Rui Cunha Marques

Risks, Contracts and Private Sector Participation in Infrastructure

This article examines how risk is reflected in infrastructure regulatory contracts, using examples from water utilities to illustrate key points. Partnerships between public and private sectors in capital intensive network services require risks to be assigned to the contractual party that is better able to mitigate them or to bear them. After identifying risks that must be addressed in infrastructure contracts, their classification, allocation, and impact are presented along with the measures to minimize risks. We analyze two contracts in the water sector in Portugal. One arrangement corresponds to a public-private partnership (PPP) of purely contractual type (concession arrangement) and the other to an institutionalized PPP (mixed company). We conclude that risk is a key issue in contracts with the private sector: an appropriate allocation of risks is a necessary condition for successful contracts.

Designing performance incentives, an international benchmark study in the water sector

Cross-country comparisons avoid the unsteady equilibrium in which regulators have to balance between economies of scale and a sufficient number of remaining comparable utilities. By the use of data envelopment analysis, we compare the efficiency of the drinking water sector in the Netherlands, England and Wales, Australia, Portugal and Belgium. After introducing a procedure to measure the homogeneity of an industry, robust order-m partial frontiers are used to detect outlying observations. By applying bootstrapping algorithms, bias-corrected first and second stage results are estimated. Our results suggest that incentive regulation in the sense of regulatory and benchmark incentive schemes have a significant positive effect on efficiency. By suitably adapting the conditional efficiency measures of Daraio and Simar (Advanced robust and nonparametric methods in efficiency analysis. Springer, New York 2007) to the bias corrected estimates of Simar and Wilson (Manage Sci, 44(1): 49–61, 1998), we incorporate environmental variables directly into the efficiency estimates. We firstly equalize the social, physical and institutional environment, and secondly, deduce the effect of incentive schemes on utilities as they would work under similar conditions. The analysis demonstrates that in absence of clear and structural incentives the average efficiency of the utilities falls in comparison with utilities which are encouraged by incentives.

The influence of the operational environment on the efficiency of water utilities.

Adjusting for the operational environment in studies of performance measurement is very important, otherwise the analysis may lead to unrealistic scores, especially when its influence on costs is high, such as in the water utilities. In this paper, we study the influence of exogenous variables on the water utilities performance by applying conditional efficiency measures based on the order-m method and its probabilistic formulation. We use a sample of 66 water utilities operating between 2002 and 2008, representing about 70% of the Portuguese population. Our research suggests that inefficiency of Portuguese water utilities is substantial for some utilities: several exogenous variables might influence it considerably. For example, regulation has a positive influence on efficiency but when drinking water supply and wastewater services are provided by the same utility or when the wholesale and retail activities are provided together, the performance is lower. The effect of ownership is inconclusive and the variables residential customers, water source, peak factor, and density of customers have a mixed influence on performance which varies according to their scores.

Influence of regulation on the productivity of waste utilities. What can we learn with the Portuguese experience

This paper examines the merits and the perverse effects of quality of service regulation in the performance of urban waste services when implemented alone and compares the performance of different economic regulatory methods. By means of a productivity analysis, we investigate the influence of a five-year period of regulation on the performance of Portuguese urban waste utilities using an unbalanced panel data for the period 2001-2008. Different non-parametric methods were applied to estimate the productivity change, all leading to similar outcomes. We observed a tendency of productivity decline in the urban waste utilities and concluded that in spite of the unequivocal improvements in the quality of service induced by sunshine regulation, more should be done as far as economic regulation is concerned. We also found that the use of sunshine regulation together with low incentive economic regulatory methods is not positive, leading to overinvestment rather than to value for money.

Regulation of Water and Wastewater Services: An International Comparison

This book, published in collaboration with ERSAR, presents a unique account of governance and regulatory methods used by different countries, states and municipalities that will help regulators and governments all over the world to improve their regulatory approaches. It is the first book to compile such an amount of data about regulatory processes of a wide number of countries from the five continents. It discusses how the characteristics of water and wastewater services call for regulation and how different countries apply distinct regulatory methods. By showing 18 country case-studies, the book offers an interesting perspective as the regulatory models adopted vary immensely depending on geographical location, nature and strength of institutions and governments, political ideology, features and level of development of the countries. In addition, it provides examples of best practices that may be important for policy-makers to enhance the regulatory processes adopted in each country. It looks closely at rules imposed by state and local governments concerning regulatory issues and how they are being applied. Regulation of Water and Wastewater Services covers the fundamental and practical concepts and issues regarding the regulation of water and wastewater services. It describes and compares the regulatory methods adopted in several countries and provides a global overview on regulation. There is detailed coverage of topics such as quality of service regulation, economic regulation and public service obligations. This book is suitable for regulators, academic researchers and students, consultants, operators and managers, policy-makers and other stakeholders. ISBN: 9781843393412 (Print) ISBN: 9781780401492 (eBook)

