Does Private Sector Participation Improve Performance in Electricity and Water Distribution?
The authors examine the question of private versus public performance in a natural monopoly setting in electricity and water distribution, addressing the shortfalls of earlier research and arrive at fact-based conclusions that are robust globally. Using a data set of more than 1,200 utilities in 71 developing and transition economies, this study finds that privately operated utilities convincingly outperform state-run ones in operational performance and labor productivity. This book compares the change over time in performance measures for the two groups of utilities and isolates the effect of PSP from time trends and firm-specific characteristics. It accounts for ex-ante differences between state-owned enterprises that were selected for PSP and those that were not, and corrects for possible bias in the estimations induced by such differences. It distinguishes between full divestitures, partial divestitures, concessions, and lease and management contracts. The study finds no robust evidence of an increase in investment by the public or the private sectors or evidence of a change in average residential prices as a result of PSP. Given the underpricing of utility services in many developing countries, this result may reflect the economic and political difficulties of aligning tariffs with the costs of service provision.