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Published on: 16/05/2013

Why is it important for sustainable services at scale?

More formalized regulation provides a mechanism for protecting both consumers and service providers and for strengthening the long-arm of accountability relations between the two. Without regulation, rural water services may be more vulnerable to a cycle of poor services and non-payment of tariffs by unhappy consumers, and ultimately a deterioration of services. Regulation can be seen as a mechanism to balance different stakeholders’ objectives (as those may be contradictory), including to:

  • Enable the public sector to carry out its long-term policy objectives, such as expanding services to people currently without access;
  • Protect service providers from politically-driven decisions and keep undue political interference under check;
  • Protect customers from potential abuse of monopoly power by their service providers or from arbitrary rule changes from local and national government.

Forms of regulation

Regulatory functions should ideally be performed by a different entity from the one in charge of setting policy, owning the assets or from those providing the services. Separating functions is difficult in rural areas therefore it is often necessary to allocate regulatory functions to various levels of government. 

Two main regulatory models are commonly found: regulation‘by contract’refers to a situation where most of the rules, particularly on tariffs and service quality, are set out in advance in a contract and conflicts are arbitrated by independent agencies. By contrast, the regulation‘by agency’model vests regulatory powers in a more autonomous entity established by law which is then in charge of conducting regulation.

Recommendations

The following steps can help determine what can be done to improve regulation in a rural context:

  • Assess existing regulatory arrangements at the national level and examine the existing service delivery models for rural water
  • Consider existing capacities at the local level, particularly at the level of local government
  • Take care in simply transferring urban regulatory frameworks to the rural context without adjusting these to reflect the reality of rural service providers and their operating environment (i.e. avoid overly punitive frameworks)

For Governments: Establish a national framework that clearly allocates regulatory functions to various levels of government,

For NGOs: build on existing regulatory arrangements and seek to strengthen capacities.

For donors: support the drafting of national legislation and model contracts and provide funds for regulatory training, including at local government level.

For international financial institutions: fund the establishment of sound regulatory mechanisms when financing reforms of the rural water sector

 

What is IRC doing about it?

IRC's interest in regulation relates mainly to its application in rural areas. We recognise that much effort has gone into regulation in urban areas and many lessons have been learnt. We are currently assessing whether and how regulation makes sense also for rural areas where one typically finds a large number of informal service providers. Regulation may help them in doing a more professional job and meeting standards. However, care should be taken that regulation doesn't become punitive and that standards are set that take into account characteristics of rural service provision.

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