PEAM Course 2006 Infrastructure Public Expenditure Reviews Drawing on Some Recent Experiences Cecilia Briceño Garmendia AFTPI

PEAM Course 2006Infrastructure Public Expenditure Reviews

Drawing on Some Recent Experiences

Cecilia Briceño Garmendia

AFTPI

Roadmap

Why include Infrastructure in PERs? What drives the issues in Infrastructure PERs

(I-PER)? How do we go about doing an I-PER? What are the lessons?

Why include Infrastructure in PERs?

Some Facts• Infrastructure and Growth• Infrastructure and Income Inequality• Infrastructure Characteristics and Fiscal

Implications• Infrastructure Spending and Fiscal Policy

Why include Infrastructure in PERs?

Some Concerns• Traditional PERs mostly assess budgetary spending• Infrastructure has been neglected in PERs

In AFR, out of 54 PERs budgeted bet.FY02 and FY07:

28 having Transport Components

25 having WSS Components

2 having Oil and Gas Components• Solutions are country driven

How to use PERs to learn about the micro-macro linkages

What drives the issues in I-PERs?

4 general concepts (e.g. expenditures, financing, efficiency and management)…

… country specific issues

Turkey Indonesia Ghana Uganda

Income Level Middle Low/Low-Middle Low Low

Country Specific Issues

INF Quality

Fiscal Sustainability

Decentralized

Financing Sources

INF Access/Quality

Absorptive Capacity

Decentralization in progress

Transparency/Governance

INF Access

Absorptive Capacity

Centralized

Financing Sources

Access and Quality

Country Affordability

On-going Decentralization

Infrastructure Bottleneck for Growth

Public Sector Macro-monitoring Coverage

Comprehensive (Very) Restricted Restricted Restricted

How do we go about doing an I-PER?

Management

Expenditure Financing

Efficiency

Mapping InstitutionsMapping Institutions

Mapping Data–Expenditure Side–Income Side

Determining Efficiency

Providing Diagnostics and Policy Recommendations

Annexed Budget

o/w Infrastructure Agencies:

KGM (Highways),

DSI (Irrigation, Water Treatment),

KHGM (Rural roads and water dist),

DLH (railways,ports, airports const.)

Cen

tral G

overnm

ent

Consolidated Budget

Local Government (Municipalities)urban water services, urban roads,

sanitation, public transportation

Subsidized

TETAS (Elect. trading),

EUAS (Elect. Generation),

TEIAS (Elect.Transmission)

BOTAS (Gas Distribution),

TCDD (Railways, Ports Operation),

TTK (Hard coal),

TKI (lignite),

PTT (Postal Services)

Profitable

TPAO (Oil),

DHMI (State Airport),

KIYEM (Costal Management)

Under privatization – Special Regime

Turk Telekom (Telephony)

Under privatization

TEDAS (Elect. Dist.),

THY (Turkish Airlines)

Infrastructure SEEs

Private Sector (Specific Inf. Projects)BOTs, BOOs, TOORs (Elect, Transport, Water)

Extra-Budgetary Funds

DividendsTreasury Shares

Capital ReplenishmentDuty Losses

Legal TransfersDefault Debt Payments

PrivateInvestment

PrivateInvestment

45%

of

Infr

astr

uct

ure

P

ub

lic

Inve

stm

ent

Mapping InstitutionsGeneral Layout of Institutions and Flows involved in Providing Infrastructure Services

Source: Public Expenditure Review for Infrastructure Sectors: Turkey (2005)

National Coverage Sub-national Coverage

State Economic Enterprises Central Government Municipalities

Communications

All Fixed Telephony and some Cellular Services

Postal Services

Energy Electricity generation, transmission and distribution

Gas Distribution Oil processing and distribution

Construction of hydropower plants

Transport Railways Operation Ports Operation Airlines Transportation

Construction of Railways, Ports and Airports

Airports Operation

Roads Construction and maintenance of major intercity express ways

Village/rural roads Public transportation Building and operation of passenger and freight terminals

Construction and maintenance of urban (intra-city) roads

Water Irrigation Major urban water supply and treatment projects

Drinking water supply for rural areas

Urban water supply

Sanitation ` Drainage Solid waste collection and disposal

Sanitation

Source: Public Expenditure Review for Infrastructure Sectors: Turkey (2005)

