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Module 3 - 15 Regulating the PPP

15.1 What is the process of regulation?
15.2 Alternative regulatory arrangements
15.3 What is the scope of regulation?
15.4 Background to the process of creating a new regulatory body
15.5 Some regulatory pitfalls
15.6 Regulation in low-income environments
Further Guidance

Key Questions:

Why carry out regulation of PPPs?
What does regulation entail?
How does regulation achieve poverty reduction

Related Tools:

4 Collecting Information
6 Objectives of PPPs

PPP Development Stage – Regulating the PPP

15.2 Alternative regulatory arrangements

There are two alternative routes to establishing regulatory processes for the first time:

  • 1. setting up a single national regulator covering an entire sector with responsibility for a number of private sector providers; and
  • 2. creating separate regulators on a contract-by-contract basis.

In either case, the regulatory powers may be restricted to a specific service or can extend across various utility sectors.

National regulator

In some cases, a single national (or regional) regulator is appropriate, for example, in water supply, because major changes are implemented and this normally requires the creation of a dedicated regulatory office with effective institutional capacity. The process is enabled by legislation, which ties existing laws with operating licences. Such national (or regional) regulation provides opportunities for:

  • ensuring universality and consistency of standards;
  • comparisons between providers; and
  • extensive customer involvement, in order to show how well utilities are meeting targets and the service levels that can be achieved.

However, this approach can be relatively inflexible and cumbersome for the one-off PPP contracts that are used frequently in emerging economies.

Local regulator

Conversely, local regulation of individual contracts can be tailored to specific circumstances and is therefore more easily able to accommodate local needs and priorities. Whilst existing national legislation covering, for example, service standards or customer protection will prevail, the contract between the government (or municipality) and the private operator will define the respective obligations of each partner and the regulatory mechanisms.

While local regulation is comparatively easy to implement, it has its limitations:

  • it can result in greater focus on interpreting and applying contract terms rather than pursuing the wider regulatory principles;
  • the smaller scale of local regulatory operations can result in institutional constraints and insufficient attention being directed to secondary issues, such as protecting vulnerable groups or the poor;
  • there is no way for a local regulator to compare performance on a like-for-like basis with other utilities; and
  • the operator commands all the information on operational performance (although this can be checked by independent auditors on behalf of the regulator).



  S T A R T P A G E  
  Module 1 - Before PPPs  
  01-Starting Out  
  02-Strategic Planning  
  Module 2 - Preparation Stage  
  03-Planning & Organising  
  04-Collecting Information  
  Module 3 - PPP Development Stage  
  05-Identifying Constraints  
  06-Defining Objectives  
  07-Defing Parameters (Scope)  
  08-Establishing Principles  
  09-Identifying Partners  
  10-Establishing Partnership  
  11-Selecting Options  
  12-Financing (Investment)  
  13-Financing (Cost Recovery)  
  14-Preparing Business Plans  
  15-Regulating the PPP  
  Module 4 - Implementation  
  16-Tendering & Procurement  
  17-Negotiating & Contracting  
  18-Managing PPPs  
  19-Monitoring & Evaluation  
  20-Managing Conflict  
  21-Capacity Development  
  Contact Information