Time to establish ‘Access Regimes’ for public infrastructure

public-private_0110.jpg

The new Government has announced that it will prioritise the delivery of six infrastructure projects. The projects include the Padma Bridge, Rampal power plant, Roopur nuclear power plant, Dhaka’s metro rail project and a deep sea port in Cox’s Bazar.

These are all important projects and the Government deserves credit for making a clear statement of intent so early in its term. That said, whether these projects will be successful in meeting their purpose remains an open question.

One measure of success is of course whether the government is able to deliver the projects on time or on budget. Going by the track record of previous governments including the current AL administration, it is probably safe to assume that none of those projects will be delivered on time or on budget.

But there is more to success in infrastructure delivery than timely construction or good financial project management. The economic success of an infrastructure project, especially public infrastructure projects, greatly depends on its economic use and the level of access afforded to users of that piece of infrastructure.

In that context, it is possible to argue that a project such as the Padma Bridge will likely be more economically successful in boosting transportation links than the Rampal power plant will be in solving electricity shortages.

Why is that?

For starters, there is a significant difference between how bridges and power plants are operated in Bangladesh and the level of access provided to users.

With respect to the Padma Bridge, the government will pay a contractor to build the bridge and then everyone will use it, either for free or by paying a toll. The critical word in that sentence is ‘everyone’. Public roads are accessible to all.

The Rampal power plant, on the other hand, is a completely different story. In this case, the government will pay a contractor to build the plant, it (the Government) will then buy the power the plant will generate and distribute it through its (the government’s) national grid to different parts of the country. The Government will then sell the power to customers through its retail arm at subsidised rates, thereby making a loss.

Notice how many times the word ‘Government’ appeared in that last sentence.

The basic difference is that public roads and bridges are accessible to all, but power distribution infrastructure is only accessible to the government.

But how can that be!

How can two pieces of public infrastructure provide completely different levels of access to its users? What is the economic rationale behind that?

The answer is there is no economic rationale for it.

There is absolutely no reason why a private power producer like Summit Group cannot have access to the national grid to distribute the power it generates and sell directly to retail customers at the market rate. The government can of course charge Summit a service fee for using the national grid, same as how the government charges tolls on roads, but there is no rational argument for prohibiting access altogether.

Here is another, even more ridiculous example. There are private bus services running on public roads from Dhaka to Chittagong. But a Dhaka-Chittagong private train service on public railway tracks is not allowed.

Why do we have two sets of policies providing different levels of access to road and rail infrastructure on the same route?

The government’s lack of thought and planning this example reveals just boggles the mind. Especially, when you consider the fact that the whole point of having public infrastructure is to include users, to provide access to those who would otherwise be excluded.

The conventional argument against private ownership of critical infrastructure, such as power distribution networks – also referred to as ‘natural monopolies’ in economics jargon – is that private owners can restrict access to some users in favour of others. This can lower competition and lead to inefficient economic outcomes. Public ownership, on the other hand, can prevent such anti-competitive behaviour by providing non-discriminatory access to all users.

However, if the government itself engages in anti‑competitive behaviour by restricting user access to public infrastructure it undermines its own credibility and diminishes public confidence. And when you couple that with the fact that the government is generally pretty hopeless at providing market-based services, what you have are the seeds of government failure.

It is precisely for those reasons that a project like Rampal, which will involve government intervention at every stage of the power production and distribution process, will do little to fulfil its ultimate purpose, which is to resolve electricity shortages.

Fortunately for us, we live in a world where technology and innovation is disrupting industries and businesses more than ever. And in many cases, it is government businesses that are often the first casualties.

This is largely because for many years now private funding of research and development has given individuals and corporations the power to create new products and services that change the way we do things or live our lives. This innovation is making antiquated government rules and regulations that provide unfair advantages to government businesses obsolete.

In Bangladesh, nowhere is this more evident than in the telecommunications sector.

There was a time not too long ago when you had to wait months for a phone connection from BTTB, even after paying a bribe. Today, anyone can walk into a Grameenphone shop and get a mobile connection in half an hour.

But have we ever wondered why Grameenphone does not exclude anyone from using the monopoly infrastructure (i.e. mobile towers) it owns?

For example, Grameenphone does not restrict Banglalink from accessing its mobile towers in a way that would prevent Banglalink users from calling Grameenphone numbers. Why is that?

It is because government regulations in the telecommunications sectors require mobile companies to have access to each other’s infrastructure to benefit customers. These types of rules and regulations that focus on ensuring third-party access to natural monopoly infrastructure are known ‘Access Regimes’.

Access Regimes, by ensuring a level playing field for all users of critical infrastructure, make the issue of ownership of infrastructure simply irrelevant. It creates a win-win situation whereby it encourages private investment in critical infrastructure, while mitigating concerns about private owners restricting access to competitors.

In Bangladesh today, we have three types of natural monopolies. They are :i) natural monopolies that are publicly-owned and provide full access to all users (e.g. roads and bridges); ii) publicly-owned natural monopolies that restrict access (e.g. power, water and gas distribution), and iii) privately-owned natural monopolies that provide full access (mobile telecommunications).

The interesting question that arises from that status quo is: Which type of business provides the best service to customers?

Are you happy with the state of roads and bridges in Bangladesh? Or, are you happier with the service provided by telecommunication operators like Grameenphone, Banglalink or Airtel? And I won’t even bother asking about customer satisfaction with electricity or gas supplies. The less said there the better.

The government’s unsatisfactory performance in providing utility services is not just a question of economic efficiency; it comes with political costs too. When the government screws up, as is often the case in Bangladesh, voters become unhappy and vote politicians out of office.

When put in that context, it makes sense for politicians to minimise their headaches by handing over the responsibility of delivering utility services to private providers who are more capable of understanding and satisfying market demand.

The government could change the face of utility service industries in Bangladesh by introducing access regimes that allow private producers access to the existing distribution infrastructure, creating incentives for them to invest in those businesses and improve service delivery.

It will not cost the government a single taka to introduce those reforms. But that does not mean those reforms are costless.

Introducing such reforms will mean a loss of power and influence for bureaucrats who run government monopoly businesses, and ultimately, the politicians who run the bureaucrats.

To put it simply, Bangladeshi politicians have a choice to make.

Do they want to concentrate more power and responsibilities in their hands and constantly fail in meeting impossible voter expectations? Or, do they want to be smarter about how they govern by delegating responsibilities to the private sector, where possible, and giving themselves a realistic chance to meet voter expectations?

Bangladeshi politicians need to think a bit harder about biting off what they can chew. It’s good politics, and it’s good economics too.

Source: Bd news24

LEAVE A REPLY

Please enter your comment!
Please enter your name here