Credible Regulation Essential to Privatization of Utilities

Article excerpt

A credible regulation is essential to ensure that reforms involving restructuring or privatization of infrastructure utilities such as water, power, transportation and telecommunications improve their performance and help reduce poverty.

In a latest study, the World Bank (WB) said that getting infrastructure reform right is essential to achieving the Millennium Development Goals on reducing child mortality and empowering women, says Francois Bourguignon, the World Banks chief economist and senior vice president.

While there was probably some irrational exuberance in recent years on the potential benefits of privatization, the fact is that utilities in developing countries need private financing to maintain and expand services to the poor.

The study, Reforming Infrastructure, Privatization, Regulation and Competition, cites effective regulation as the most critical enabling condition for getting infrastructure reform right.

Regulation that provides a credible commitment to safeguarding the interests of both investors and customers is crucial to attracting the long-term private capital needed to secure an adequate, reliable supply of infrastructure services, the report says.

The report notes that regulatory agencies must be free of political influence, and that their decisions must be subject to review by the judiciary or oversight by another non-political entity.

Regulatory processes, it urges, must encourage competition, be open and transparent, and be designed before privatization is undertaken.

Privatization has low credibility in many developing countries, the study finds, with disapproval rates over 80 percent in surveys conducted in Argentina and Peru. …