This led to concerns over anti-competitive behaviour due to vertical integration, and consequent intervention by the Prosecutor's Office and the Antitrust Commission as early as 1992 (OECD, 2004). It also prompted a number of antitrust trials (Basanes et al., 1999), and eventually a reform of the law with two amendments, in 2004 and 2005 (Arellano, 2008).
In water supply, which is generally still a natural monopoly, the entry of TNCs runs the risk of State monopolies being turned into private foreignowned ones (Kirkpatrick et al., 2006). The room for enhancement of allocative efficiency as a result of a higher degree of competition is therefore limited. In the context of market oriented reforms, however, TNC entry may still help improve the efficiency of services provision by replacing inefficient operations with ones that have stronger organizational and managerial capabilities and can respond to incentives (section B.1).
While the entry of TNCs may increase competition and thus efficiency in some markets for infrastructure services, it may also preempt the entry of domestic players or crowd out existing ones. For example, in fast growing industries such as mobile telephony, where TNCs are major players in many developing countries (such as in Africa and Latin America), domestic players may not be able to emerge. This is partly because they would not be able to match the price and services that foreign affiliates offer. Similarly, in power sector reforms in many African countries, current trends indicate that the State is handing over large segments of the electricity industry to foreign operators. This may be necessary in the short run because of insufficient indigenous technology and expertise to ensure essential services, but for the long term governments and the private sector need to work towards improving relevant domestic capabilities (ECA and UNEP, 2007). In many LDCs, the capabilities of domestic private enterprises are often too low for them to be able to enter segments of the electricity industry in the near future, but it is possible to work towards local private participation, for example in the development of independent power producers (IPPs). Indeed, vertical unbundling (section III.A.1) provides possibilities for governments to introduce competition in electricity generation and to allow the entry of IPPs. However, there are no IPPs at all in some LDCs, including Botswana, Burkina Faso, Eritrea, Ethiopia, Lesotho, Malawi, Namibia and Niger, largely because of a lack of local capabilities (ECA and UNEP, 2007).
In some developing countries where domestic capabilities exist, local private participants can enhance their competitiveness and efficiency by collaborating with TNCs in a variety of ways. For example partial privatization, with minority ownership participation by TNCs, has been implemented by many developing countries, with favourable results for competition. For instance, Maroc Telecom (Morocco) became a competitive enterprise and, indeed, a TNC in its own right through such a process. In China, infrastructure investments with TNC participation are usually joint ventures between foreign TNCs and State owned enterprises, with improvements in efficiency in the relevant firms (Wang, 2008).