Water

Results of ADB Water Week 2004 Water for the Poor: Setting the Rules and Finding the Money Change Agenda Changing Regulation From independent to credible regulator Shift the focus from aiming at independent to credible regulator

Results of ADB Water Week 2004 Change Agenda Changing selection criteria Changing incentives and advocacy Changing regulation Changing the rules to reward efficiency Changing the focus of lending Changing the nature of water project Changing water financing partners

Unregulated water markets typically discriminate against the poor. Effective regulation can help the poor by ensuring monopoly providers are not captured by vested, often politicians, interests and that they meet the needs of customers at affordable prices.

Regulation must be based on a transparent government policy and one of the main objectives of regulation is to ensure that utilities have the autonomy needed to comply with government policies and legislation. The principles of accountability, efficiency, equitability and transparency should be the objectives of a regulatory body.

Why a shift from independent to credible regulator? Although independence is desirable for regulators, our experience is that there is strong resistance against establishing independent regulators from public sector agencies who are concerned about the loss of accountability and control. Independence is therefore difficult to achieve, and we argue that pursuing credible regulators may be the next best objective. In any case, an independent regulator is not a sufficient condition for effectiveness. A regulatory office needs adequate skills, resources and authority. Neutrality, efficiency, accountability, and transparency are all needed to make regulators more credible.

A credible regulator supports improved services:

• It safeguards consumers with respect to price and levels of service (quantity and quality)

• It provides for transparent tariff setting based on established rules and procedures

• It provides certainty for public and private sector investments

• It ensures accountability of service providers (information dissemination)

• It provides mechanisms for public input

• Strengthen legislation so that sufficient authority is given to the regulator to obtain information, investigate, determine and enforce decisions.

• Establish clear operating modes for public hearings, decision making, reporting and dispute resolution.

• Confirm the mandate to safeguard the poor by making them a key factor that must be taken into account in making water regulatory decisions.

• Avoid undue influence by ensuring that organizational appointments, funding and accountability are protected from short term political or provider interference.

• Engage support of various stakeholders: (i) Governments must formulate sector policy, develop pro-poor programs and foster public and private partnership; (ii) providers must meet service targets and provide performance information; (iii) civil society must participate in regulator-consumer forums.

To serve the best interests of both consumers and the managers of water resources, the system of pricing, incentives, and penalties , regardless of its simplicity or sophistication, needs to be regulated. Regulatory systems need to be established to ensure that laws, standards, rules, and regulations are equitably and consistently applied. In most ADB developing member countries (DMCs), such systems are absent and it is left to the government to play the role of provider and regulator.

• ADB will promote the establishment of regulatory systems through its policy dialogue with the DMCs and by leveraging its loan and technical assistance programs to this end.