SECTORS AND THEIR CHARACTERISTICS

Sebastian Morris

Higher education Municipal water Airlines Electricity

Scale (sweet point)

15000 enrolment 1m-2m 40-50 737 type

10000 MW

Scope Coverage of most disciplines

Little (waste, sewerage)

little (linkages with other transport modes)

little

Range of products/ services

Many (vocational, education, training), Graduate undergraduate, PhD; Subjects and disciplines

waste and drinking; pressure and pipe size

Short /long few; but possible interruptible, voltage

Natural Monopoly

No; none of the segments, but significant scale

classic natural monopoly in most import segment

contestable natural monopoly

natural monopoly in important segment

Education Water Airlines Electricity

Possible segments

buildings (C), house keeping and board(C), records (R), delivery (E), knowledge creation (E), knowledge dissemination (E, Complex), examination (R)

bulk (C,M), treatment (C,M), and distribution(NM), stand post (NM), sewerage collection (NM), sewerage treatment and disposal (C,M)

Baggage (C), lounge and carriage (C), lease (C), ground handling (C), flying (NM with Contestability), Maintenance (C)

transmission (ISO and wires) (NM, Flow, R), Distribution wires (NM), supply(C with market creation), ancillary services(C with market creation), generation (C with market creation)

Source of Natural Monopoly

network network, consumer side conveniences

network, load flow

Measurability of output

Possible possible possible possible

Any non-exclude segments

Nil nil nil nil

Quality (ex-ante or immediate)

almost impossible- measures developed like accreditation, ranking etc are themselves distortionary and user dependent

yes at mains, and expost through pressure, hours of coverage, peak pressure, biological and chemical quality

difficult but possible through average delays, surveys, accreditation, rankings etc

simple in terms of no of interruptions, duration, power factor, variance of voltage, harmonics

Measurability of quality

No, but industry attempts can be distortionary/ perverse

possible; through some dimensions being reduced to hygiene factors

weakly , but relative quality measures expost possible

possible; through some dimensions being reduced to hygiene factors

Determinants of quality

Past quality; reputation; internal processes, idiosyncratic possibilities large, culture ethos driven; price used to signal quality; extreme experience good; highly amenable to club good possibility

Regulatory standards and "harm" avoidance

Safety standards and impact of measures on demand, price -quality tradeoffs; weakly amenable to club good

Regulatory and safety standards and when customer choice price

Repeat consumption

in consumption status, but choice typically once

in consumption choices can be made at each unit of consumption

in consumption but choices possible with "marketisation" for some

Subtractability in consumption

no No; yes, when supply limited

No; rarely but in peak possible

In peak possibility over shorter period

Additivity benefits of consumption

Weakly Significant through health

nil very weakly through avoided local negative externalities (smoke etc)

Externalities

Large and positive Large and positive

Weakly negative

Moderate through merit good aspects

US Access justification

Yes (fairness, but not an issue because of user movement)

Strongly Yes (and locally provided)

No (unless no alternative modes)

Yes (and locally provided)

US Use justification

No (limited by user capacity, but "mis-use" can be avoided

Yes Up to lifeline consumption (right and obligation)

No No (but merit good and weak + externalities)

Elasticity with income

+ after a threshold income and then falls, significant cultural variations, individual ability overriding

+ and declines to zero

+ after a threshold then never falls even if it rises

+ slowly declines with income after rising

Price elasticity

High Low above a level of income, and can increase at higher incomes but then declines.

Moderate for necessary, high for discretionary

low, but segmental differences, Long term is higher than short term

Functional Segments of demand

clubs, return, "joyous, intrinsic, fame"

almost no segments

weak club which can be amplified somewhat, premium versus luxury, discretionary versus non-discretionary; (passenger, freight and documents/small parcels)

interruptible versus regular, constant price versus variable price;

Storability

no weakly no No (but merit good and weak + externalities)

Costs Operational (faculty), land, equipment

Fixed assets, land, operations

Fixed assets (shiftable), inputs, operational

Fixed assets, inputs, operational

Other costs that consumers bear

Qualifying education; income loss: travel lodging costs

not sign interconnect, transfer, waiting, lodging and boarding between flights

not sign

Asset specificity high very high weak high

Other sectors to which the performance is linked

high school, overall development, culture etc, R&D

no airports, aircraft, other modes that compete

equipment, other energy sectors

Critical factor in performance

faculty Availability of water, operations

equipment, Maintenance, crews, staff,

equipment, maintenance, staff

PPP Options

PPP on buildings , housekeeping and canteen is easy and makes sense where incumbent failure on these dimensions is highChallenge of measurement of quality in core areasChallenge of use of price and costs as an indicator of qualityImpact of changes in long drawn outRather than PPP state support through subsides linked to quantum (measurable) and quality (very difficult)State has often had to itself perform; then price discipline on private sectorScope to use public service aspectUnder appropriation is necessary since quality is dependent upon userBroad cost regulation or support levels per unit of usage is importantRegulator /government need to get into the access issue to prevent (negative) club good creationPricing need to be mixed to attract better students; role of scholarships

PPP on bulk water, treatment, sewerage treatment and disposal can be purely commercial and go by bid fee per unit of output, throughput (treatment, sewerage treatment), or capacity and unit of output (bulk water). Demand variation being low, the demand risk can be taken by either government or the private sector. In case of rapid growth (rapid urbanisation phase), there is an opportunity to put demand risk on the private sector esp when sources of water are not limitingDistribution pipes and water supply are not easily broken; value of 24*7, Customer tariffs could be bid basis as long as these do not invite reaction, Possibility of separating customer tariffs from costs; access subsidisation rather than use; scope of IBT. Bids ideally done after tariffs fixed. Case for subsidy is large. Case for efficient tariffs as wellLarge punitive measures in violating quality and safety can be imposeed.USO should be imposed as right and obligationTransitional options, MOT with payments linked to water loss and billed sales.Counsumer groups to monitor quality and supply can play vital roles

Best is private ownership with regulation on safety and standards. Free pricing subject to ceiling?. Enhancing consumer values through interconnect rules. Route classification with assignment and tradability. International contestability for small markets. Open skies?, payback rules for lateness, management of airports, interconnect of terminals and transfer passenger rules?Terminal access? or ban of dedicated terminals for passenger? Airport pricing and regulation also determines competitiveness and efficacy

Unbundling with marketisation of competitive segments, market creation for generation and ancillary services and trading. Key issues - nature of market for energy and capacity separately together or separately?, transmission pricing, interregional flows? role of exchanges.Regulatory approach- price cap or cost plus in the wires business, independence and stand alone nature of transmission and open access to wires of distribution. USO of obligation to make available and rights for access.Quality through reduction of core quality and safety to "hygiene". Transmission planning resp. has to be borne by regulator. Separation of transmission costs and recovery of the same from the pricing, which should both provide the signals for efficient use and for investment. (nodal pricing, but cost recovery on pcap or cost plus)OTHER OPTION IS REGULATION OF VERTICALLY INTEGRATED MONOPOLY THROUGH A MIX OF PRICE CAP AND COST PLUS/ COMPETION IN MARKET