Designing Decisions Rules for Transnational Infrastructure Projects

This working paper is being published with the sole objective of contributing to the debate on a topic of importance to the region, and to elicit comments and suggestions from interested parties. This paper has not gone through the Department's peer review process or undergone consideration by the SDS Management Team. Foreword The Inter-American Development Bank has actively promoted infrastructure reform in Latin America. The Bank has also financed private projects aimed at fostering the implementation of reforms in the power, gas, water, and transport sectors. Now, the Bank is engaged in a program to develop transnational infrastructure projects. Two regional initiatives were recently proposed to promote transnational infrastructure: the Initiative for the Regional Integration of South America (IIRSA in its Spanish acronym) and the Plan Puebla Panama (PPP) for Central America and Mexico. These initiatives face significant challenges, most of which have not been properly appreciated. This is because transnational projects have costs and benefits in several countries, with asymmetric distribution of those costs and benefits. These features of transnational projects raises new issues that do not appear in projects in which benefits are costs are mainly affecting a single country. One relevant issue is that under the condition of asymmetric distribution of costs and benefits, individual decisions made by one country do not result in optimal levels of investments in transnational projects. Lower than optimal transnational investment results from poor identification of the benefits of transnational projects , country reluctance to pay for infrastructure assets located abroad and lack of socially a c-ceptable mechanisms to distribute costs and benefits among countries. Therefore, it may takes a great deal of time for two countries to enter into a dialogue about a project with cost and/or benefits in both nations if they lack rules for cooperation and or incentives to communicate with each other about the project cost/benefits. This article is part of the Inter-American Development Bank efforts to develop a conceptual framework for analysing transnational projects issues and developing solutions for dealing with them. The main message is to stress that the rules to take decisions strongly affect the performance of the partnership and that, consequently, attention should be given to their design at the initial stage. Moreover, partners must not only agree on how to take ordinary decisions, but also on how to take special ones, like that of changing the rules along the way, or that of …