Regulation and Contractual Adaptation in Public Utilities: The Case of Argentina
By Daniel Artana, Fernando Navajas, Santiago Urbiztondo (01/99, IFM-115, En, Es) See also Infrastructure and Financial Markets
Summary
Since 1990 Argentina has experienced an unprecedented process of transfer of services and publicly owned firms to the private sector, both by selling assets and by contractual agreements (concessions) with or without exclusivity. In general, but not always, the sectors involved have been characterized to some degree by economies of scale and scope, which, in turn, required the direct regulation of the private firms. According to the weak reputation and institutional background of public policy in Argentina, contracts intended to be very specific about the way in which tariffs, quality, investment, exclusivity, etc., would have to evolve over time. Yet, some discretion was left to the newly created regulatory bodies to adjust those contracts according to unforeseen developments. Nevertheless, the economic context in which the initial privatizations were carried out did not allow the time to refine terms and many loopholes remained. Naturally, those unforeseen events have come to pass, and regulatory agencies have had to use their discretionary powers. In some cases, the alleged modifications in the environment have given place to renegotiations regarding the method of adjustment of tariffs, the extent of exclusivity, and the character of investment and expansion, beyond the authority of the regulatory agencies, causing the intervention of public officials.
This paper evaluates a set of contractual adjustments, renegotiations and disputes that have taken place in Argentina since 1991. The approach considers different aspects:
- whether the decisions analyzed are inside the initial contract or represent a modification of it (i.e., are outside the initial contract)
- whether they were motivated by unexpected shocks (which were very difficult or even impossible to foresee), by loopholes in the initial contracts (ambiguities) which shouldn't have existed, or just responded to a contractual failure (holdup by one of the parties) to respect the initial contract
- the actors involved in the disputes and "production" of these innovations, i.e., the regulatory agencies, the ministries involved, the legislators, the industry associations and regulated firms, the consumer representatives and advocates, etc.
- how these disputes were resolved
- the solutions, which are evaluated in three dimensions: i) the degree of respect to the letter and spirit of the existing contract; ii) their effect on static and dynamic efficiency (in terms of welfare); and iii) the transfers between users and regulated firms, on the one hand, and among different types of users, on the other hand
The authors are Director, Chief Economist and Associate Economist of "Fundacion de Investigaciones Economicas Latinoamericanas"(FIEL). The opinions presented in this paper are those of the authors and should not be interpreted as representing, conveying, or implying the official position of the Inter-American Development Bank.
Last updated: 05/08/07
