1 00:00:07,080 --> 00:00:13,160 This week is about public values, trade-offs, infrastructure performance and regulation. 2 00:00:13,160 --> 00:00:20,160 Let us highlight water from this perspective and reflect on the complexity of regulation. 3 00:00:20,510 --> 00:00:24,860 As argued by many of you, water is not a common good. 4 00:00:24,860 --> 00:00:29,560 It is a necessary good for everyday life and for economic activity, perhaps even the most 5 00:00:29,560 --> 00:00:35,800 necessary one, especially since water is essential for life and public health. 6 00:00:35,800 --> 00:00:42,360 The right to water for personal and domestic use to satisfy basic human needs has been 7 00:00:42,360 --> 00:00:46,280 protected under international human rights law. 8 00:00:46,280 --> 00:00:52,670 The human right to water imposes responsibilities upon governments to ensure that people can 9 00:00:52,670 --> 00:00:59,670 enjoy "sufficient, safe, accessible and affordable water, without discrimination". 10 00:00:59,920 --> 00:01:05,400 Governments are expected to take reasonable steps to avoid a contaminated water supply 11 00:01:05,400 --> 00:01:11,560 and to ensure non-discriminatory access to safe drinking water for all citizens. 12 00:01:11,560 --> 00:01:17,840 Today, all nation states have at least ratified one human rights convention, which explicitly 13 00:01:17,840 --> 00:01:24,509 or implicitly recognizes the right to water, and they all have signed at least one political 14 00:01:24,509 --> 00:01:28,759 declaration recognizing this right. 15 00:01:28,759 --> 00:01:35,420 Not surprisingly, there is a huge debate going on on the privatization of water - the debate 16 00:01:35,420 --> 00:01:42,119 focuses on the provision of water services, but it may include sanitation. 17 00:01:42,119 --> 00:01:47,770 Opponents of privatization argue that this is incompatible with ensuring the international 18 00:01:47,770 --> 00:01:53,389 human right to water, that private sector participation leads to tariff increases and 19 00:01:53,389 --> 00:01:58,639 that it effectively turns a public good into a private good. 20 00:01:58,639 --> 00:02:03,560 Proponents of private sector participation argue that privatization leads to improvements 21 00:02:03,560 --> 00:02:06,859 in the efficiency and service quality of water utilities. 22 00:02:06,859 --> 00:02:13,859 They also argue that it will increase investment and thus contribute to wider access. 23 00:02:14,590 --> 00:02:17,730 The EU is no exception to this debate. 24 00:02:17,730 --> 00:02:24,430 Organizers of the very successful 'Right2Water' campaign collected almost 1.9 million signatures 25 00:02:24,430 --> 00:02:30,920 earlier this year to urge the EU Commission to guarantee access to water and sanitation 26 00:02:30,920 --> 00:02:37,260 as a human right, and to establish legal guarantees that water services will not be liberalized 27 00:02:37,260 --> 00:02:40,390 in the EU. 28 00:02:40,390 --> 00:02:46,910 But what do we know about the impact of water privatization? 29 00:02:46,910 --> 00:02:52,290 Many examples of best practices and failures can be found. 30 00:02:52,290 --> 00:02:58,610 However, statistical studies comparing public and private water utilities show little difference 31 00:02:58,610 --> 00:03:01,320 in the average performance. 32 00:03:01,320 --> 00:03:05,730 The reality of governance and regulation is not black and white. 33 00:03:05,730 --> 00:03:11,220 It is always context and country specific. 34 00:03:11,220 --> 00:03:16,980 From this perspective I would like to highlight two excellent contributions from your fellow-students 35 00:03:16,980 --> 00:03:21,260 and then come back to regulation. 36 00:03:21,260 --> 00:03:27,760 The first is about the Water Infrastructure System in India from 'DrMetha'. 37 00:03:27,760 --> 00:03:33,030 He writes and I quote: 'India has an enormous governance deficit 38 00:03:33,030 --> 00:03:36,790 when dealing with changing water scenarios. 