Chapter 7 translations
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This chapter describes the key tender design considerations and the protocol for holding a competitive tender to allocate subsidies to a winning operator or service provider in exchange for universal access and service (UAS) provision. This process, which is almost always used in conjunction with a Universal Access and Service Fund (UASF), can also be used by international or national donors, or industry regulators, using government or other sources outside of UASFs, to supply subsidies or grants.
The main objectives of a competitive bid are to select a qualified organization (with experience, personnel, track record, etc) that has the necessary capacity (e.g., capital, expertise, manpower, etc.), the long-term motivation (through sustainability or profitable business), and the minimum requirements for funds.
Subsidizing ICT projects brings certain risks. These potential risks include:
- Distorting the market;
- Creating dependence on ongoing funding;
- Potential abuse of funds;
- Favouritism; and
- Project failures which waste resources.
To avoid these funding pitfalls, smart subsidy has emerged as a best practice approach. Smart subsidy is considered to be a part of a broader approach to government subsidies known as Output-Based Aid (OBA). The concepts are described in more detail in Section 1.3.3 and Section 3.2. The OBA approach delegates service delivery to the for-profit or non-profit private sector under contracts that tie payments to the outputs or results that are actually delivered to target beneficiaries .
A smart subsidy:
- Should be a one-time result-oriented subsidy awarded typically to a private sector operator or entrepreneur, in some cases a commercially constituted government-owned entity might also be possible;
- Should not distort the market;
- Should encourage cost savings and market growth;
- Should kick start a project or service with the objective of ultimately seeing the programme become commercially viable; and
- Should encourage service development in regions where, without the subsidy, investors might otherwise have been reluctant to invest.
Smart subsidies address the experience of some earlier funded projects that had ill-designed tenders which resulted in wasted resources, created bottlenecks in development, and generally were counter-productive. The following are guidelines for the use of smarter subsidies:
- Operate according to pre-established clear, explicit rules that are transparent and do not create distortions in the market;
- Link subsidies to optimal results;
- Support cost-minimization incentives; and
- Facilitate good governance.
The following design parameters for the competitive bidding strategy (discussed in Section 7.1), bidding and subsidy allocation process (described in Section 7.2) and inspection, payment, monitoring and evaluation process (elaborated in Section 7.3) illustrate how the smart subsidy and OBA principles are implemented in practice.
- See for details “Contracting for public services: Output-based aid and its applications” Edited by Penelope J. Brook and Suzanne M. Smith, published by Rapid Response Unit of the World Bank Group, 2001.