Negotiating complexity and legitimacy in independent power project development

Abstract

Many developing countries have encouraged private sector participation in infrastructure activities during the 1990s, including the development of private electricity generation plants, known as independent power projects. The development of power projects involves multiple sets of negotiations with multiple actors over a period of time to ensure the successful completion of the project. The negotiation process has often been slow, contentious, and unpredictable. We highlight the implications of the complexity of power project development. We argue that the developers need to follow a “relationship-oriented” strategy, combining a strategy based on formal contracts and a strategy based on trust building. In such a combined approach, the appropriate balance between the two components shifts over the life cycle of the project. Trust building is critical at the initiation of the project, whereas complete contracting should dominate in the project implementation stage. Our analysis has broader implications for the successful initiation and implementation of politically salient investment projects in developing countries.