39 00:03:36,790 --> 00:03:41,780 Governance of water is divided between the central and state authorities, with categorization 40 00:03:41,780 --> 00:03:47,650 of rules and responsibilities, yet it is seen that the overall sustainable vision for water 41 00:03:47,650 --> 00:03:52,870 development, conservation and management remains missing. 42 00:03:52,870 --> 00:03:58,680 The coordination and synchronization between departments/implementers and regulators is 43 00:03:58,680 --> 00:04:04,790 fragmented leading to each department doing things without much coordination with other 44 00:04:04,790 --> 00:04:09,730 departments, and sometime at cross purposes. 45 00:04:09,730 --> 00:04:14,900 The regulatory bodies have not been strict in controlling, for example, appropriation 46 00:04:14,900 --> 00:04:18,530 of water bodies, industrial pollution, etc. 47 00:04:18,530 --> 00:04:24,900 Second, there is lack of data disaggregation and aggregation in important decision-making 48 00:04:24,900 --> 00:04:28,120 by the body involved in water planning. 49 00:04:28,120 --> 00:04:33,540 Data is generated by different bodies and is sometimes contradictory in nature. 50 00:04:33,540 --> 00:04:40,300 Overall, there is a weak political will in finding sustainable solutions to water problems 51 00:04:40,300 --> 00:04:49,840 and this in turn leads to a governance deficit in water' The second one is from Pakistan 52 00:04:49,840 --> 00:04:52,500 from 'igorfrankey'. 53 00:04:52,500 --> 00:04:59,500 His post is also a must read and is titled: 'Water Crisis in a former water abundant country: 54 00:04:59,500 --> 00:05:01,480 Pakistan'. 55 00:05:01,480 --> 00:05:07,540 It gives a dramatic picture of the extremely precarious water situation in this country. 56 00:05:07,540 --> 00:05:11,180 The water infrastructure in Pakistan is on the brink of collapse. 57 00:05:11,180 --> 00:05:16,169 This is due to a number of both technical and socio-economic problems. 58 00:05:16,169 --> 00:05:24,320 To name a few mentioned in this post: Water bureaucracy; Increasing trend of urban migration 59 00:05:24,320 --> 00:05:30,160 exerting more load on the water resources allocated for urban centers 60 00:05:30,580 --> 00:05:34,220 and therefore robbing rural areas. 61 00:05:34,240 --> 00:05:41,960 Inequitable water distribution at micro level and absence of water laws; Inter-Provincial disputes over 62 00:05:41,960 --> 00:05:48,960 water claims; Gross underinvestment in basic water-related facilities 63 00:05:49,340 --> 00:05:56,820 Complete lack of attention towards repairing and maintenance of existing infrastructure. 64 00:05:57,280 --> 00:06:03,300 Absence of private sector in any domain of transmission, maintenance and repair which 65 00:06:03,300 --> 00:06:08,840 results in no competition and lack of quality control in the water sector. 66 00:06:08,840 --> 00:06:13,090 So, the key questions - also for these examples - are: 67 00:06:13,090 --> 00:06:15,169 What are the public values? 68 00:06:15,169 --> 00:06:17,360 Is privatization an option? 69 00:06:17,360 --> 00:06:24,020 How can regulation ensure that public values are safeguarded in the case of a private utility? water 70 00:06:24,449 --> 00:06:27,280 The problems mentioned above are extremely complex. 71 00:06:27,280 --> 00:06:35,139 I will give a few general notions, points about privatization of the water sector and the 72 00:06:35,139 --> 00:06:38,039 process of regulation. 73 00:06:38,660 --> 00:06:44,230 A private water utility is not disciplined by competitive market forces - it operates 74 00:06:44,230 --> 00:06:50,030 a natural monopoly network, so the government retains monitoring and control responsibilities 75 00:06:50,030 --> 00:06:56,229 to ensure that its citizens are protected from abuse of market power. 