Regulation, tariffs and subsidies

This high-level book provides an excellent framework to analyse energy and water subsidy schemes, ranging from explicit to implicit and direct to indirect, and their effectiveness in targeting those who really need it. It also  reviews worldwide experience with regards to subsidy mechanisms and provides concrete recommendation on targetting subsidies to the poor more effectively.

Policies related to water can be considered under two inter-related headings: providing water services, especially water supply and sanitation, and managing water resources. This report focuses on the economic foundation and financial basis for sustainable water service provision and the role of economic instruments in sound water resource management. A considerable effort has been made to base the analysis on recent experience in OECD and partner countries. This report examines practical ways to close the financial gap between the costs of providing water services with the sources of financing available, in both OECD and non-OECD countries. Closing this financial gap is a prerequisite for ensuring affordable water services for all segments of society. Tariffs have a special role to play in this, but need to remain affordable. This report examines some of the related governance and institutional issues.

Drinking water, sanitation and wastewater professionals and practitioners, policy and decision makers with responsibilities for these services, managers of public or private service providers, and the community of practice working in water management, gathered at the First International Regulators Forum in Lisbon, in September 2014.
They commended the IWA initiative to develop, formulate and establish a Charter with a view to laying out the basic principles for good public policy and effective regulation of drinking water supply, sanitation and wastewater management services (henceforth the ‘Services’), declaring the respective rights, duties and responsibilities of the governments and public administration, regulatory authorities, service providers and users.

The Lisbon Charter provides guidance on the formulation of national and local public policies, the creation of associated regulatory frameworks for the Services, and on good practice for the implementation of such policies and regulations.

http://regulationbodyofknowledge.org/

Developed by the Public Utility Research Center (PURC) at the University of Florida, in collaboration with the University of Toulouse, the Pontificia Universidad Catolica, the World Bank and a panel of international experts, the Body of Knowledge on Infrastructure Regulation (BoKIR) summarizes some of the best thinking on infrastructure policy. Funding for this project came from the Public-Private Infrastructure Advisory Facility (PPIAF).

Considerable confusion has arisen about what regulation means in the context of water supply and sanitation (WSS) services. In particular, there are questions about the application of the “independent regulator” model to WSS in the developing world. What types of problems can it can address effectively?
What is its relevance, especially as provision and oversight of these services are often the responsibility of subnational governments with limited resources? The Explanatory Notes on Key Topics in the Regulation of Water and Sanitation Services provide a consistent set of principles and practices that respond to these questions. Such information will be of interest to service providers, policy makers, and development practitioners interested in improving the performance of WSS services in urban areas. 

The notes draw upon current regulatory thinking and research, but are intended to be accessible to those who are not regulatory experts. These are the first outputs of a program of work on regulation in the water supply and sanitation sector funded by the Public-Private Infrastructure Advisory Facility (PPIAF), the Bank-Netherlands Water Partnership (BNWP), and the World Bank.
We will add additional notes as that work progresses. Each of the notes can be read separately, and together the notes provide an integrated framework for the development of practical approaches to the regulation of WSS.
The seven notes address the following topics:
1. Defining Economic Regulation for Water Supply Services
2. Designing Economic Regulation for Water Supply Services: A Framework
3. Choosing Organizations and Instruments for Economic Regulation of
Water Supply Services
4. Regulation and Private Participation Contracts
5. Cost of Service and Tariffs for Water Utilities
6. Regulating Government-Owned Water Utilities
7. Regulating Wastewater Services in Developing Countries

This report presents a picture as of September 2014 of the governance arrangements, operational modalities and use of regulatory tools across a sample of 34 established water regulators.

The report elaborated by the European Water Regulators (WAREG) provides a description of some approaches used in 17 WAREG Members’ countries to ensure the affordability of water and sewerage charges. It also provides a general overview of the governance frameworks and tools used in those countries. The main objective of this paper is to outline existing practices and to identify possible common patterns in regulatory mechanisms to ensure affordability of water services. This paper does not intend to give any indication of best practices.

This report analyses the application of Key Performance Indicators (KPIs) to describe efficiency of water services in WAREG member countries, with the aim to draw out commonalities as well as differences in monitoring of water efficiency measures and performance. It seeks to outline how different European regulators promote water efficiency within their regulated industries. It is noted that although various KPIs and benchmarking platforms exist in the water industry, there appears to be a lack of consistency in the definitions, descriptions, application and consistency of KPIs used to measure water efficiency across Europe. It is further noted that while some countries use KPIs for benchmarking purposes, this practice has still not been fully embraced by regulators in WAREG member countries.

The document reviews the experience with regards to cost recovery equity and efficiency of water tariffs and tariff-setting policies in a range of African countries.

Numerous studies have addressed water utility performance in developed and developing nations. These studies recognize the importance of the institutional factors affecting those managing water utilities and those providing regulatory oversight: social structures (the political and cultural context), formal organizations (regulatory commissions and government ministries), and support systems (including political patronage and civil service). These external factors affect how conflicts are resolved regarding resource allocation, pricing, and access to water services. In addition, these issues influence the internal governance of state-owned enterprises (SOEs). By publishing key performance indicators (KPIs), the regulatory body can contribute to greater transparency. In addition, the information stimulates participation by stakeholders, including minority groups and those receiving rural water services. Favours to special interest groups that could be revealed by business plans are more likely to be brought to public attention when governments open their books. Ultimately, in conjunction with incentives established by regulators, external factors determine managerial objectives and actions. These objectives include financial sustainability (via cost containment, improved collections, and reducing non-revenue water), better service quality, and network expansion providing access to the poor through affordable tariffs (or targeted subsidies when necessary); alternatively, managers might focus on delivering favours to special interest groups, including contractors, employees, or politically-connected constituencies. The key issue is how to design an institutional system that reduces the likelihood that the latter actions prevail since they lead to capture, corruption and low levels of utility performance.

This paper discusses the regulation of water and sanitation services in urban areas. Specifically, it explores ways of thinking about regulatory design as part of a wider, country-specific program to reform the way in which water supply and sanitation services are provided and paid for.