Development Aspects Impressum Editors

Endogenous factors

1. Institutional organization

Over the past three decades, the countries of the region have attempted different strategies to overcome failings in the provision of drinking water supply and sanita- tion services. Consensus has been reached regarding the need for reforms of the institutional structure, which must be based on a clear separation of the following functions:

• 
  The formulation of sector policies at the ministry level or its equivalent
  

• 
  Regulation, oversight and control assigned to specialized agencies for which it is imperative to guarantee professional and financial capacity, independence and stability
  
• 
  Provision and management of services performed in accordance with technical
  

criteria, avoiding their politicization.

2. Industrial structure

The existence of economies of scope and scale, and the need to reduce transaction costs, make it necessary for decisions related to the sector’s industrial organization to take into account these conditions in order to avoid affecting efficiency through excessive decentralization, as well as to preclude other negative effects, such as the complexity of regulating and controlling an excessive number of providers and a reduction in the possibilities for cross-subsidization between wealthy and poor areas.⁴

3. Property structure

The property structure of the provider, or the degree of participation of the private sector, does not, on its own, guarantee that successful results will be achieved. In the experience of the countries of the region, performance improvements brought about by private participation depended mainly on:

• 
  Stable public policies for the sector, prioritized by the government, with broad
  

political and social consensus

• 
  An effective financing structure, especially in the long term
  

• 
  Independent, highly qualified institutions
  

• 
  Sound regulatory practices
  

• 
  Efficient tariff structures and a subsidy mechanism for low-income groups
  

• 
  Competitive bidding processes that are properly organized
  

4 A detailed discussion of these issues is available in Ferro and Lentini, 2010.

• 
  Institutional quality
  

• 
  A low level of corruption
  

and, fundamentally:

• 
  Favourable macroeconomic conditions.
  

Additionally, a gradual sector reform process and respect for the institutional framework help to shield against risk.

The excessive enthusiasm for private participation that characterized the first half of the 1990s has given way to a more realistic view on the part of both govern- ments and investors. Therefore, one can expect that the private participation pro- cesses seen from now on will be based on more detailed and specialized studies, on regulatory and institutional frameworks that are adapted to local conditions.

4.