Infrastructure Appraisal, Financing, Privatisation & Regulation

Faculty: Prof. V.
PGP 2004-05
VI term
3 Credits
The above course intends to discuss issues related to infrastructure
privatisation, in the global context and its relevance and application to India. The
course will cover the economic, regulatory and financing aspects of infrastructure
privatisation, and will bring in international experiences and review the Indian
efforts in this direction.
The course will be of interest to students who want to either get into
telecommunications, electric power, and transportation/logistics companies, or
institutions that provide financing for these large scale projects. The course also
provides for mind expansion!
Lectures and Case discussions.
It is also planned to arrange presentations from heads or Senior manages of
Infrastructure Financing institutions like ILFS, IDFC, ICICI and MNC banks.
Term paper/Project Work Presentation
Final Examination
The students will work in teams of 2-3 members. They are expected to
choose a particular industry (telecom, power, transport) and do an in-depth
analysis. The issues to be addressed will be :
The status of the industry in India
Government policy (policies) regarding privatisation of the industry
Analysis of projected outcome
Financing needs of the private participants in the industry
and the structuring of a financial package.
1. Infrastructure economics
This session will cover :
What is infrastructure, State vs markets in infrastructure, implication for ownership
vs structure for welfare maximization for society
Readings :
1. V. Ranganathan, "Infrastructure economics" ppt
2. V. Ranganathan, “Infrastructure economics” note
2. Market failure and government failure : Rationale for Government intervention
or abstension : This session will examine why government intervention was
considered necessary in the context of ‘market failure’, and in the present context
how this approach is reversed in the context of ‘government failure’.
Readings :
1. “The Case for Central Planning” The Economist
2. Goodman and Loveman “Does Privatization Serve the Public Interst?” Harvard
Business Review, Nov-Dec 1991
3. Saul Estrin & Davil Laidler : Introduction to Microeconomics, Chapter 31 “Taxes,
externalities and Public Goods” 4th Edition, Harvester Wheatsheaf 1995.
4. Mrinal Datta-Chaudhuri : ‘Market Failure and Government Failure’ Journal of
Economic Perspectives - Vol 4, No.3, Summer 1990 - pages 25-39.
5. Bator, FM :The Anatomy of Market Failure, Quarterly Journal of Economics, Vol 72,
6. V. Ranganathan : Failure of the Free Market (The Economic Relationale for Public
Sector), mimeograph
7. Ronald Coase : The Problems of Social Cost, Journal of Law and Economics, 2
October 1960; Summary in The Economist, Feb 23, 91, as “Of Bees and lighthouses”.
‘States and Markets : Neo-Liberalism and the Development-Policy Debate’, Edited by
Christopher Colclough and James Manor, Oxford University Press; 359 pages; Book
review in The Economist, March 14, 1992 as “Books and Arts”.
3. Rationale for Privatisation
This session will cover the why and how of privatization.
1. V. Ranganathan Theory of Privatisation - note
2. Galal, Jones, Tandon and Vogelsang, (1994) The welfare consequences
of selling public enterprises, Oxford Univ. Press, for World Bank
3. Jones, Tandon and Vogelsand (1990), Selling public enterprises: A Cost
Benefit Methodology, Cambridge, MIT Press.
4. L.K. Sharma, Railway privatization: UK’s envy, India’s Pride, ToI
5. WSJ-Europe, London Train Wreck Reflects Mixed Record of Privatization, 10/20/2000
4. Project Financing
This session will cover concepts and issues on non-recourse or limited recourse
financing for infrastructure projects.
1. Freshfields Project Finance , Feb. 1995
2. Ashoka Mody (ed.) Infrastructure Strategies in East Asia: The Untold story,
Economic Development Institute of World Bank 1997
3. Sources of Financing and political risk support
This session will cover the various sources of financing and the manner in which
commercial and political risks are covered. It will also discuss the various
instruments offered by the World Bank for risk covering.
1. ‘Sources of financing and political risk support’ – lecture handout
2. ‘Infrastructure financing: Using World Bank’s guarantee instruments’ –
World Bank, 1997.
