Colombia deregulated its electricity sector and created a new market for electricty in July 1995. The spot market price is determined by a daily auction among the producers. Though the auction is designed to foment price competition, water scarcity constraints and the relatively high utilization of production capacity at peak demand hours produce situations where
Government guarantees for private infrastructure projects reduce the incentives of firms to perform efficiently, weaken the incentives to screen projects for white elephants, and shift government obligations to future periods. Thus the uses of guarantees needs to be limited, and they need to be carefully designed. Franchising schemes should in principle assign risk to the