A Sourcebook - UN-Water

To overcome some of these constraints, and create a relationship in which the provider is both autonomous
and accountable for the areas in which it has autonomy, governments can:
Corporatize water services
Corporatization is commonly recommended as a way to increase autonomy and professionalism in
water provider. Corporatization sometimes refers to creation of a water provider that is a corporate
entity (whether a state-owned company or a statutory corporation) as opposed to a provider that is
part of a government department or municipal government. Other times the word is used strictly to
refer to the transformation of a public-provider into a company incorporated under normal company
law, but in which all the shares are owned by the government (Table 10.1 describes different types of
ownership and corporate form).
Although a corporation’s board may have representation from senior government officials, it is a distinct
legal entity that operates more like a private business. Its finances are isolated from the general
government budget and may be externally audited. The benefits of this model are that it can introduce
autonomy and commercial discipline to the utility, decreasing political interference and petty
corruption and leading to considerably better performance in terms of coverage and quality (a result
confirmed by an econometric analysis of water utilities from Africa, Asia and the Middle East by Braadbaart,
Eybergen & Hoffer, 2007). A comparison of a corporatized electricity utility and a departmental
water provider operating in the same city highlight some of the benefits.
In practice, corporatization is often imperfect—politicians may still intervene in utility affairs or act to
restrict tariff revenues, such that the utility is unable to meet all service coverage goals. There may
also be internal resistance to the institutional changes involved in adopting the corporate model, or
a lack of capacity to properly implement the required changes. Practitioners need to be aware of
such constraints.
Table 10.1 Types of Ownership and Corporate Form
Ministry or Statutory Body State-owned Mixed-ownership Investor-owned
Department (or Parastatal) Company Company Company
Legal
Foundation
Status as
Legal Entry
Basis of
Ownership
Legal
Framework
Source: Castalia
Normally an executive
order
Normally unincorporated
(thus does
not have a legal
personality separate
from that of
the government)
Notionally, owned
by the government
as creator
Operating under
public law
A statute
Either incorporated
or unincorporated
Notionally,
owned by the
government as
creator
Operating
under public
law
A memorandum
and articles of
association (registered
under a
Companies Act
or the like)
Incorporated
(thus has own
legal personality)
Owned by the
government
as creator and
shareholder
Operating
under private
(company) law
A memorandum
and articles of association
(registered
under a Companies
Act or the like)
Incorporated (thus
has own legal
personality)
Some shares owned
by government,
other shares by
private investor
Operating under
private (company)
law
A memorandum
and articles
of association
(registered under a
Companies Act or
the like)
Incorporated (thus
has own legal
personality)
All shares owned
by private investor
Operating under
private (company)
law
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