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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

15.3 What is the scope of regulation?

Regulation in the basic services sector is wide-ranging and covers all performance aspects of service delivery. For each of the services provided– for example in the case of water supply (including water quality), wastewater (including environmental standards) and waste management – it includes:

Setting or adjusting the prices that are allowed to be charged for services;
Monitoring performance in key areas and making interventions where necessary;
Representing customers and taking up grievances with service providers;
Assessing quality and environmental performance through monitoring and enforcement of standards; and
Representing national interests in connection with setting appropriate and affordable standards of service and determining an overall service provision strategy.

There are three ways in which the regulator can address the regulation of the PPP arrangement:

  • 1. The provision of basic services impinges upon many other governmental activities – such as public health, social welfare, environment and general economic development. In consequence and to facilitate good governance, governments may choose to combine regulation of several activities under a single umbrella.
    Such organisation may regulate performance of all aspects of service provision in several sectors. This combining of regulatory responsibilities facilitates an integrated approach to setting standards and fosters a close linkage between performance standards and prices to customers across the board. By definition, such regulatory arrangements require considerable institutional capacity. They can also become cumbersome and bureaucratic, especially if regulation is to exert pressure on utilities to meet standards or implement tariff policies.
  • 2. Equally, governments may create individual regulators for separate sectors. In some cases regulatory separation exists even within a sector, for instance by separating regulation of environmental and health standards from regulation of prices, standards and performance. Whilst this approach may allow individual regulators to focus on specific issues, in the water sector it risks the pursuit of high-cost policies, policies that place service provision above customers’ price expectations. On the other hand, self- regulation in the public sector has led to many service levels falling below standard, but with no publicity.
  • 3. Finally, where PPP is adopted locally on an ad hoc basis – for instance, where individual municipalities or regions engage a private sector operator – regulation more closely resembles contract supervision than sector regulation. Such local regulators have to work within the ambit of other national regulators in relation to activities such as environmental protection, health or economic development. In these circumstances, the utility may face regulation by several separate bodies and the nominated regulator under the PPP arrangement assumes the role more of a contract supervisor involved in performance monitoring, payment and price setting.

Scope of Regulation
A. Set the allowed price
B. Monitor performance
C. Represent customers
D. Assess quality
E. Represent national interests

Irrespective of the regulatory arrangements, setting standards, prices and monitoring services to the poor falls within the ambit of economic regulation. As far as services to the poor are concerned, the scope of such economic regulation includes:

  • tariff setting through periodic price reviews or triggered by significant changes;
  • performance monitoring, including financial, operational and customer service issues;
  • payment of fees and incentives (or penalties) to the private company;
  • ensuring that the contractual provisions are met (including insurance, indemnities and guarantees); and
  • taking regulatory actions in the event of performance failure, including the settlement of disputes and termination in extremis, monitoring service provision, performance including expansion, new supplies, environmental compliance and issues relating to customer management or disconnection for non-payment.



  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