31. In summary, thess seven sectors **are** at different stages in addressing siollar pricing **issues.** Methodological research to develop techniques for marginal cost estimation is probably needed in the ports and railways sectors. Such research has already taken place for natural gas and telecommunications, but the methods need to be applied in trial cases to generate practical guidelines for developing countries. For irrigation and power, such guidelines exist although, in the former case, pricing still receives inadequate attention in SARs perhaps because of pessimism about the application of volumetric charges. In irrigation and highways, a wider range of pricing instruments should be tried with the emphasis on improving allocz onal efficiency. Earmarking should **also** be reexamined for these sectors. Congestion pricing is relevant for most of them but has received little trial despite its clear fiscal benefits. Finally, only in the power sector is there evidence that pricing systems based on marginal costs are being widely adopted in the developing countries. The gap between policy and practice is still a wide one.

# Public Sectors without **Extarnal** Economies

32. The preceding two sections dealt with sectors whose rationale for an externally imposed pricing policy was **the** pres,nce of external economies that would lead to inefficient private market solutions. There are four additional sectors covered in this review where the rationale for public provision is not primarily externalities in consumption or production, but a variety of other factors. These are coal, fertilizers, housing and oil.

33. It could be argued that the coal, fertilizer **and** oil sectors exhibit economies of scale and therefore should be treated together with power, railways and the other sectors in the previous section. However, the tendency toward natural monopoly with prices higher than marginal costs does not arise for these sectors in an open economy. All three are subject to international competition and face a clear border price. Yet even in many industrial countries coal and oil are produced in the public sector and sold domestically at prices above import parity.

34. In the developing countries, coal and oil are nea-ly always produced by the public sector (Colombian coal provides an interesting exception). For oil products, there is no question that border prices represent economic values despite considerable market imperfections at the international level with cartels, extreme volatility during certain periods, etc. SARs for oil projects consistently compare domestic prices with border prices and discuss the aggregate contribution of the sector to tax revenues. A closer examination of alternative means of taxing the sector to avoid incentives for uneconomic substitution and better systems of transfer pricing crude oil to refineries is still needed (Annex 8).

35. For coal, international and internal transport costs are high, often leaving a wide gap between import and export parities. In addition, many grades of domestic production are not suitable for export. This means that the c^nomic value of coal in many cases is the LRMC plus an allowance for depletion (Annex 1). As in oil, SARs for coal projects were found to contain a thorough treatment of pricing issues and explicit references to efficiency price calculations. There are still major problems at the