Conclusiones

There is a need to regulate a service provider to ensure that services provided reflect the adequate level and meet the desired standard or quality. Several risks are involved in the absence of a regulatory system. The main risks are:

• Excessive tariff

• Inadequate service level and quality

• Non-compliance of contractual obligations to users, government or other parties

• Low efficiency in production and in the provision of goods and services • Inadequate level of investment in the sector, and

• Frequent discontent between the parties involved.

In order to eliminate or minimise these risks, an appropriate regulatory system needs to be in place and should be considered at the planning stage of a project.

The powers to regulate are provided in the relevant legal instruments, statutory rules, concession/contract agreements, and other applicable documents.

The structure of the regulatory authority varies from one country to another and may also vary by sector within a country. There can also be various institutional arrangements with respect to regulatory authorities that may include: the concerned ministry, a special cell within the ministry, regulation by contract, and an independent regulator with discretionary powers.

Often, PPPs rely mainly on regulation by contract, particularly in the early years of PPP development. This is also a common form of regulatory arrangement in the roads sector. In such a case, a contract administrator monitors compliance with the contract agreement. Investors may often prefer such arrangements because of low discretionary powers on the part of the regulator. However, the major disadvantage of regulation by contract is that such contracts may be difficult to adjust or renegotiate, if such a necessity arises.

I. SERVICE AND OUTPUT SPECIFICATIONS

The focus of a PPP project is usually on delivering specified amount of services at defined levels and not on delivering a particular class/type of assets. For many projects, however, the assets created will have to be transferred back to the government and the assets may have very long life. As such, they should be usable

29. _{For more details on contingent liabilities on government, see Polackova, Hana (undated). Government}

Contingent Liabilities: A Hidden Risk to Fiscal Stability, World Bank, available at: http://www.worldbank.org/html/dec/Publications/Workpapers/WPS1900series/wps1989/wps1989.pdf

The recent bailouts of financial institutions and other interventions by many governments to pacify the financial sector may be an extreme case but clearly shows the extent of contingent liabilities on governments in the event of any major credit defaults.

in delivering the required amount of service much beyond the contract tenure of the project. The new assets may also require compatibility with the existing ones. In such cases, the class/type of assets may also be specified. In all cases, the preparation of details of the service/performance requirements of a project is very important.

Once the service that the implementing agency wants to provide through the project is specified, the outputs required to deliver that service have to be determined. The project has to produce those outputs in order to deliver the specified service.

There may be four types of output specifications:

• The main outputs required to deliver the specified service;

• Ancillary outputs that are not directly related to the main service (for example, a park-and-ride facility with an urban rail project or a community building facility with a power project);

• Input specifications; and

• Conditions of assets at the time of handover of the project to the government (if applicable).

As an example, the broad service specification for an urban transport project may read: to meet the travel needs of at least 50 percent passengers in a corridor by a fast and efficient mass transit system. The corresponding main output specifications may read: the design, construction, commissioning and operation of an elevated mass transit system that follows the universal design concept to provide access to all groups of users; has a capacity to carry 50,000 passengers/hour/direction at an average travel speed of 30km/hour; and is available for 16 hours everyday.

Further details on the quality aspect of each service delivery element will then have to be worked out. A common approach to specifying the quality of service outputs is to develop a matrix of key performance indicators which set the requirements for each service output. For the above project, performance indicators can be developed related to universal design of access to facilities, level of on-board loading (say, at least 40 percent passengers seated and not more than 6 standees/sq m), average waiting time at platform, average waiting time in queue to buy ticket, total ingress/egress times, ambient conditions in the vehicles, transfer arrangements to other service operators, fare collection system, etc.

Since the payment/penalty regimes of a PPP project are normally linked to service availability and its quality, the performance indicators have to be very detailed. There is, however, a problem associated with too many details. The more detailed the specification is, the closer it becomes to an input rather than an output.

Mention of any particular choice of technology may be avoided as far as possible as this may inhibit the private party to choose the most efficient technology and innovation in design. For example, rather than mentioning any particular

technology in fare collection/payment, mention may be made of an electronic fare collection system that does not require fare payment for every single trip separately.