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World Bank Document A COUNTRY FRAMEWORK REPORT PUBLIC-PRIVATE Private Solutions for Infrastructure in Honduras P THE WORLD BANK INFRASTRUCTURE r i ADVISORY FACILITY v a 36053 t e Public Disclosure Authorized 1818 H Street, NW PPIAF Program S Management Unit o Washington, DC 20433 USA l u c/o The World Bank t Telephone: 202.473.1000 i o Facsimile: 202.477.6391 1818 H Street, NW, MSN I9-907 n s Washington, DC 20433 USA Internet: www.worldbank.org f Telephone: 202.458.5588 o PrivatePrivate SolutionsSolutions E-mail: [email protected] r I Facsimile: 202.522.7466 n f Internet: www.ppiaf.org r a forfor InfrastructureInfrastructure E-mail: [email protected] s t r Public Disclosure Authorized u c t u inin HondurasHonduras r e i n H o n d u r a s Public Disclosure Authorized THE WORLD BANK Public Disclosure Authorized PUBLIC-PRIVATE INFRASTRUCTURE ™xHSKIMBy353660zv":&:.:':< ADVISORY FACILITY ISBN 0-8213-5366-7 THE WORLD BANK Private Solutions for Infrastructure in Honduras Private Solutions for Infrastructure in Honduras A Country Framework Report The Public–Private Infrastructure Advisory Facility and the World Bank Group Copyright © 2003 The findings, interpretations, and conclusions expressed herein are those of The International Bank for Reconstruction the author(s) and do not necessarily reflect the views of the Board of Execu- and Development/ tive Directors of the World Bank or the governments they represent. THE WORLD BANK 1818 H Street, NW The World Bank does not guarantee the accuracy of the data included in Washington, DC 20433 this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of Telephone 202-473-1000 the World Bank concerning the legal status of any territory or the endorse- Internet www.worldbank.org ment or acceptance of such boundaries. E-mail [email protected] All rights reserved. Rights and Permissions First printing July 2003 The material in this work is copyrighted. Copying and/or transmitting por- tions or all of this work without permission may be a violation of applicable 1234050403 law.The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center,Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street, NW,Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@ worldbank.org. Library of Congress Cataloging-in-Publication Data Private solutions for infrastructure in Honduras / Public–Private Infrastructure Advisory Facility. p. cm. Includes bibliographical references. ISBN 0-8213-5366-7 1. Infrastructure (Economics)—Honduras. 2. Public-private sector cooperation—Honduras. I. Public–Private Infrastructure Advisory Facility. HC145.Z9C36 2003 338.97283’05—dc21 2002044903 Contents Introduction xi Acknowledgments xiii Acronyms and Abbreviations xv Overview of Infrastructure in Honduras 1 Part 1. A Cross-Sector Vision of Infrastructure and Development 1. Country Background and the Economic Importance of Infrastructure 19 The Economic Modernization Program 19 Growth and Poverty: Recent Trends 20 Infrastructure and Poverty Reduction 21 Infrastructure, Growth, and Competitiveness 24 Infrastructure and the Investment Climate 25 2. The Organization of Infrastructure Services and the Role of Private Participation 28 The Traditionally Predominant Role of the Public Sector 28 Modernization Efforts and the Growing Role of the Private Sector 28 The Lack of Political Support for the Process of Modernization and Privatization 30 3. Infrastructure Performance: An Overview 31 Indicators of Service Access and Coverage 31 Indicators of Quality and Efficiency 32 Sustainability Indicators 33 4. The Impact of Hurricane Mitch and the Progress of Reconstruction 35 Damage Incurred 35 Lessons Learned from Hurricane Mitch 36 v Contents 5. Consumer Opinions 39 Opinions about Access 39 Opinions about Quality 40 Opinions about Subsidies 42 Opinions about Consumer Rights 43 Opinions about Privatization 43 6. Legal, Institutional, and Regulatory Framework for Infrastructure Development 45 Transportation 45 Electricity 46 Telecommunications 47 Water and Sanitation 47 General Laws and Regulations Relevant to the Infrastructure Sector 48 The Lack of Satisfactory Definition of the Sector Policy Function 48 The Multiplicity of Regulatory Entities 49 Conclusion 51 7. Infrastructure Financing 53 Private Financing 53 Public Expenditure and Investment in Infrastructure 54 8. Conclusions 60 Part 2. Sector Summaries 9. Transportation 65 Summary 65 Main Sector Institutions 66 Sector Performance and Key Themes for Modernization 68 Opportunities and Priorities for Private Investment in the Transport Sector 81 