This paper assesses two alternative approaches to private sector engagement in utilities, namely the Build Operate Transfer (BOT) and sector-wide reforms. The assessment draws on the new theory of regulatory contracts. The paper first evaluates the two approaches in terms of their effectiveness in dealing with the problems of information asymmetry, incentive compatibility and commitment. It then reviews the evidence on the economic impact of both approaches. Finally, it applies this analysis to the electricity sector in four Arab countries, namely, Egypt, Jordan, Morocco and Syria. The paper concludes that sector reforms may not be as effective in attracting private investment in the short run as BOTs. However, the sector approach is more beneficial to society in the medium term.
Author(s): Ahmed Galal