76 00:06:56,229 --> 00:07:01,449 In the case of water services, not only the affordability of water, but also public health 77 00:07:01,449 --> 00:07:03,750 is at stake. 78 00:07:03,750 --> 00:07:09,150 If the privatization of the water sector is only driven by financial constraints, with 79 00:07:09,150 --> 00:07:16,150 the purpose of obtaining an inflow of resources to the government, it may be lax in imposing 80 00:07:16,250 --> 00:07:19,340 stringent controls on the private water utility. 81 00:07:19,340 --> 00:07:25,340 In the words of Professor Perez-Arriaga, if the regulation is not 'loud' enough, then 82 00:07:25,340 --> 00:07:31,400 the long-term infrastructure performance is likely to deteriorate. 83 00:07:31,940 --> 00:07:36,920 Both examples stress the need for regulation, one way or the other. 84 00:07:36,930 --> 00:07:41,960 But how should long, loud and legal regulation be organized? 85 00:07:41,960 --> 00:07:45,770 You would argue: the regulator must be independent, have the 86 00:07:45,770 --> 00:07:51,800 power to impose significant penalties, and the regulatory rules, principles and powers 87 00:07:51,800 --> 00:07:59,200 must be firmly embedded in legislation, because regulatory uncertainty would discourage investment. 88 00:08:00,110 --> 00:08:07,110 However, in the way regulation is established in practice, you will often see results that 89 00:08:07,130 --> 00:08:13,330 seem to be at odds with the clear principles of Professor Perez-Arriaga. 90 00:08:13,330 --> 00:08:20,860 A few examples: First, the need for process bundling. 91 00:08:21,100 --> 00:08:27,479 In general, one can say that - at the institutional level - the regulator should be truly independent. 92 00:08:27,479 --> 00:08:33,610 However, in policy and work processes, the regulator should adopt an outward focus and 93 00:08:33,610 --> 00:08:35,610 move into the field. 94 00:08:35,610 --> 00:08:42,840 Distance is a dangerous strategy for a regulator, because of information asymmetry. 95 00:08:42,849 --> 00:08:47,340 Therefore, 'being there' is a dire necessity. 96 00:08:47,340 --> 00:08:50,380 The regulator should work alongside the companies. 97 00:08:50,380 --> 00:08:54,420 They should be on committees together, do research together, carry out pilot projects 98 00:08:54,420 --> 00:08:57,990 together and conduct evaluations together. 99 00:08:57,990 --> 00:09:02,560 In short, process bundling. 100 00:09:02,560 --> 00:09:09,110 In this way the regulator will get the information it needs to perform its tasks. 101 00:09:09,110 --> 00:09:16,110 Secondly, strict enforcement of regulation is hard to combine with negotiating and process 102 00:09:16,160 --> 00:09:17,860 bundling. 103 00:09:17,860 --> 00:09:25,000 Clear and detailed rules go hand in hand with strict enforcement in the event of non-compliance. 104 00:09:25,140 --> 00:09:31,820 However, strict enforcement is bound to provoke tensions with the utility, which is not conducive 105 00:09:31,830 --> 00:09:38,250 to smooth negotiations between the regulator and the utility at a later stage. 106 00:09:38,250 --> 00:09:42,770 Since part of the regulator's work involves bargaining processes, the regulator will need 107 00:09:42,770 --> 00:09:48,260 to strike a balance between strict enforcement and room for negotiations. 108 00:09:48,260 --> 00:09:54,290 If the regulator is too strict, then the process bundling will not materialize, and the regulator 109 00:09:54,290 --> 00:09:58,670 is bound to suffer from information asymmetry. 110 00:09:58,670 --> 00:10:06,680 Thirdly, supervising compliance with rules and enforcement requires a long lead time. 111 00:10:07,260 --> 00:10:15,220 It usually takes some time for the regulator to diagnose an infringement of rules. 112 00:10:16,320 --> 00:10:22,200 To enable regulators to operate more effectively, they need to be given more room than the rules 113 00:10:22,200 --> 00:10:23,730 allow them. 114 00:10:23,730 --> 00:10:29,870 Proactive action is not only desirable, but even necessary. 