1990s saw a boom in these developments with major private investment flows into electricity and telecoms – at least for the larger middle income countries in Latin America and Asia.

According to the World Bank Private Participation in Infrastructure (PPI) Database, private investment in electricity (including privatization revenues) in DTEs rose from $1 billion in 1992 to $18 billion in 1995 and $44 billion in 1997. However, since 1998 – and particularly since 2000 – private investment flows, particularly _foreign_ private investment flows, into DTE infrastructure industries have fallen sharply. For electricity, they have fallen back very sharply so that, since 1999, only in 2000 were flows to DTE countries as measured in the World Bank PPI Database (at $25 billion) above the 1995 level. Between 2000 and 2001, they almost halved; and, between 2001 and 2002, they almost halved again. The 2002 level of private investment flows in electricity in DTEs, as measured in the World Bank PPI Database, was $5.5 billion – lower than in any year since 1991.

As a result of the major and potentially sustained private investment downturn in electricity and other infrastructure industries, there has, in recent years, been growing scepticism about whether the new model, based on private investment and competition in non-natural monopoly segments, is appropriate in developing countries – even middle-income countries let alone low-income countries such as those in SubSaharan Africa. This scepticism seems to be shared by many capital market participants.<sup>3</sup> Regulation and regulatory governance have played a major role in this evolution of opinion. The optimism of the late 1980s and early 1990s that DTE electricity and other similar infrastructure industries could be commercialized and financed from private investment flows was heavily associated with a strongly optimistic view that viable and effective regulatory arrangements could readily be established in many if not all DTEs<sup>4</sup> . This optimistic view was reflected in the classic 1994 paper by Levy and Spiller.

However, the establishment of the new regulatory agencies, most established in the last 5-10 years, did not prevent the Asian IPP crisis, nor the collapse of energy regulatory arrangements in Argentina, nor similar difficulties in some other Latin American countries<sup>5</sup> . Further, the regulatory agencies in Argentina and elsewhere have not been used to help in a “work-out” and post-crisis transition or strengthened; rather, the regulatory agencies have been put into suspended animation and marginalized. Indeed, the weaknesses of the new regulatory agencies and their governance arrangements are often ascribed as an important contributory factor to the development of these crises<sup>6</sup> . In addition, the returns to the aid assistance used in establishing DTE regulators do not look encouraging.

> 3 See Lamech and Saeed (2003) and Standard & Poor’s (2000).

> 4 The establishment of independent regulatory agencies was seen as the typical route although alternative contract-based options also had their adherents.

> 5 Including the high renegotiation and failure rate of concession contracts as demonstrated in Guasch, Laffont and Straub (2003).

> 6

> See Stern and Holder (1999), Estache (2002).

3