PPP Development Stage – Regulating the PPP

15.1 What is the process of regulation?

Regulation is a necessary component of any public-private partnership in monopoly (and non-monopoly) service provision as it aims to secure:

• the proper performance of obligations (on all sides);
• fair play; and
• protection of customers in general.

Customers of basic services comprise a wide spectrum of economic and social groups, each with differing needs, expectations and financial circumstances. Poor and other vulnerable customers might represent a small proportion of the customer base yet warrant a disproportionately large amount of regulatory attention, if they are not to be marginalised.

Regulatory intervention is based on the following regulatory principles:

• customer protection;
• price controls; and
• service standards.

The regulatory framework may also include:

• controlling abuse of monopoly power;
• preventing unfair discrimination between customers; and
• encouraging efficiency.

Underpinning regulatory effectiveness (irrespective of the sector) ensures independence of action of the regulator and the absolute separation of the roles of service provider and regulator – along with the separation of both of these from political processes.

Whilst it is generally recognised that wide-ranging regulation is essential for the proper administration of a PPP contract, the early regulatory regime invariably focuses on price-sensitive contract deliverables such as investment activity, enforcing service standards and payments to the PPP company. Only when these fundamentals are satisfactorily in balance can regulatory attention turn to protection of poor and other vulnerable customers, both in terms of standards and prices.
Unless the regulatory framework contemplates issues properly in relation to services to the poor and confers on the regulator authority for acting, it is unlikely that pro-poor policies can be implemented in the early stages of a PPP contract.