Private Provision of Rural Infrastructure Services : Competing for Subsidies

Market-oriented reforms of infrastructure in developing countries tend to focus primarily on commercially viable services in urban areas. Nevertheless, an increasing number of countries are beginning to experiment with extending the market paradigm to infrastructure services in rural areas that are often less attractive in commercial terms. In these cases, subsidies are used to close the gap between market requirements and development needs, and are increasingly determined and allocated on a competitive basis. The authors discuss the conditions under which competition among firms for such subsidies - successfully used in the telecommunications sector in a number of middle-income countries - could also be applied to electricity, water and sanitation, and transportation services in lower-income countries.This paper is a product of the Finance, Private Sector, and infrastructure Unit, Latin America and the Caribbean Region