2005 - 2006 - Pinsent Masons Water Yearbook 2012

PART 4: APPENDIX 2: PRIVATE SECTOR PARTICIPATION
here, along with liaising with the regulators to ensure that such information is channelled in a
controlled manner.
Regulators and regulation
Independent regulators are essential. As the UK experience has shown, regulation is not cheap
(Ofwat is arguably an industry in itself) and it takes time for a regulator to know its market. It
places a great emphasis on efficiency and meeting targets, both of which minimise the scope for
corruption. In Scotland, the Water Commissioner is adopting a similar approach with the stateheld
Scottish Water, demonstrating that regulation and reporting can take place within the public
sector. This experience has highlighted why municipal entities need to be exposed to
independent regulation.
Regulation of a suitably robust nature (and allied reporting systems) needs to be in place before
the privatisation process starts. Perhaps the initiation of such schemes ought to mark the
effective beginning of the privatisation process. These reporting systems need to be developed
on a tripartite basis (economic regulation, water quality and service delivery and environmental
protection and resource management), ensuring that the various reporting functions operate
independently of each other, so as not to compromise their separate interests. To address the
cost of regulation, the World Bank, regional development banks and other interested parties
should support the setting up of regional regulators, along with supporting capacity building for
analytical and comparative work. These regulators would be responsible for developing
comparative data on a regional basis, and assisting the implementation of a national regulator
for each country where PSP is about to take place.
Opening windows of transparency
If confidence in the bidding process is undermined by its perceived opacity, then windows of
transparency ought to be opened at suitable stages in the process as outlined in this section,
allowing stakeholder scrutiny and building external confidence in the process.
Too much is said about commercial secrecy. As CR notes, healthy competition is the scourge of
corruption. Free economies deserve freedom of disclosure and the right to make a free choice
based on information which stakeholders and NGOs can also have confidence in. A number of
mechanisms exist which can be used to ensure the generation of such information is part of the
privatisation process. For example, certification with the ISO 9000 (total quality management)
and ISO 14000 (environmental management systems) standards, externally audited by an
international agency ought to be required within a given timeframe.
Externally recognised and monitored operational quality criteria have a significant role to play in
the capacity and confidence building process. This means that the OECD Convention needs to
be an integral part of each process (the 1998 Convention on Combating Bribery in International
Business Transactions), placing pressure upon countries that have yet to adopt it. The World
Bank’s 1996 Guidelines for Procurement, under IBRD Loans and IDA Credits, remain valid and
need to be seen as an effective sanction against potential transgressors.
Concern has also been expressed about perceived information asymmetries that favour private
sector companies with a wide experience of market conditions and strategies. This can lead to
stakeholders to regard the bidding (and re-negotiation) process with scepticism. These
concerns are best addressed through a capacity building programme designed to ensure that
local and national interests are suitably addressed, while a formal disclosure system before,
during and after the privatisation programme allows stakeholders to have the information they
need to be able to constructively engage with the service provider, the private sector and the
regulators.
Many of the mechanisms called for are necessary for building up competitive domestic markets
along with the ability to compete effectively on a regional basis. Therefore, the capacity building
exercise will benefit the local private sector as well as the regulators and NGOs.
386 Pinsent Masons Water Yearbook 2005-2006