accompanied by an average of around 200 million US dollars less private investment in the sector. The author speculates that private investors prefer situations where governments guarantee a certain return, rather than where they must compete for uncertain profit.<sup>56</sup> This explanation would be consistent with the complex impact of model reforms on prices.

**IPPs have been a popular way for government to secure new generation investments, but investors face high risks.** Woodhouse (2006) attributes the risks to sector characteristics that lead to a history of politicization. He notes an intrinsic tension between a government’s short-term goal to secure high-quality investment by promising stable, favorable terms for IPPs, versus a longer-term goal to introduce more competition in the sector. The single-buyer system in particular has allowed countries to “maximize returns from individual IPPs or small sets of projects, but only with extensive risk assumption by the host government or consumers that would not be sustainable if replicated on a large scale” (p.216). An implication of this finding is that renegotiation of IPPs may be necessary for further market reforms in some cases. In the Philippines, for example, a review of 35 ‘emergency’ IPPs, mandated by the 2001 Electric Power Industry Reform Act, led to renegotiation of 20 as a vital step to further reforms (Dubash 2002).

**IPPs may succeed when accompanied by transparency, and positive public sentiment toward private enterprise.** From a survey of 34 IPPs in 13 low- to middle-income countries from 1995 to 2004, Woodhouse (2006) finds that transparent selection and allocation of projects, and competitive bidding, have been among the most important factors for success. In contrast, ‘risk engineering’ tools to bind government officials’ behaviors often performed poorly due to ineffective institutions. Yet Urpelainen & Yang (2016) find that even in countries with few constraints on executive power, legislation to enable introduction of IPPs and other market reforms is highly effective at attracting private investment from domestic and foreign sources.<sup>57</sup> This contrasts with conventional wisdom that constraints on executive power are important for credible commitments to attract private investors, especially from overseas. Consistent with other findings of donor influence (Section 3.1), Zelner & others (2009: 387) observe that countries with higher multilateral debt renegotiated fewer IPP contracts. Moreover, governments renegotiated more IPPs during periods when there is negative public sentiment toward private enterprise.<sup>58</sup> Public perceptions clearly need to be closely monitored and understood.

> 56 Erdogdu (2014b: 31) suggests “industrial consumers prefer guaranteed, subsidized prices in a closed market to the possibility of future reduced prices in a liberal market”. This would explain why model reforms have been less in countries where industry’s share of GDP is larger.

> 57 Urpelainen & Yang (2016) cite Thailand as an example of a country that has become more authoritarian over the past two decades with no observable effect on investment in new capacity. However, their conclusion should be read with care since passage of legislation is a one-off event, whereas the government’s track record over time may be equally as important if not more so.

> 58 Zelner & others (2009) did not find substantially different results for alternative specifications with democracy, or political ideology. Among 94 countries that had liberalized the power sector by 2001, eleven faced domestic opposition “sufficient to prevent any multinational private investor from entering the electricity generation industry”, while in 31 other countries private investors entered IPP agreements that subsequently underwent renegotiation (p.388).

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