115 00:10:29,870 --> 00:10:34,279 The concept of task competence might be suitable here. 116 00:10:34,279 --> 00:10:40,209 It is important that the task description of the regulator guarantees sufficient freedom 117 00:10:40,209 --> 00:10:43,700 of action for the regulator. 118 00:10:43,700 --> 00:10:54,000 Fourth, a promising arrangement is the institutional anchoring of standards of decency. 119 00:10:54,240 --> 00:11:01,000 Here we are referring to soft rules aimed at realizing values like fairness, openness, 120 00:11:01,270 --> 00:11:06,839 honesty, and reliability by the private utility. 121 00:11:06,839 --> 00:11:13,399 The core of institutional anchoring is that intended values are realized by the way the 122 00:11:13,399 --> 00:11:19,279 organization is designed, rather than through compulsory rules of behavior. 123 00:11:20,020 --> 00:11:25,959 In other words, incentives should be built into the structure of the organization to 124 00:11:25,959 --> 00:11:31,390 make it value sensitive - in order to help the organization exhibit desired behavior 125 00:11:31,390 --> 00:11:35,410 (or renounce undesirable behavior). 126 00:11:35,410 --> 00:11:42,520 Institutional anchoring relies on the self-reflexive capacity of the organization instead of frustrating 127 00:11:42,529 --> 00:11:46,730 it in the way normal legislation does. 128 00:11:46,730 --> 00:11:52,930 It fits in with the growing tendency to anchor good conduct in the philosophy of corporate 129 00:11:52,930 --> 00:11:55,830 social responsibility. 130 00:11:55,830 --> 00:11:59,890 Of course, there must be a clear commitment - not only good intentions. 131 00:11:59,890 --> 00:12:06,580 If need be, the regulator must still be able to apply coercive measures to force the utility 132 00:12:06,580 --> 00:12:09,850 to behave responsibly. 133 00:12:09,850 --> 00:12:14,089 To summarize: the reality of governance and regulation is 134 00:12:14,089 --> 00:12:21,089 not black and white, - it knows many shades of grey, as combinations of soft and hard 135 00:12:21,459 --> 00:12:26,040 rules may often be more effective than just hard rules. 136 00:12:26,040 --> 00:12:31,680 In other words, we should add hybrid governance and regulation to the toolkit of approaches 137 00:12:31,680 --> 00:12:36,430 to safeguarding public values in the world of infrastructures. 138 00:12:36,430 --> 00:12:41,330 With respect to the water sector, the problem is more complicated: 139 00:12:41,330 --> 00:12:47,410 very often, the governance of drinking water infrastructure, water provision for agriculture 140 00:12:47,410 --> 00:12:54,320 and industrial water provision is segregated between separate government bodies and regulators, 141 00:12:54,320 --> 00:12:58,839 even if the source of that water is the same. 142 00:12:58,839 --> 00:13:05,740 On top of that, freshwater provision may be segregated from wastewater removal and treatment, 143 00:13:05,740 --> 00:13:11,540 even if they are all part of the same water cycle. 144 00:13:11,540 --> 00:13:16,490 Without any form of coordination between the regulators involved, precious water sources 145 00:13:16,490 --> 00:13:23,350 are likely to be exhausted or to become polluted, as your contributions have pointed out. 146 00:13:23,350 --> 00:13:28,240 The main question here is not whether or not to privatize the water utilities. 147 00:13:28,240 --> 00:13:34,450 A public water utility, if it is forced to work efficiently and invest prudently, can 148 00:13:34,450 --> 00:13:36,410 also do the job. 149 00:13:36,410 --> 00:13:39,930 In both cases, a strong government is needed 150 00:13:39,930 --> 00:13:44,019 that clearly articulates the public values to be safeguarded, 151 00:13:44,019 --> 00:13:49,269 that sets performance targets, and embeds the rules in laws that can and 152 00:13:49,269 --> 00:13:51,409 will be enforced.