# **1. Introduction**

Thirty years have now gone by since Chile launched the first modern large-scale private participation in infrastructure (PPI) program in a developing country as part of a larger scale privatization policy. It took more than another 15 years to see the experience replicated on a similar scale in another country with Argentina’s infrastructure reforms launched in 1989 by the Menem administration. At about the same time, some of the most economically aggressive East Asian countries started to rely on creative project finance for many of their large infrastructure projects. Within 20 years of Chile’s daring policy experience, it seemed that all developing countries from the poorest countries of Africa to the richest countries of East Asia were at least flirting with the idea of PPI and often wed to it. Between 1984 and 2003, PPI generated investment commitments of about US$790 billion.

After reaching a peak of US$131 billion in 1997, PPI commitments have however steadily dropped and reached less than US$50 billion in 2003.<sup>1</sup> This is a strong indication that many of the relationships have gone sour. In fact, as seen in many experiences in Latin America, Eastern Europe, Asia or Africa, the new millennium seems to bring a high rate of request for separation or divorce from this policy. For Latin America for instance, Guasch (2004) shows that roughly 50% of the concession contracts signed since the mid 1980s ended up being renegotiated. It thus seems useful to try to take stock of what is going wrong with the infrastructure “couples” that were in the limelight of the 1990s to get a sense of what may have triggered the increasing demands for divorce on both sides of the relationship and to assess what can be salvaged and what needs to be fixed.

As always when it comes to divorces, the story is more complex than it seems. Facts tend to be ignored, reinterpreted or rewritten by each partner in the couple and each one gets a wagon of supporters and detractors who tend to be happy to help rewrite history in favor of the side they want to support. Facilitating the subjective and emotional positioning of observers are the many gaps in the common knowledge of crucial basic facts. Indeed, many of the facts are actually unknown simply because many of the fights and “peace treaties” made within the couple are not shared with the outsiders—e.g. who knows about the side deals between governments and private operators or even between host governments and the government of origin of the operators? who knows about the deals between governments and the unions?.

Recognizing that there are common knowledge gaps, this paper tries to provide a fair overview of basic documented facts which could explain why the rejection of PPI seems to be increasing in many countries while at the same time, new marriages still generated close to US$50 billion in 2003. The main focus of the paper is on the various dimensions of the distributional effects of PPI. The paper draws a lot on my direct personal experiences and research as a witness of reforms and crisis in PPI in a large number of developing countries and does probably not do justice to a lot of the ongoing research in the field.

The paper is organized as follows. Section 2 briefly reviews the historical context that eased the initial flirting of many governments with PPI. Section 3 gives a sense of the actual

> 1 The data is from the World Bank PPI database.

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