X-factor setting in a developing country: the Case of Lima’s Airport

Research output: Working paper

Abstract

In theory, X-factor regulation provides better incentives for cost reduction than previously
widely-used rate-of-return regulation. However, a deeper look into how this factor is
effectively estimated shows the regulator enjoys a great deal of discretion, especially when
selecting the methodologies used to estimate its components.
This paper describes how the X-factor is estimated in Peru and analyzes the main
controversies (both theoretical al practical) that arose when the X factor for the country’s
main airport was estimated. Conclusions are the following: i) careful planning of the
concession process reduces the probability of unnecessary controversies when the X factor
is estimated retrospectively, since this methodology requires data that needs to be collected
at the time of the concession; ii) cost of capital estimation is a main source of controversies
due to the subjective criteria used in its calculation and its impact in the final result; and, iii)
transparent procedures improve the legitimacy of regulatory decisions, especially in
contexts of limited public resources and weak institutions, typical of developing countries.
Original languageEnglish
Place of PublicationLima
PublisherUniversidad del Pacífico, Centro de Investigación
Number of pages17
StatePublished - 13 Oct 2013

Publication series

NameDocumento de discusión
No.DD/13/09

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