Water Privatization - Forms of Regulation

Forms of Regulation

Being monopolies, all water utilities – public or private – need to be regulated concerning tariff approvals, service quality, environmental compliance and other aspects. The awareness for the need to regulate typically increases substantially when profit-oriented private operators become involved: Monitoring the performance of both the private and the public partner, applying sanctions in case of non-compliance and dispute resolution become particularly important. The regulatory tasks depend on the form of private sector participation: Under a management contract the monitoring of the achievement of performance standards, on which the remuneration of the private company depends, is typically carried out by an independent consulting firm. Under a concession contract or in the case of an asset sale, tariff regulation through a regulatory agency or the government is a key regulatory function. Water concessions are frequently renegotiated, often resulting in better terms for the private company. For example, renegotiations of concessions in Buenos Aires and Manila resulted in investment requirements being reduced, tariffs being increased and tariffs being indexed to the exchange rate to the US dollar. The quality and strength of regulation is an important factor that influences whether water privatization fails or succeeds. The tasks, form and capacity of the public entities charged with regulation vary greatly between countries.

Globally, regulation of private water companies is being carried out by the following types of public entities or, sometimes, a combination of them.