Can regulation improve the performance of government-controlled water utilities?

Abstract

This paper provides evidence on whether regulation can improve the performance of government-controlled water utilities. While other studies have examined whether private participation combined with regulation can improve the performance of government-controlled water utilities, there has been little research on whether regulation alone can improve performance. This paper examines five case studies on water utility reform in Latin America and the Caribbean. In each case study, a regulatory regime designed for private companies was applied to a government-controlled utility. Assessing performance across a number of indicators, the evidence shows that performance was as likely to deteriorate as to improve during periods of regulation of government-controlled utilities. This contrasts with the evidence of improvement following reforms that combined regulation with private participation. The findings suggest that conventional regulation may be of little use in government-controlled utilities. Conventional regulation is designed to prevent a profit-maximizing utility from raising tariffs above reasonable cost-recovery levels. Government controlled utilities, however, are not commercially motivated and face systematic incentives for short-termism in tariff-setting. Therefore, limiting monopoly profits is not usually the problem that needs to be addressed.We conclude that conventional regulation of a government-controlled utility is not useful in isolation. However, regulatory tools can complement governance reforms. One approach may be to adapt conventional regulatory tools so as to help citizens judge utilities' performance. Such an approach would help increase govemment accountability for the performance of government-controlled utilities.

Descentralización, consolidación y crisis de la gestión urbana del agua en México

“…De esta manera se dificulta su incremento, ya que las autoridades sufren costos de tipo político porque la gente identifica al cabildo o al congreso con la autoridad a cargo del ejecutivo. Esta situación de que la tarifa sea aprobada por factores que obedecen, más bien, a beneficios políticos que a necesidades técnicas y de cubrimiento de costos es muy mencionada en la literatura internacional (Pineda & Briseño, 2012;Ehrhardt & Janson, 2010;Gingley & Ralston, 2010;Braadbaart, Van Eybergen, & Hoffer, 2007;Spiller & Savedoff, 1997). Con respecto al castigo al no pago, en México sólo 8 de 32 entidades establecen sanciones de suspensión a usuarios de tipo doméstico que no contribuyan con el servicio (Pineda, 2011).…”

“…En México, este indicador es conocido como eficiencia física, resultado de sustraer el porcentaje del agua no contabilizada a la unidad (1 -agua no contabilizada); o de dividir el agua facturada sobre el agua producida. Tanto la eficiencia física como el agua no contabilizada son indicadores muy utilizados en estudios sobre desempeño de organismos operadores (Ehrhardt & Janson, 2010;González-Gómez et al, 2011;Pineda & Briseño, 2012;Al-Assa'd & Sauer, 2010;Schwartz, 2009;Rouxel, Brofferio, & Guerin-Schneider, 2008;Braadbaart et al, 2007;Anwandter & Ozuna, 2002;Alegre, Hirnir, Baptista, & Parena, 2000).…”

Key issues and trends in the water policy literature

“…In 2010, four of these papers related to privatisation issues (Adinyira, Sohail et al 2010;Perard 2010;Schouten and van Dijk 2010;Suleiman and Cars 2010), two papers considered regulatory reform (Asquer 2010;Ehrhardt and Janson 2010) while Araral (2010) conducted a review of water sector reform experiences more broadly. Five papers focused upon regulatory reforms in individual countries: Mapedza and Geheb (2010) reviewed water sector reforms in Zimbabwe, Movik (2011) in South Africa, Tankha and Fuller (2010) in India and Brazil, Luzi (2010) in Egypt and Pearson and Collins (2010) in Australia.…”

Improving effectiveness and efficiency in the water sector: institutions, infrastructure and indicators

“…Ehrhardt & Janson (2010) explores the important question of whether regulation can improve the performance of government-controlled water utilities. The conventional literature has mostly examined the question of whether private participation combined with regulation can improve the performance of governmentcontrolled water utilities but little research has been done on whether regulation alone can improve performance.…”