Mapping InstitutionsJurisdictional Responsibilities in the Infrastructure Sectors

Current CG Budget

State Economic Enterprises

May(I)

June(II)

(III)

MoF--> Current Budget Guide Distribution

(IV)

July SEEs (V)--> Current Budget Proposal --> Investment Budget Proposal --> Annual Programs Preparation

AugustMoF and CG Agencies

--> Current Budget NegotiationsSPO and CG Agencies

--> Investment Budget Negotiations

Treasury--> Internal technical revision of SEEs

annual programs(VI)

September Treasury, SEEs, High Audit Board, Line Ministries, PA

--> SEE Targets' Actualization

(VII)

October Treasury, SEEs and SPO--> Transfers revision

--> Borrowing requirement estimation(VIII)

(IX)

November Treasury--> Principles and Procedures for annual

program implementation by SEEs(X)

December(XI)

January(XII)

Investment Budget

SPO--> List of Investment Projects as an Annex to the Annual Program Decree

Turkey - Public Financial Programming

Consolidated and Annexed Budget Agencies

MoF, Treasury and SPO--> Aggregate Budget Allocations

High Planning Council (Council of Ministers)--> Budget Allocation Endorsement

Prime Minister and Council of Ministers--> Annual Program/Investment Financing Decree Inception

MoF, Treasury and SPO--> Budget Circular Drafting

High Planning Council (Council of Ministers)--> Budget Circular Approval

Prime Minister--> Budget Call

SPO--> Investment Preparation Criteria Distribution

President--> Budget Law

Central Government Agencies

Turkish Grand National Assembly--> Budget Approval

Current CG Budget


May(I)

June(II)

(III)


(IV)






annual programs(VI)



(VII)



(IX)



December(XI)

January(XII)





Investment Budget










Current CG Budget


May(I)

June(II)

(III)


(IV)






annual programs(VI)



(VII)



(IX)



December(XI)

January(XII)





Investment Budget










Current CG Budget


May(I)

June(II)

(III)


(IV)






annual programs(VI)



(VII)



(IX)



December(XI)

January(XII)





Investment Budget










Providing Diagnostics

Under-budgeting or Over-budgeting?

Indonesia, Budget Variations for Central Government Infrastructure Spending (1996-2003)

-

20

40

60

80

100

120

140

160

180

1996 1997 1998 1999 2000 2001 2002 2003

Ra

tio R

ea

liza

tion

/Bu

dg

et a

s a

Pe

rce

nt (

%)

Development Routine

Source: Indonesia PER, forthcoming


Misclassification of Spending?

2003/04

SectorBudgetType

Budget Spending O&M Capital

(UShs m)

Communicationdomestic development - - - external development - - - Recurrent 164 100.0 -

Fuel & energydomestic development 6,114 14.7 85.3 external development 47,338 27.4 72.6 Recurrent 2,118 99.1 0.9

Irrigationdomestic development 5,128 26.9 73.1 external development 264 100.0 - Recurrent - - -

Transportdomestic development 112,938 9.7 90.3 external development 82,361 13.9 86.1 Recurrent 37,645 100.0 -

Waste managementdomestic development - - - external development - - - Recurrent 247 100.0 -

Waste water managementdomestic development - - - external development - - - Recurrent - - -

Water supplydomestic development 47,844 8.5 91.5 external development 52,482 39.7 60.3 Recurrent 2,670 47.6 52.4

Source: Ministry of Finance, processed

Economic affairs

Environmental protection

Housing and community amenities

(Share on Total)


Management


Efficiency

Mapping Institutions

Mapping DataMapping Data–Expenditure Side–Income Side



Government (Budget) Other Public Sector Entities (Off-Budget)

Federal Provincial Local NonCommercially-run

Public Enterprises

Commercially-run

Public Enterprises

Private Enterprises

CapEx

(Investment)

-- Capital

-- Subsidies

OpEx

(Recurrent)

-- Wages

-- Services

-- Parts

-- Subsidies

Mapping Data: Expenditure SideSummary Template

An Example from the on-Going work in Uganda

Source: Uganda, forthcoming CEM (2006)

