'Lack of fairness, transparency may lead to favoritism'

JAKARTA (JP): Pil-Gon Rhee, vice chairman of South Korea's Samsung Corp., stressed the need for transparency and fairness in the selection of private infrastructure developers and investors; otherwise, accusations of political favoritism are unavoidable.

"Some of the private infrastructure projects now underway in the region have been accused of being connected with political favoritism, because the selection criteria were ambiguous," Rhee told an international conference on infrastructure yesterday.

Rhee suggested that governments announce ahead of time well- defined and detailed criteria for qualification of bidders and bid evaluation.

Transparency was cited by the participants at the World Bank international seminar as one of the prerequisites to attract private investors to the development of infrastructures.

The Korean businessmen said that legal and regulatory frameworks conducive to private infrastructure participation should also be firmly established and effectively adhered to.

"The public sector should make deliberate efforts to build and maintain the reputation of rigorously honoring the agreed contractual terms," he said.

Rhee also cited four other requirements to induce greater participation of private investors in infrastructure development: Enactment of a special legal regime governing private infrastructure participation, establishment of a neutral regulatory agency, improved and speedy interministerial coordination and use of an independent third-party evaluation mechanism.

He suggested that given the long-term uncertainties and risks involved in infrastructure investment, the multilateral agencies, such as the World Bank and Asian Development Bank, need to review their current support programs to help mitigate political risks.

Philippine Secretary of Finance Roberto F. De Ocampo, who also addressed the conference, shared Rhee's views.

Recounting the good lessons from his country's experiences in inducing private investments into infrastructure development, De Ocampo stressed the imperative for developing a sector plan and a regulatory framework as well as ground rules for risk sharing.

De Ocampo also cited the need for mobilizing affordable external finance and for contracting some of the processes, including financial and legal negotiations.

Rhee's and De Ocampo's views are also central in the recommendations carried by the latest edition of the World Bank report Private Sector, Infrastructure, which was discussed during the three-day conference on the public-private interface in East Asian infrastructure.

The World Bank suggests, on the basis of its experiences in the developed and developing countries, that governments set up a conducive and credible policy and institutional frameworks.

Though the bank acknowledged the variety in country and sector-specific conditions, it suggested two basic components of the policy framework.

The first component relates to policies and actions necessary to promote overall economic growth and private sector development in all economic sectors.

The second relates to policies and actions specifically concerning infrastructure.

The first component, the World Bank suggests, calls for the maintenance of a stable macroeconomic environment and a transparent, robust investment environment.

The second basic component requires four measures: The clarification of government objectives and strategy for private participation, putting in place an explicit framework and mechanism for unbundling, mitigating and managing risks, reduction of transaction costs through transparent and competitive mechanisms and streamlined public decisionmaking and the development of local capital markets and creation of mechanisms to facilitate long-term debts. (vin)