Developing Best Practices for Promoting Private Sector Investment in Infrastructure

and ecological objectives, there is growing I

n our constant search for better ways of doing business so as to maximize eco nomic efficiency whilst meeting social

public and private sector interest in developing best practices. Best practices seek to define the way in which business or other ac- tivity should be undertaken in certain situa- tions. They are typically defined as best practice by a process of peer review, although that is not always the case - in some indus- tries, best practices come into being simply by being industry standard practice at any point in time.

There is some debate about whether the term best practice is appropriate. Some pre- fer the term good practice or wise practice. However, developers and their financiers who strive for an industry-based approach have largely ignored this semantic debate -

Pesisir & Lautan Volume 3, No.3, 2001 they typically advocate that nothing short of best port development and notes the often consider-

available technology is acceptable and thus cham- able difficulty that governments face when trying pion the term best practice. This is the case with (as many have done historically) to act as pri- this recent publication by the Asian Development vate sector port managers. To overcome such Bank (ADB). In this work, “best practice” is problems, he notes that most developing coun- defined as having a customer focus and a well- tries have begun to decentralize their port opera- structured regulatory environment (around infra- tions. He contrasts, for example, the Indonesian structure projects).

experience where port corporations have consid- The ADB is charged with taking a holistic erable autonomy with that of the Philippines approach to development in the Asia region. In where the authority has been retained in Manila the bullish years before the 1997 Asian financial (with a subsequent adverse impact on efficiency). crisis, the ADB, World Bank and other financiers

Privatization, is however, not the panacea that foresaw a massive demand for key infrastructure. some believe, at least in the port sector. Arnold Water supply, power, air transport, road and port notes that the leading general cargo ports in the infrastructure was considered to be a constraint world, such as Singapore, Hong Kong, and Pusan, on the development potential of most Asian coun- are public ports. However, he also notes that for tries - estimates of investment needed in East Asia bulk cargo, the largest and most efficient ports alone varied form $1,000 billion to $1,500 bil- are in private ports in Australia, Eastern Indone- lion in the mid 1990s. To meet these needs, vari- sia, Malaysia and Singapore. Such nuances are ous industry-government partnership approaches then used to define the best practice guidelines were trialled, including the well-known BOT for PSP in port development; i.e. best practice (build-operate-transfer) and BOOT (build-own- does not support the wholesale privatization of operate-transfer) approaches. It was, however, existing public ports. noted that the assignment of risks under these

The report defines just seven best practices methods often left much to be desired as they typi- in total (perhaps not surprising given the very cally burdened already weak government utili- specialized scope of the work). Importantly, the ties or required subsidy.

derivation and logic of each is clearly and care- In the wake of the Asian financial crisis, both fully defined so that potential users/adopters can the demand projections made earlier and the meth- clearly understand the context of the practice. ods by which development was being undertaken

I commend this reference to all Indonesian came under scrutiny. This publication is part of maritime authorities for its clear focus and rel-

a special series commissioned by the ADB to evance in the current economic restructuring and better inform the process of private sector par- decentralization processes. Given the importance ticipation (PSP) in infrastructure development. of ports to the Indonesian economy, the rethink- As part of the background studies undertaken, the ing of the role of government in infrastructure pro- review examined cross cutting issues such as:

vision and the conflicts that port expansion can (a) The need for reform and the role of

often induce in Indonesia’s crowded coastal zone, government,

this report has much relevance to all concerned (b) Institutional reform,

with sound coastal management. It is to be hoped (c) Strategic planning,

that the ADB will support similar guides on other (d) Legal and regulatory framework,

subjects of relevance to ICM. (e) Unbundling and introducing competition, (f) Sources of financing, and (g) Risk and risk mitigation.

Ian M Dutton

The background research for this study was Coastal Resources Center, undertaken by John Arnold, an independent ports University of Rhode Island specialist. He reviewed global experience with crmp@cbn.net.id

Pesisir & Lautan Volume 3, No.3, 2001

Charles Sheppard (Editor) (2000) Seas at the Millennium: An Environmental Evaluation, Pergamon, Amsterdam, 3 Volumes, 2352pp, ISBN 0-08-043207-7, $732.50.

Developing Best Practices for Promoting Private Sector Investment in Infrastructure