PPP Development Stage – Regulating the PPP
15.6 Regulation in low-income environments
The key regulatory functions that have an impact on customers
in low-income areas are presented below. Below each are noted
particular issues for regulators to take account of in relation to
their duties of promoting improvement in basic services to low-income
- 1. Participating in and providing information to other government
agencies to develop policies relating to coverage and standards
of service in low-income areas.
- 2. Negotiating and agreeing with the regulated utility
appropriate service levels and improvement priorities for
services to low-income areas.
- 3. Developing a reporting regime for assessing the regulated
utility’s progress against agreed targets.
- 4. Promoting competition and issuing licences to new entrants
or secondary providers.
- 5. Periodically agreeing medium-term outputs, funding
and tariffs with the regulated utility.
- 1. Monitoring the regulated utility’s performance against
- 2. Invoking regulatory actions in the event of performance
- 3. Applying incentive and penalty mechanisms to reflect
the regulated utility’s progress in achieving targets.
- 4. Liaison with other government agencies and supporting
other initiatives for improving services to low-income
- 1. Liaison with customers, including those in low-income
areas, to assess service levels and priorities for implementing
- 2. Consultation with customers in low-income areas as
to whether standards reflect their needs and preferences.
- 3. Consultation with customers generally over whether
current standards are defined adequately and measured
- 4. Consultation over tariffs and whether prices reflect
service levels and services delivered.
D. Customer representation
- 1. Promoting the interests of customers in low-income areas.
- 2. Settling disputes between customers and the regulated
- 3. Protecting customers by setting prices appropriate
to service levels and services delivered.
For each of the key regulation activities that impacts on
customers in low-income areas identified above, dialogue and
feedback from practitioners are needed based around the questions
and issues outlined below.
Do existing national or regional policies relating
to service standards, coverage and access in low-income
areas exist, and if so are these appropriate?
Are the service standards, targets and priorities
stated in the initial PPP contract:
– achievable? and
– sufficiently well defined?
Should any additional standards of service or indicators of
performance be developed?
Do the reporting arrangements provided by the regulatory regime
inform the regulator adequately in terms of:
– progress against targets?
– customer satisfaction? and
– costs and benefits to customers?
Do market mechanisms and the licensing of new entrants as secondary
– achieve their objectives by improving service provision in low-income
– increase choice to customers in low-income areas?
– create uncertainty for the regulated water utility and reduce its commitment
to improving service or coverage to low-income areas?
– provide an opportunity for community involvement? and/or
– achieve expectations and attract sufficient new entrants?
Should secondary providers be subject to the same degree
of regulation and meet the same quality standards as the
Do periodic price reviews and agreement of medium-term development
– provide an opportunity to fundamentally revise any shortcomings in the
original PPP contract?
– provide a realistic mechanism for re-basing the contract in terms of
improving services to low-income areas? and
– address the key issues?
Do progress reports from the utility to the
regulator represent the position in the field realistically?
Are the contract targets for the regulated utility
relevant and achievable?
Can actual (or the threat of) regulatory action
against the utility realistically provide an impetus to improve
performance if progress is bad?
In connection with using incentives and penalties
to stimulate progress:
– is there an adequate basis on which to levy penalties or award incentives?
– is there an optimal balance between the two?
– how large should the incentives and penalties be in relation to total
– should incentive payments be funded from revenues or externally?
Can the regulator collaborate with other government agencies
(for example, housing or environment) to stimulate service improvement to low-income
Are there adequate mechanisms for regulators to communicate
with customers generally?
Are the mechanisms for customers in low-income areas adequate
for them to communicate collectively with regulators?
In general, are customers (especially those in low-income
areas) informed sufficiently of the technical, legal and financial
processes so as to be able to participate effectively in a consultation
When consulting customers over future choices, can the regulator
provide them with sufficient financial and technical information
for them to provide positive input relating to:
– service levels? and
– tariff levels and structures?
Is the regulatory framework readily accessible to customers
in low-income areas?
›Does the regulator have adequate authority and
institutional capacity to cope with representation from smaller
groups (or is it pre-occupied with key contractual issues)?
What pressures can customers in low-income areas
exert upon the regulator if it fails to represent their interests
Are the formal regulatory processes appropriate
to settlement of customer disputes in low-income areas, or
is a more informal approach more likely to be effective?
Where the regulators have secured special arrangements
for customers in low-income areas, what commitments can customers
give to honour the agreement?