While these financing dimensions of the additional role of government in PPP are quite essential, they are relatively simple in relation to regulation and monitoring responsibilities, the second main role of the public sector in PPP. Normally the government that perceives the need for an infrastructure project and determines whether it is suitable for PPPs. In some countries, special units are prepared to package and preparare the PPPs on behalf of the government.18 The specifics, of course, will depend partly on the political and economic situation facing the country, as well as the characteristics of the project itself. It might be necessary to enact specific legislation, or even to change the constitution, to enable the financing to proceed. (Many national constitutions prohibit private ownership or control of essential public facilities.) In addition, since PPPs are critically dependent on contractual obligations between many parties to the deal, it might be necessary to enact legislation specific to the project or sector. It also may require clarifying laws relating to the recognition and enforcement of contractual obligations and security rights, or the laws relating to nationalization, expropriation, and arbitration. The regulatory regime within which the project is to function should also be clearly defined.
Maybe the most underestimated institutional dimension around PPP transactions is the set up of the institutional capacity to monitor the contract. The standard suggestion is to create an independent regulator who will monitor the commitments made by all parties to the PPP and is accountable to all these parties, including the users, for the effectiveness with which it delivers this regulation function. This academic recommendation has not been overwhelmingly endorsed in the transport sector. While independent regulatory institutions are quite a common match for PPP arrangements in utilities services such as electricity, telecommunications or water services, they are not as common for the transport sector. Indeed, few countries have created a transport regulator that monitors all PPP across subsectors. Most are in Latin America and even then, in most cases, land transport and waterborne transport are generally handled by different agencies.
In most cases, the PPPs are regulated by a public sector agency specialized in a specific sector. Road Agencies supervise both public and private roads and often have a responsibility to monitor transactions associated with secondary roads. Ports, airports or railways PPPs are generally controlled by a specialized agency. Ports authorities generally enjoy that mandate for ports but are generally assigned a single or a set of ports. They are responsible for the management of the PPPs in the port under their mandate. In countries with multiple ports, a national agency often supervises all the local port authorities and in some instances may manage the award of the concessions in each port even though their monitoring is assigned to the local port authorities. Similar arrangements are observed for airports. A single authority is generally responsible for the award of airport concessions but in countries with multiple airports, local supervision of compliance with the contractual commitments is not uncommon. Rail is simpler. Concessions are generally regional and in most country, they cover the whole country. The most common institutional arrangement in that case is a single regulator for all rail concessions. In large countries with significant passenger and in particular suburban transport as in Argentina or Brazil for instance, the passenger and freight rail services are unbundled and the management and key PPP decisions of passenger rail services are often assigned to the cities or municipalities served by these suburban operators.
The main advantage of a national model of regulation of all transport infrastructures is it ensures consistency in the handling of sectors across the country. It also allows the countries with limited human capital to do the most with the scarce skills available. The main disadvantage is the government loses sometimes much needed flexibility to deal with sector or regional specificities. There is no clear best practice benchmark. For the road sector, after a number of failed attempts, road agencies are starting to deliver in terms of maintenance as well as in terms of investment choice and implementation. The Port sector is starting to realize it needs to look for a new model as the nature of the business is changing. 19 The main challenge for the airport sector has been the difficulties encountered in addressing jointly military and civilian needs in airports. It is still adjusting to the fast growing traffic and it is likely that this sector will have to rethink its model as well once the market will have settled. Overall, an unbundled model also creates some problems in terms of the coordination of the subsector's policies. One of the reasons why some many countries have a hard time supporting effectively the development of effective multi-modalism is the atomization of the policy design and regulation of transport activities in the assignment of government responsibilities. The main solution to this coordination problem is to rely on a competition agency to address any concern of inconsistent regulatory decisions. This option is however limited to many countries who do not have a competition agency or the necessary skills in those agencies.
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18 Dutz et al (2006)
19 Estache and Trujillo (20007)