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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

15.6 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 customers.

A. Planning
  • 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.
B. Enforcement
  • 1. Monitoring the regulated utility’s performance against agreed targets.
  • 2. Invoking regulatory actions in the event of performance failure.
  • 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 areas.
C. Consultation
  • 1. Liaison with customers, including those in low-income areas, to assess service levels and priorities for implementing improvements.
  • 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 appropriately.
  • 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 utility.
  • 3. Protecting customers by setting prices appropriate to service levels and services delivered.

Check list

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:
– realistic?
– 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 providers:
– achieve their objectives by improving service provision in low-income areas?
– 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 regulated utility?

Do periodic price reviews and agreement of medium-term development plans:
– 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 cost? and
– 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 areas?


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 process?

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?

Customer representation

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 adequately?

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?



  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