Nonparametric Benchmarking of Japanese Water Utilities: Institutional and Environmental Factors Affecting Efficiency

AbstractAlthough the Japanese water sector is economically and socially important, few empirical studies are available to help analysts and policy-makers understand the performance patterns in the industry. This study applies data envelopment analysis to 5,538 observations of 1,144 utilities that supplied drinking water between 2004 and 2007. With a comprehensive census of utilities, the present study controls for many factors affecting efficiency: region, prefecture, ownership/governance, water source, vertical integration (purchased or produced alone), water or integrated system, production, treatment, transport and distribution of water), peak factor, per capita consumption, customer density, water losses, monthly water charge, outsourcing, subsidies, gross prefecture product, and time. Thus, this study derives comprehensive conclusions regarding efficiency patterns in Japan. The analysis finds that the average level of inefficiency (weighted by volume) is 57% in the constant return to scale model, but...

Performance and congestion analysis of the portuguese hospital services

The health care services have been characterized by a growing demand by the citizens leading to the need of more and more resources. Population aging, new pathologies, drugs, as well as new treatments are some of the major factors for this. However, in hospitals, for example, consumption of a large number of inputs has not frequently corresponded to the production of the same or more proportion of outputs. Sometimes, the outputs even decline with the increase of inputs due to the influence of the congestion effect on efficiency. The heavy burden of the health sector on the state budget brings about the interest of research over its efficiency. This paper aims to assess the performance of the Portuguese hospitals and particularly the contribution of the congestion effect. We use the non-parametric technique of data envelopment analysis for this purpose and a double-bootstrap procedure to take into account the influence of operational environment on efficiency. Afterwards, by comparing three different approaches, we determine the importance of congestion in efficiency measurement and discuss its computation methodologically. The results suggest significant levels of inefficiency in 68 major Portuguese hospitals for the year 2005 and more than half of them were found to be congested.

Capturing the Environment: A Metafrontier Approach to the Drinking Water Sector

Environmental factors add complexity to the comparison between specific activities or entire entities. Decision making units with an inferior performance are tempted to invoke that their organization is different from the others in the data set. By reinterpreting and extending the metafrontier literature, we propose an all-embracing concept to fully capture the operational environment. We suggest the ‘Group Specific Technical Efficiency’ as a new measure to assess the overall efficiency of a utility while allowing for environmental differences. A real-world example of drinking water utilies out of 5 different countries illustrates the concept.

Incentive regulation and performance measurement of the Portuguese solid waste management services

Measuring the performance of solid waste management services usually uncovers very high potential for gains in efficiency and productivity. This circumstance occurs, naturally, due to the fact that these services are outside the market and because they are subjected to various market failures in their organizational framework. The aim of this study was to examine the Portuguese regulatory model and to measure the performance of the Portuguese solid waste management services in order to identify the major reforms carried out and their outcomes. As a first objective, the sunshine regulatory approach adopted in Portugal, in which performance comparison and its public discussion are the main tools, was investigated. The second objective was to compute the efficiency of the Portuguese solid waste management services by means of the non-parametric technique of data envelopment analysis (DEA), evaluating the Portuguese regulatory model and the existing market structure, as well as the influence of the operational environment on efficiency. The benchmarking frontier technique of DEA is particularly useful in the efficiency measurement of public utilities, in which knowledge of the production function is relatively scarce. Several DEA models were used and they all depicted significant inefficiency. The study also proved that efficiency did not depend on ownership (public or private) and that there was no difference in efficiency between the players, irrespective of whether they were regulated or not.

Computing economies of vertical integration, economies of scope and economies of scale using partial frontier nonparametric methods

So far, in the nonparametric literature only full frontier nonparametric methods have been applied to search for economies of scope and scale, particularly the data envelopment analysis method (DEA). However, these methods present some drawbacks that might lead to biased results. This paper proposes a methodology based on more robust partial frontier nonparametric methods to look for scope and scale economies. Through this methodology it is possible to assess the robustness of these economies, and in particular to assess the influence that extreme data or outliers might have on them. The influence of the imposition of convexity on the production set of firms was also investigated. This methodology was applied to the water utilities that operated in Portugal between 2002 and 2008. There is evidence of economies of vertical integration and economies of scale in drinking water supply utilities and in water and wastewater utilities operating mainly in the retail segment. Economies of scale were found in water and wastewater utilities operating exclusively in the wholesale, and in some of these utilities diseconomies of scope were also found. The proposed methodology also allowed us to conclude that the existence of some smaller utilities makes the minimum optimal scales go down.