The rest of the paper is structured as follows: In Section 2, we present descriptive statistics from the WATSAN database. The data show considerable volatility in numbers of projects signed over the period 1990-2004. There is a decline from a peak in 1997 to 2003 and a subsequent upturn in 2004. In terms of contract types, the data do not support the prevailing view that private investors are switching from ‘highrisk’ contract types like concessions to ‘low-risk’ management and service-type contracts.<sup>7</sup> On the contrary, the WATSAN data show increasing numbers of concession-type contracts. The data also document the increasing importance of non-OECD-based investors in the sector and underline the need to understand what makes local investors enter into PSP contracts, as well as the forces driving large multinational investors. In Section 3, we review the existing literature relevant to PSP determinants and develop our hypotheses on ‘handshake’ determinants. In Section 4, we present the data, the selection of variables and in section 5 the count outcome regression methodology. In Section 6, we present the results of the negative binomial count regression model. Section 7 concludes and suggests directions for future research.

# **2 – PSP in Water: Descriptive Statistics**

The following stylized facts are often taken to characterize PSP in the water and sanitation sector:

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- Private investment in the water sector has fallen abruptly since the Asian crisis as a result of heightened perceptions of risks on the part of foreign investors

- Private investors are no longer willing to invest in high-risk project types, like concessions and BOTs, and are turning to management contracts which imply fewer risks

In this section, we present empirical data from the WATSAN database and consider whether these statements are an accurate representation of trends.

# _Investment Trends_

Figure 1 and table 1 show the number of contracts signed by year and by type. This shows a downturn from 2000 to 2003, followed by an upturn in 2004. 2004 is the strongest year yet in terms of number of deals signed: WATSAN reports 60 new projects in 14 countries in 2004, driven by very high levels of activity in the Chinese market.<sup>8</sup> This compares to the findings of the World Bank PPI Database, which records 28 projects in 9 countries were invested in 2004 in the water sector.<sup>9</sup> Previous highs were recorded in 1998 and 1999. The high level of investment in these years just after the Asian Crisis may seem surprising. However, there is a lag between the firm’s decision to make the investment and the signing of the contract, so the effects of the Asian Crisis may account for the downturn in 2000-2003.<sup>10</sup>

> 7 These views were expressed, for example, in the Water Operators Roundtable session of the World Bank Water Week 1-3 March 2005 (Washington D.C.) See: http://www.worldbank.org/watsan2/waterweek/6.htm

> 8 The difference between these two counts is due to (1) better coverage of China in the authors’ database. Chinese projects account for 52% of the total signed in 2004; (2) the inclusion of dual desalination and power projects in the authors’ database, which make up 8% of projects recorded in 2004 and (3) the cut-off project value for the World Bank database. Small projects accounts for 17% of the new contracts awarded in 2004 recorded in WATSAN. 9 Comparing across sectors in the World Bank PPI database, water and sanitation seems to have been hit hardest by the overall downturn in foreign investment from 2000 (Izaguirre & Hunt 2005).

> 10 The authors would like to thank Antonio Estache for drawing attention to this point.

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