Conversely, evidence from corruption surveys in transition countries suggests that stateowned firms are at least as if not more likely to bribe for contracts and licenses. Government-managed construction operations are particularly prone to materials theft, as the case of the Indonesian roads project discussed earlier makes clear. Evidence from Tanzania also suggests that that one of the most egregious violators of labor standards on construction sites was the National Housing Corporation (Kenny, 2007). A model in this area is Chile, which has extended private competitive provision in public works infrastructure considerably further than most developing countries –and at the same time is expanding the model of separating the policy, regulatory and client functions of government (Box 4).

# **<u>Box 4: Chile’s Reform of Public Works Governance</u>**

<mark>Chile’s Ministry of Public Works relies heavily on private provision, with 65 percent of investment resources for public works provided by the private sector. An independent regulatory body, the Superintendent of Public Works, will oversee transparent concession contracts oriented towards outputs and performance rather than inputs or investment mandates. A new set of benchmarked service standards will drive contract design and oversight, leading to ‘conservation’ concessions for road networks, for example. Model contracts will be designed to maximize competitiveness in the bidding process as well as focus on outcomes. The regulator will oversee both implementation and any contract renegotiation.</mark> Having said that, the level of competition and the role for private participation will vary considerably by country and sector. In construction and telecommunications, there appears to be little role remaining for monopoly providers, public or private. But in other sectors plausible market structure is likely to vary considerably depending (not least) on the size of the market. Around half of the developing world has embarked on power market reform, for example, but private risk investment with unbundled competition in both wholesale and retail markets is unlikely to be plausible in the majority of them (Besant-Jones, 2006). Although regional cooperation in areas such as power pools may extend the role for competition to some smaller countries (See Box 5), for most smaller low-income markets, management contracts may be the most plausible role for private participation.

# **<u>Box 5: Extending Romania’s Competitive Energy Market</u>**

<mark>Romania’s initial market liberalization in energy involved bilateral contract negotiation between suppliers and distributors. In some cases, supply contracts were signed by managers of state-owned generation companies at prices below market value as part of a deal that was alleged to be corrupt. Under further sector reform, all power contracts are now competitively auctioned by the market operator, OPCOM. Romania hopes to develop OPCOM into a regional market operator for the Energy Community of South East Europe,</mark> <u><mark>providing services and selling shares in the company to neighboring countries.</mark></u> The introduction of private provision, especially absent competition, requires improved governance both in the initial privatization but also in the regulation of providers. The process of involving the private sector has itself has been a significant source of rents. The widespread problems with Independent Power Producers are perhaps some of the best known examples. For example, only 40 percent of generated power from 42 IPPs in 10