
risk of failing to promote the right institutional background, especially
in
Indonesia, and had refused to support a couple of projects in the
Philippines. But "we could be accused of not being vocal enough," he
acknowledged.
The private sector must play a role in future infrastructure development.
But
first the old deals which have now gone sour must be sorted out and new
frameworks established for future deals involving better governance with a
proper legal support and provision established for providing foreign
exchange
cover over a long period.
To help rebuild confidence the World Bank has launched a study on the
impact
of the economic crisis on privatised infrastructure which will be
supplemented with specific country framework reports.