Operational distress directly affects a company's ability to provide the goods or services it had undertaken to produce. Just as it occurs with the other categories, it is important to draw a distinction between internal and external causes, on the grounds that this differentiation affects the allocation of responsibilities and such potential costs as may arise out of decreases in the service quality or availability.
Table 36: Operational Distress - Categorization per Origin and Type
| Origin | Type | Categorization |
| Internal | Chronic | Sustained and constant quality deterioration or failure to attain coverage goals previously agreed upon |
| Crisis | Failure of any of the system's critical elements - attributable to the operation or lack of maintenance - which may materially affect the service | |
| External | Natural | External event - act of God - which affects service provision or the company's physical assets |
| Political | Situations of social or political turmoil affecting service provision or the company's assets |
Internal distress is originated on the basis of the company's actions or omissions, as a result of a deficient management or an improper asset management. In this context, it is worth drawing a distinction between situations of gradual and constant deterioration (chronic) and such situations as arise as a sudden crisis in relation to a particular event.
Within the category of situations classified as chronic situations there are those situations in which, as a result of mismanagement or of the lack of investment there is a quality drop in the service provided by the company. The permanent follow up and monitoring of service quality indicators constitute the best mechanism which may be applied for an early detection of this type of problems. Given the technological features of the infrastructure sectors - the long life of assets, high capital intensity- there may be a significant delay between management deterioration or the lack of investment and the open disclosure of the problems affecting the service.
A good understanding of each sector's technology and an information system which may make it possible to carry out an efficient monitoring activity are key factors to prevent these situations from reaching irreversible deterioration levels. BOX 50 shows an example for the electric power sector of different service quality indicators and it explains the way in which each of those indicators provides clues about different types of problems faced by company management.
BOX 50: Electric Power Distribution Management Indicators
| In the electric power distribution sector there are two traditional standards to assess the technical service quality: average interruption duration and average interruption frequency. If combined, both standards amount to the total interruption time, which is an added indicator of the quality of the distribution technical service because it measures how much time a year any given user or group of users has been deprived of accessing the service. However, partial indicators are useful to identify different types of problems related to the system management. High average interruption time figures indicate failures in management because they state that once a failure has actually occurred it takes a long time to repair it. In addition, high interruption frequency figures indicate lack of investment in, or maintenance of, the network. Given the technological features - long-lasting assets - a drop in the interruptions duration ratio is an indicator of mismanagement and it may be considered a "leading indicator" of infrastructure problems. This would make it possible to take early actions to prevent from reaching irreversible deterioration levels. |
Acute operational crisis situations correspond with failures in the management of, or with problems with, key assets within the company (any transformer blowout, lines falls, problems in any treatment plant, bridge deterioration, etc). Given the very nature of these types of events, it is harder to prevent and/or avoid them, though they generally last shorter in time.
External operational distress situations may be categorized on the basis of their origin; consequently, they may be naturally or politically driven. Naturally driven cases are generally related to acts of God and force majeure events, such as earthquakes, hurricanes, and other natural catastrophes.
Social or political crises may also affect the service. In specific cases, such as the cases of terrorist attacks against infrastructure works (for example, Sendero Luminoso's target in Peru was the electric power system - high-voltage towers). In some cases, even though the sector's assets may not be the specific target, they may still be affected either directly or indirectly as a result of social or political conflicts. These cases may affect the assets or they may alternatively have merely commercial effects, as it would be the case upon a sharp decrease in the service's collection ability associated to political and social crisis.
The common element to both non-chronic internal and external distress, irrespective of the different responsibilities involved, is the need to take prompt measures to contain and restrict the adverse effects of the service crisis.
The Federal Emergency Management Agency (FEMA) of the United States, set up to deal with disasters adopted a two-goal strategy. These two goals consisted in protecting both people and infrastructure from any disasters and in minimizing the costs of response and recovery upon occurrence of a disaster. FEMA estimates that for each dollar spent in disasters prevention, two dollars are saved in response to emergencies. In principle, a strategy oriented to minimize the impact of operational distress situations should act in four different areas177:
Table 37: Strategy to Minimize Catastrophe Risks
| Action | Example |
| Altering the risk - | Cloud sowing during droughts |
| Preventing the risk - | Construction of dams to prevent floods. |
| Avoiding the risk - | Relocation of infrastructure and people in lower-risk areas |
| Adapting to the risk - | Imposition of design rules and earthquake or hurricane-proof constructions |
In the context of the PPP, this strategy involves the need to take actions at all the project development stages. In order to take all preventive measures, actions must be taken at the stages of contract design, award method, monitoring of the construction and operation, and maintenance. Upon occurrence of an operational distress situation, all the actions to be taken must be focused on policies oriented to minimize the impact on people and the intervention cost. To that effect, it is necessary to have suitable institutional and economic instruments, which may make it possible to act quickly and effectively.
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177 World Development Report 2000/2001, Chapter 9. Oxford: Oxford University Press. World Bank, 2001.