Mapping Data: Expenditure Side

Total Infrastructure Spending (2003)

Private18%

Public82%

Public Infrastructure Spending: On-Budget / Off-Budget Composition (FY 2003)

0%10%20%

30%40%50%60%70%

80%90%

100%

Public Spending Public Investment Public O&M

On-Budget Off-Buget

Central Government

45%

Local Governments

34 %

Public Enterprises19 %

Drinkable Water, Sanitation, Rural and Urban Roads

22%

Water Resources-Irrigation

11%

Electricity and Gas

24%

Transport and Communication

43%

Water Resources-Irrigation

Electricity and Gas

Transport and Communication

Drinkable Water,

Sanitation, Rural and Urban

Central Government 9% 11% 18% 7%

Local Administrations 1% 2% 17% 15%

Public Enterprises 0% 11% 8% 0%

Mapping Data: Expenditure Side

An Example from the Turkey I-PER: Investment Composition

Source: Turkey, Infrastructure PER (2004), Unpublished

What part of the story are we missing?


Uganda, On-Budget and off-Budget Spending per Sub-Sector (2003)

On-Budget Off-Budget (a) On-Budget Off-Budget (a)

100.0 660,711 329,428 88.9 11.1 331,283 31.5 68.5 36.0 237,956 Energy 61,309 64.5 35.5 176,647 9.0 91.0 40.4 267,164 Transport 179,007 96.6 3.4 88,157 68.3 31.7

1.4 9,148 Communications 2,354 - 100.0 6,794 3.6 96.4 21.3 141,051 Water Supply 83,009 92.5 7.5 58,043 45.6 54.4

0.8 5,392 Water Resources (Irrigation) 3,749 100.0 - 1,643 100.0 - Source: Ministry of Finance (on-bugdet), Office of the Auditor General (Parastatals); processed

Note: (a) Include all parastatals except The Uganda Railways Corporation. Extra-budgetary funds are NOT included.

Total Spending Infrastructure Main

Sectors Ushs m

Share of Total

Gross Investment

Ushs m

O&M

Ushs mShare of Total Investment Share of Total O&M



Infrastructure Service (Operator)

Policy Umbrella Regulatory Functions

National Roads (MoWHC) Feeder Roads (local authorities financed by PAF) Railways Construction (MoWHC)

Ministry of Works, Housing and Communications

Ministry of Energy and Minerals

Shar

es o

n:

Tot

al P

ubli

c S

pen

din

g: 6

0%

Pu

blic

Inv

estm

ent:

89%

P

ubl

ic O

&M

: 32

%

On-

Bu

dget

Rural Water (local governments financed by PAF) Water Resource Management (MoLWE)

Ministry of Lands, Water and Environment


Railways Operations: Uganda Railways Corporation (URC) In the process of concessioning Airport Operations: Civil Aviation Authority (CAA) Rural Communications (Rural Communications Fund-Administered by UCC) Road Fund (in consideration)

Ministry of Works, Housing and Communications

Airport Operations: Civil Aviation Authority (CAA) Uganda Communications Commission (UCC)

Transmission Company: Uganda Electricity Transmission Company Limited (UETL) Administration of Assets: Uganda Electricity Board (UEB) Electricity Generation - Concession to Private Sector : Uganda Electricity Generation Company Limited (UEGCL) owns assets and ESKOM operates and maintains Electricity Distribution - Concession to Private Sector: Uganda Electricity Distribution Company Limited (UEDCL) owns assets and UMEME and WENRCO operate, maintain and expand Rural Electrification (Extra Budgetary Fund) Tariff Stabilization Fund

Ministry of Energy and Minerals

Electricity Regulatory Agency (ERA)

Shar

es o

n:

Tot

al P

ubli

c S

pen

din

g: 4

0%

Pu

blic

Inv

estm

ent:

11%

P

ubl

ic O

&M

: 68

%

Off

-Bu

dget

Urban Water Supply: National Water and Sewerage Corporation (NWSC) Water Fund



What part of the story

are we missing?



Can a country afford infrastructure?

