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Module 15: 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).
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