Regulation in developing countries is different: avoiding negotiation, renegotiation and frustration

Developing countries are implementing a wide range of energy sector reforms. All of these involve a series of steps to set up credible contracting frameworks (e.g. regulatory offices, competition commissions). Evidence indicates such regimes are not succeeding in avoiding protracted, expensive renegotiations between private investors and the institutions designed to oversee the new regime. One potential solution is the increased use of options in privatisation contracts. Such options can be designed to decrease the incentive for requests to renegotiate from investors seeking solely to extract further concessions and to provide clear signals about the profitability of investment opportunities.