3. Djamal Mostefai ‘Mitigating risks in power reform: A new World Bank
lending approach: Power sector reform in the Indian State of Haryana’ Private
Sector World bank, March 1998
5. Electricity restructuring and privatisation
(3 sessions)
5.1 Electricity restructuring and privatisation in UK
1. Newbery and Pollitt ‘The restructuring and Privatisation of the CEGB: was it
worth it?’ 6 March 1996, Dept. of Applied Economics, Cambridge U., UK
2. Derek Bunn ‘Experiences with re-structuring privatising and regulating the UK
electricity Industry during 1990-96. March 1996 IIMB Conference paper
3. Midttun and Thomas ‘Theoretical ambiguity and the weight of historical heritage:
a comparative study of the British and Norwegian electricity liberalization’
Energy Policy 26(3) Feb. 1998
5.2 “Electricity restructuring in U.S, UK and other developed countries” papers
from University of Cambridge,
1. Joskow, Paul ‘Competition and restructuring in the US electricity industry’ in
Designing Competitive electricity markets Hung Po Chao and Hillard Huntington
(ed), 1998, Kluwer Acd. Press
2. Peter Nevarro ‘Electric Utilities: The Argument for radical deregulation’,
Harvard Business Review Jan-Feb 1996 112-125
3. Kleindorfer, Paul ‘Ownership structure, contracting and regulation of
transmission service providers’ in ‘Regulation under increasing competition’
(ed.)M.Crew, Kluwer Acd. Press, NH, 1998
5.3 Electricity restructuring and privatisation in India
This session will cover history of policies by Ministry of Power and the restructuring
of electricity sector in Orissa, UP, Haryana, AP and Karnataka.
1. V Ranganathan : ‘Electricity Privatisation Revisited’, Energy Policy.24(9)
2. V.Ranganathan, ‘Electricity privatisation: Case of India’, Energy Policy 21(8),
August 1993
3. Summary of Consultants’ reports in UP, Haryana, and KEB restructuring.
4. Tenenbaum, Regulation by contract
5. Manish Agarwal, Tenenbaum and Ian Alexander Delhi Electricity Discoms
Telecom Privatization
(2 sessions)
Session 1: will discuss the status of telecom reforms in India with a
critique of National Telecom Policy 1994 and 1999
Session 2: will discuss the relationship between TRAI, DoT and Private
Operators, and role of Telecom Infrastructure in meeting IT needs.
Readings:M.B. Athreya, “India’s Telecommunication Policy”,
Telecommunication Policy, Vol.20, No.1, (pp. 11-22).
N. Sinha, “The political economy of India’s telecom reforms”
Telecommunication Policy, Vol.20, No.1, (pp. 23-38)
G. Anandalingam, “Technological Progress,
Industry Dynamics and Telecommunications Policy :
The Need for Further Reforms in India”,
Working Paper No.83, IIM, Bangalore, July 1996.
P.L. Smith & G. Staple, Telecommunication Sector Reforms
in Asia : Towards a New Paradigm, Wolrd Bank Discussion
Paper 232, 1994.
Privatization in transport sector
Case: East Europa Toll Road
Case: Enron: Capital and Trade Resources
Case: Financing Pakistan’s Hub Power Project
Regulation, competition and privatisation
This session will cover the role and effectiveness of the regulator in controlling
monopoly behaviour
William W. Sharkey : The Theory of Natural Monopoly,
Cambridge University Press, 1982.
Sherman (1983) “Is public utility regulation beyond hope?” in
A.L.Danielsen and D.R.Kamarschen (ed.), Current issues in
public utility economics, Lexington, MA.
Peterson H.C. (1975) An empirical test of regulatory
effects Bell Journal of Economics 6, 111-126.
Averch H and Johnson L.L (1962) “Behaviour of the firm under
regulatory constraint” American Economic Review 52, 1052-1069.
Shepherd (1984) “Contestability vs competition” American
Economic Review 74, 572-587.
Spence, M. (1983) Contestable markets and the
theory of industry structure, Journal of Economic Literature,
21, 981-90.
Vickers, John and Yarrow, George (1985) Privatization and
the natural monopolies, Public Policy Centre, London (37,
Golden square, London WIR 4AL).
Vickers and Yarrow (1988), Privatization : An Economic
Analysis, MIT Press.
“The Hidden cost of red tape” The Economist, 27th July 96
“Over regulating America” TheEconomist, 27th July 96,
pp. 17-19.
Introducing Competition into Regulated Network Industries:
from Hierarchies to Markets in Electricity, Paul L. Joskow,
MIT, Jan 1996, mineo.
12. Guest lectures and student presentations – 7 sessions. (4+3)