Venezuela

Ghana(1)

MexicoPeruBolivia

Brazil

Ecuador Argentina

Colombia

Turkey

Chile

Ethiopia(1)

Indonesia

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

- 5.00 10.00 15.00 20.00 25.00 30.00 35.00

Ratio Per Capita Income (Uganda denominator)

Rat

io P

er C

apita

Infr

astr

uctu

re S

pend

ing

(Uga

nda

deno

min

ator

) INF,per capita Per Capita Income

year (US$-person) (Current US$)Ethiopia(1) 2004 4.2 96.94 Ghana(1) 2003 10.3 368.87 Uganda 2003 21.0 249.07 Indonesia 2003 26.7 1,111.10 Mexico 1998 44.7 4,422.32 Peru 1998 46.0 2,250.07 Venezuela 1998 57.7 3,901.19 Bolivia 1998 67.4 1,063.75 Brazil 1998 84.0 4,747.54 Ecuador 1998 122.1 1,932.87 Argentina 1998 129.3 8,302.88 Colombia 1998 163.2 2,412.16 Turkey 2004 240.1 4,209.71 Chile 1998 317.3 4,929.49

Note:(1) Only Includes Public Spending


Management


Efficiency


Mapping DataMapping Data–Expenditure Side–Income Side



Mapping Data: Income SideSummary Template

Obligations (C

ost Recovery M

echanism

s)

Sources

Loans

User Fees/

Earmarked

Funds

Gov.

Taxes

MDB Bilaterals Grants

Present User

Future User

Present

Tax Payer

Future

Tax Payer

Mapping Data: Income Side

Road Investment Financing KGM's Sources of Financing

General Budget

KGM Investment

Budget Taxes Foreign Loans Toll Road Revenue

EBF-Financed Investments

As Current GNP Shares As Percentage of KGM Budget

1996 0.7 35.7 0.0 0.1 64.3

1997 0.8 45.8 0.0 0.0 54.2

1998 0.8 39.3 0.0 0.1 60.6

1999 0.6 52.7 0.0 0.0 47.3

2000 0.6 37.7 12.9 0.0 49.5

2001 0.7 60.0 40.0 0.0 0.0

2002 0.8 62.1 23.4 14.6 0.0

2003 0.5 47.2 45.5 7.3 0.0

2004(*) 0.4 46.2 37.7 16.1 0.0

Source: KGM (*) Estimates

Source: Turkey, Infrastructure PER (2004), Unpublished

Mapping Data: Income Side

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY 1999/00Outturns

FY 2000/01Outturns

FY 2001/02Outturns

FY 2002/03Outturns

FY 2003/04Outturns

FY 2004/05Outturns

FY 2005/06Approved Budget

Budget (w/o Donors) Donors (External Dev)

Unit Nominal Ush bn

Sum of INFRASTRUCTURE

Fyear

Spending

An Example Uganda: Donors as part of Infrastructure Budget


Is there an Absorptive Capacity Problem?

Ghana – Status of Funding Road Development Program, 2002-03 (in US$ millions)

Funding Source Secured Funds Commitments Disbursements

Donor Funds (1) 768.63 370.45 149.83

Road Fund 149.33 149.33 149.33

Consolidated Fund 65.46 57 48.07

Total 983.42 576.78 347.23

Source: Ministry of Roads and Transport. National Roads Maintenance Program, 2003 Review (1) WB Road experts pointed out that the Ghanaian government is in the process of revising these figures to set an alternative accounting system for donors funds based on annual disbursements against committed contract for a particular year


Ghana - Infrastructure Gap, 2004-08

(in US$ million) Cumulative Needs 2004-08

Annual Averages (O&M + Investment)

Investment

Operations and Maintenance

Total Estimated Needs (2) Actual Total Spending (3)

I- Water and Sanitation 840 118 958 192 22

II- Electricity (1) 316 268 584 117 38

III- Roads 975 872 1847 370 175

Total 2,131 1,258 3,389 678 235

Source: World Bank Staff estimates (1) Excluding the US$96 million equivalent to the Ghana’s share in the West Africa Gas Pipeline; (2) US$426 million per year in investment and US$251 million annually in maintenance costs (of both current and new assets) for the period 2004-2008; (3) Based on actual spending for the last decade.


Is there an ‘Affordable’ Financing Gap?