10. Water and Sanitation 83 Summary 83 Principal Institutions of the Sector 84 Sector Performance and Key Themes for Modernization 86 Opportunities and Priorities for Private Investment in the Water and Sanitation Sector 95 11. Electricity 97 Summary 97 The Sector’s Principal Institutions 99 Sector Performance and Key Themes for Modernization 100 Opportunities and Priorities for Private Investment in the Electricity Sector 112 12. Telecommunications 116 Summary 116 Principal Institutions of the Sector 118 Sector Performance and Key Themes for Modernization 121 Opportunities and Priorities for Private Investment in the Telecommunications Sector 129 References 131 vi Contents Appendixes (Maps) 1. Political Divisions and Main Population Centers 135 2. Road Networks, Ports, and Airports 137 3. Access to Potable Water 138 4. Production and Usage of Electricity 139 5. Distribution and Density of Fixed Line Telephone Coverage 140 Boxes 5.1 Situation of the Poorest 40 5.2 Telephone Access 40 5.3 Quality of the Water Service 41 5.4 Public Transportation Quality 41 5.5 Subsidies 42 5.6 Consumer Rights 42 5.7 What Do Hondurans Think about Privatization of Infrastructure Services? 43 9.1 The Dry Canal 67 9.2 The Vicious Circle of the Decline in Public Transportation and Increased Urban Congestion 75 10.1 The Benefits of Expanding Access to Drinking Water 88 10.2 Regulation,“Municipalization,” and Autonomy 93 10.3 The San Pedro Sula Water Concession 94 10.4 Economizing Public Investment in Water Systems: The Colombian Experience 95 11.1 The Contractual Calvary of the PPA Bidding Process 107 11.2 The AES Project in Puerto Cortés: Opportunity or Threat? 114 12.1 The Failure of the HONDUTEL Auction 119 12.2 The “Capture” of HONDUTEL 120 Figures 1.1 Gross Capital Investment and Changes in Inventory, 1987–98 20 1.2 Trends of Poverty and Income, 1991–99 21 1.3 Lack of Basic Infrastructure Services, by Decile of Income, 1999 22 1.4 Increasing Coverage, by Decile of Income, 1990–99 23 1.5 Percentage of Households with Telephones in the Home, by Decile of Income, 1998 24 10.1 Real Price of Water, SANAA 92 11.1 Correlation between Electricity Coverage and Per Capita Income at Department Level 102 11.2 Indicators of ENEE’s Labor Productivity 104 Tables O.1 Priorities for Public Investment and Subsidies 11 O.2 Recommended Priorities for Private Investment in Infrastructure 12 1.1 Average Annual Growth Rates in Percentages 21 1.2 Access by Households to Infrastructure Services, 1990 and 1991 22 1.3 Percentage of Households with a Telephone, 1998 23 1.4 Principal Means of Personal Transport by Household Income Decile, 1998 24 vii Contents 1.5 General Index of Competitiveness, 1999 25 1.6 Foreign Direct Investment in Central America and Chile, 1992–98 25 2.1 Principal Agencies Involved in Infrastructure Services in Honduras 29 3.1 Performance of Honduran Infrastructure Compared with Latin America 31 4.1 Infrastructure Damage in Honduras from Hurricane Mitch 35 4.2 Infrastructure Programs in the PMRTN 36 4.3 Progress in the Reconstruction of the Road Sector, to December 2000 36 6.1 The Labyrinth of Infrastructure Sector Regulation 50 7.1 Private Investment in Honduran Infrastructure Supported by Public International Financial Agencies, 1990–2000 54 7.2 Infrastructure Investment in Honduras by CABEI, 1990–2001 54 7.3 Public Spending on Infrastructure, 1990–99 55 7.4 Public Investment in Infrastructure, 1990–99 55 7.5 Financial Resources for Infrastructure, 1990–99 56 7.6 Trends in Personnel Employment in Autonomous Enterprises 57 7.7 Current Spending by Public Corporations 58 9.1 Functional Classification of the Official Road Network 68 9.2 Condition of the Official Network, October 1999 69 9.3 Trends in the Condition of Primary and Secondary Paved Roads, 1992–99 69 9.4 Public Spending on Road Investment and Maintenance 70 9.5 Comparative Costs of Road Maintenance 71 9.6 Road System Costs and Fuel Consumption Tax Revenues by Vehicle Type, 2000 72 9.7 Distribution of Traffic Volume on the Official Road Network 73 9.8 Traffic by Vehicle Type 74 9.9 Annual Traffic in the Principal Ports, 1992–99 77 9.10 Performance Indicators for Puerto Cortés, 1999 77 9.11 Growth in Traffic of Passengers and Freight in the International Airports 80 10.1 Water and Sanitation Coverage in Central America 87 10.2 Water and Sanitation Coverage by Percentage of Households, March 1999 87 10.3 Trends in Urban and Rural Access to Water and Sanitation 88 10.4 Operating and Financial Indicators of Water Service Operators 90 10.5 SANAA Tariffs Compared
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