What is Privatization of Infrastructure?♦ Privatization of infrastructure is when the government brings in a private organization to build, operate and maintain state infrastructure.♦ Examples of state infrastructures include: ♦ Roads ♦ Bridges ♦ Public buildings♦ Advocates for privatization argue that the private sector can operate these infrastructures more efficiently.♦ Privatization is appealing for governments because it solves short-term budget crunches.
Two Privatization Approaches Ways to privatize infrastructure.Sell assets that have Have a private firmalready been built to take charge of buildingprivate companies to the infrastructure from operate. the start.
Option 1: Selling Assets♦ State governments can privatize infrastructure by selling assets that have already been built to private companies.♦ This was done in 2006 when Indiana Governor Mitch Daniels leased the Indiana East-West Toll Road to an international consortium of investors. ♦ The private companies agreed to operate and maintain the roads for 75 years. ♦ The private companies were also given the right to increase the tolls each year.
Option 2: Building Infrastructure♦ Private firms can be in charge of building the infrastructure from the start.♦ European countries have been doing this for years. ♦ Private companies bid for a project that the state has set-up. ♦ The private company has to raise enough money from outside investors to design, operate, build and maintain the highway for a decided on amount of time. ♦ The private company then has an incentive to keep costs low and finish the construction on time.
Why Privatize Infrastructure?♦ Local governments can improve infrastructure while under a tight budget.♦ Private firms take the heat for raising fees and tolls instead of politicians.♦ Private companies often operate the infrastructure for less money and more efficiently. 6
Arguments Against Privatization♦ Privatization has the potential to conflict with other public-policy goals♦ Monopolies might be created.♦ Increased transportation costs for consumers and freight transportation companies. 7