Best practices in regulating State-owned and municipal water utilities
The fundamental lesson that emerges from this survey of regulating state-owned and municipal water utilities in developing countries is that sector regulation has to be embedded in an adequate and consistent institutional framework in order to have a positive impact on performance. Sector regulation, by itself, is no guarantee of performance improvements in the drinking water supply and sanitation sector. Case studies and empirical analyses suggest that without significant changes in the supporting institutions, the standard tools of regulation will not be effective. This conclusion is disturbing, especially for developing countries, since it means that the establishment of a regulatory agency might raise hopes, but ultimately, the agency’s rules are unlikely to improve performance without additional, politically difficult initiatives. An industry observer said “to have effective regulation, you must have utilities that can, in fact, be regulated”. The problem boils down to getting a broader set of institutions to support regulatory and managerial actions that promote good sector performance.