Getting the Private Sector Involved in Water : What to Do in the Poorest of Countries?
Water has historically been hugely underpriced in most developing countries. Water systems are often poorly run. Regulatory frameworks are often lacking, incomplete, or internally inconsistent, and the relevant skills thinly spread. There is little trust that the government will maintain a favorable operating environment and a tariff yielding a reasonable rate of return. It is not a setting attractive to the private sector. While much stands in the way of private provision of water services in the poorer countries, the following four options, individually or in combination, may speed transformation: 1) taking a stepwise approach; 2) simplifying contracts; 3) contracting out parts of the regulatory function; and 4) increasing predictability in the use of discretion. There is often a sharp difference between what private companies see as a minimal return necessary to go into business in a risky country and what governments view as an acceptable level of profit. Governments should be realistic about the profits that they should allow, recognizing the need of their private partners to earn a reasonable return and to be rewarded for the risks that they shoulder.