future, low-cost distributed generation systems may allow market reforms to become more feasible for small countries.

**Lower-income countries have less resources and fewer qualified candidates to fill technical positions in regulatory agencies and perform regulatory functions.** In Domah & others’ (2002) study, regulators in the median developing country had 30 to 34 staff compared to 53 in the median developed country, despite having three times the number of electricity users and three rather than two sectors to regulate. As such, available staff would have little choice but to take on wider responsibilities than in higher-income countries. Unbundling and market competition increase the number of autonomous decision-makers and the interactions among them. This increases the required regulatory functions, and exacerbates the challenge for regulators who may struggle to gather all the information needed from utilities, let alone to process and act on the information. Nagayama (2009: 466) estimates that a vertically integrated monopoly requires 12 regulatory functions, compared to 28 for wholesale and retail competition. Countries with many customers can offset the cost of regulation by exploiting economies of scale in the power system. Countries with smaller systems and low-income customers have less means to do so. However, small installed capacity and low-income need not be a binding constraint, as individual countries’ cases show.<sup>40</sup> Further research would be required to systematically identify how structural factors impose transaction costs, and how to overcome them.

**Market reforms have a complex and multidirectional relationship with private agenda, rent-seeking, and political interventions.** Benitez & others (2010: 23) assess that, intuitively, most model reform elements are not especially exposed to manipulation by private agenda. Corruption nevertheless significantly reduces the feasibility of market reforms. Erdogdu (2013) finds that globally, countries with less corruption have more extensive 1990s model reforms.<sup>41</sup> On the other hand, implementation of market reforms can create new channels for populism, patronage, and industry-bias. The potential negative consequences of these ‘private political agenda’ include: political intervention in regulatory decisions and enforcement; manipulation of procurement; and ‘privatization’ of market power to maximize rents shared between politicians and firms (Benitez & others 2010). For example, Zelner & others (2009) observe from media analysis that governments renegotiated 1 in 5 purchase power agreements of 974 IPPs in low- to high-income countries from 1989 to 2001. In all cases of renegotiation investors’ revenue was reduced, and the government benefited politically, either by subsidizing certain users, expanding social welfare spending during economic slumps, or assisting owners or particular producers.<sup>42</sup>

**The process of reducing the possible impact of private agendas in infrastructure governance may itself create added transaction and coordination costs.** For example, solutions designed to withstand political interference may not be flexible enough to adjust quickly to an unexpected change of framework conditions. Benitez & others (2010) argue this is acceptable only if the costs of inflexibility are compensated by significantly improved sector performance. Rudnick & Velasquez (2018) find that abuses of market

> 40 For example, Uganda fully unbundled its electric power sector despite having low installed capacity and gross domestic product (GDP) per capita, well below the thresholds of feasibility identified by Besant-Jones (2006). Key factors to Uganda’s success include perceptions that the poor state of infrastructure in the 1980s was due to lack of competition, and the careful engagement of interest groups by reform champions with centralized authority.

> 41 Cheng & others (2016) draw a similar conclusion for Indian states.

> 42 In 70% of renegotiations there was a change in pricing. In 15% of cases, the government reallocated resources previously committed to investors. In the remaining 15%, governments intervened in operations such as to require use of a different fuel.

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