Are Donors part of the problem? Uganda

Budgetary Spending on Water and Roads Index based on Real PricesWater and Roads Contribution to GDP Growth

0

200

400

600

800

1,000

1,200

1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05

Inde

x

0%

2%

4%

6%

8%

10%

12%

Con

trib

utio

n to

GD

P G

row

th (

%)

Roads GDP Growth Contribution Water and Elec. Growth Contribution Water & Sanitation (PAF)

Rural Roads (PAF) Roads and Works (MEF) Water (MEF)



Management


Efficiency


Mapping Data–Expenditure Side–Income Side

Determining EfficiencyDetermining Efficiency


0

10

20

30

40

50

60

70

80

90

100

0 2 4 6 8 10 12 14 16 18 20 22 24 26

Ver

y G

ood

Goo

dFa

irP

oor

Ver

yPo

or

-Filling Cracks

-Geotextile and Strengthening

-Reconstruction of the Surface-Reconstruction of the partial base course

-Complete Reconstruction

Con

diti

on o

f P

avem

ent (

%)

Lifetime of Pavement (years)


The Maintenance Dilemma


Inadequate Investment Decision Making? Turkey: Multi-year Projects in 2005-Investment Portfolio


AnnualAverages for the Period 2002-04 (in Percent)Operating Cost-

RecoveryOverall Cost

Recovery

Cost Recovery excluding GoU Grants and

Extraordianry Items

ElectrictyUganda Electricity Board (UEB)

Uganda Electricity Generation Company Limited 132% 119% 119%

Uganda Electricity Transmission Company Limited 144% 136% 136%

Uganda Electricity Distribution Company Limited (UEDCL) 102% 89% 89%

TransportUganda Railways Corporation (URC) 69% 83% 80%

Civil Aviation Authority 105% 124% 124%

CommunicationsUganda Communication Commission 72% 96% 93%

Water SupplyNational Water and Sewerage Corporation (NWSC) 96% 109% 83%

Source: Office of the Auditor General, processed

Optimistic (or Disguised) Cost-Recovery Assumptions? Uganda: Parastatals Cost-Recovery

Ratios

• Annual implicit subsidies up to 2 percent of national budget

• Accumulated debt 10 %GDP


2,002 2,003 2,004

Ratio Annual Gross Investment/Annual Depreciation (In percent)Electricty

Uganda Electricity Board (UEB)

Uganda Electricity Generation Company Limited 17% 4% 20%Uganda Electricity Transmission Company Limited 59% 46% 26%Uganda Electricity Distribution Company Limited (UEDCL) 94% 97%

TransportUganda Railways Corporation (URC) 13%Civil Aviation Authority 268% 102%

CommunicationsUganda Communication Commission 54% 431% 59%

Water SupplyNational Water and Sewerage Corporation (NWSC) 69%

Source: Office of the Auditor General, processed

Are Parastatals able to (at least) preserve the asset stock? Uganda: Parastatals Investment/Depreciation Ratios


What are the Methodological Lessons?

Data Availability and Quality: A Problem– Records/Accounting, Misallocation of Expenses

Infrastructure Sector Nuances– One size does not fit all, e.g. roads vs. energy vs. water

Fragmentation of Infrastructure Provision– Institutional Setting Matters– Central Government, Local Governments, Public Enterprises

Overlapping Sources and Use of Public Funds– Own Investments and O&M, Subsidies, PPP, Guarantees– Cheap Money? Role of Multilaterals increased focus on

maintenance?

What are the Lessons?(Emerging) Policy Challenges

Quantity of (Public) Spending

Fiscal discipline and coverage of fiscal targets Quality of Public Spending

Budget Rigidities and Integrity, Efficiency Country Institutional Capacity

Governance and Risk Management

Financial Market Capacity

Emerging Issues – Food for Thought

Public Expenditure Management in Infrastructure:

– The PEM system: institution, expenditure and income mapping– Diagnosis and Recommendations

Public Spending in Infrastructure and Macro-economic Balances:

– Country Affordability and Fiscal Space– Infrastructure for Growth– Distributional Impact of Infrastructure Spending

Documents

PEAM Course 2006 Infrastructure Public Expenditure Reviews Drawing on Some Recent Experiences Cecilia Briceño Garmendia AFTPI