Estudios Palacios Lleras

Sustainable privatization in Infrastructure: The Role of Legal and Regulatory Institutions

Chapter 1: Sustainable Privatization in Infrastructure: The Role of Legal and Regulatory Institutions[i]

Janusz A. Ordover and Evamaría Uribe

The privatization of public infrastructure services in Latin America and the Caribbean has proceeded rapidly over the past decade. Although further privatization may appear inevitable and the trend irreversible, governments will continue to pursue this policy if the results are in the broad public interest. The participation in the privatization process of private capital –financial, physical or managerial- requires certainty and continuity. Accordingly, the rules of privatization must be clearly defined. Governments and private parties must achieve a balance to minimize the risks stemming from continued state involvement in public infrastructure, while at the same time assuring that the privatized entities do not exert undue market power to the detriment of consumers and the economy as a whole, compromising the initial objectives of privatization.

The privatization of infrastructure and public services has required the assistance of international investors and lending institutions to promote an enabling environment. Latin American policymakers have realized that legal, institutional and economic measures are needed to sustain financing.

Infrastructure privatization raises unique challenges beyond those generally encountered in other sectors. For infrastructure privatization to be successful, effective protection is needed of the interests of all the stakeholders –government, investors and the public.  A clear legal framework that assures property and other rights of all the stakeholders, backed by independent regulatory and legal institutions, is essential to the success of privatization.

[i] Federico Basañes, Evamaría Uribe, Robert Willig, Can privatization deliver? Infrastructure for Latin America (Washington D.C., Inter-American Development Bank, 1999), Part 1, Chapter 1.