Perhaps the most critical aspect of the external operating context for the success of PPPs is the regulatory framework. Understanding this framework is essential. It fundamentally affects the 'what', 'who' and 'how' of service partnerships, and determines, to a significant degree, the capacity of a municipality to structure benefits for the poor. The nature of the regulatory framework will fundamentally affect the capacity of a municipality to attract private investors and to create effective sustainable arrangements. From the private sector perspective it creates incentives, outlines roles and responsibilities, and perhaps standards, and should produce a predictable investment environment. Municipal officials must have a grasp of what it all means.
In some countries government will have created a legislative framework that explicitly allows for private sector participation, describes the limits of private sector involvement in municipal services, and enforces certain types of behaviour. The regulatory framework may be comprised of instruments regulating investors and non-state operators in the private and voluntary sectors, the users of services, government decision-makers at different levels, and consumers. In many other countries, such a regulatory framework does not exist and municipalities must depend on the contract as the primary regulatory instrument. In this unregulated context, key aspects of the regulatory environment are no longer external to the municipality but will form a key part of how they set up the partnership.
Partnerships will also be determined by other laws (e.g., employment and labour practice). These laws must be coordinated and form a coherent whole to avoid any disputes. It is therefore often necessary for municipalities to utilise and coordinate the range of instruments that regulate private sector participation and the sector.
A regulatory framework needs to balance sometimes-conflicting interests and concerns. Both financiers and operators want to know that they can run effective businesses, and so incentives for private partners mostly aim to create certainty about the operating environment and their ability to recover costs (see, for instance, the regulatory framework in Córdoba described in Box 10.7). A municipality will need to explore whether or not the national regulatory context provides this certainty and, if it does not, develop ways of promoting the development of such a framework and creating it through the contract. In cities with a high proportion of low-income households, municipalities need to ensure that the nature and scope of the regulatory context also implicitly addresses the needs of the poor. Recent World Bank activity in this area3 provides a substantial base for understanding the form this regulatory environment might take, although experience of implementation is still limited.
Following the introduction of pioneering legislation in 1989, and in the context of widespread state reform, PSP has proliferated in the provision of a wide range of basic services throughout Argentina. In the case of water supply and sanitation, contracts have been signed with the private sector in the capital city, Buenos Aires, as well as other major cities including Córdoba, Formosa, Corrientes, Santa Fe, Mendoza and Tucumán. Growing dissatisfaction in Argentina at the weak regulation of the private sector in service delivery has, however, characterised initiatives since the early 1990s. By the end of the millennium there was widespread concern in Argentina at the laxity of regulation during the previous decade. In several cases, regulatory bodies were established after the key privatisation decisions had been taken, but high price rises and poor service quality were major sources of complaint. This criticism reached a high point during the power failure that blacked out large parts of Buenos Aires for 10 days in February 1999. At that time regulatory agencies in general were strongly criticised in the media for their weakness. At the federal level, in 2000 the incoming government sought to encourage greater competition among privatised utilities by clamping down on what were seen as abuses of privilege by private companies that had benefited from monopoly conditions under weak regulation for nearly a decade. This tighter regulatory stance by the federal government was mirrored by the incoming provincial government of Córdoba in May 2000. The regulatory framework for public utilities, including urban water supply, was radically altered by the creation of a new Secretariat for the Control and Management of Contracts, Secretariado de Controly Gestión de Contratos. Hitherto, water regulation in the province had been the responsibility of the Water and Sanitation Department (Departamento de Aguasy Saneamiento, DAS) of the provincial government. In addition, the new provincial government created a novel multisectoral regulatory agency, known as the Ente Regulador de Servicios Publicos (ERSEP), which will regulate a diverse range of privatised public services. At present there are only two privatised utilities that come under its remit: Aguas Cordobesas and the privatised road company, Red de Accesos a Córdoba. The latter maintains and improves the five major access roads to the city of Córdoba under a 25-year concession signed in September 1997. However, four more activities will soon be added to ERSEP's remit as a result of privatisation plans in progress. The mixed bag of responsibilities of the new agency reflects the complex mosaic of public sector ownership under Argentina's federal system of government. For example, although Aguas Cordobesas supplies water only within the jurisdiction of the Municipality of Córdoba, the assets belong to the provincial government and not to the municipal government. In contrast, the regulation of the company that operates Córdoba's international airport, Aeropuertos Argentina 2000, will not become part of the ERSEP remit because this 30-year contract was awarded in February 1998 by the federal government, which owns the assets of this and 35 other airports included in the concession. The new regulatory agency is collegiate in nature. The six-member board comprises three members appointed by the governing party in the provincial assembly, two members from the opposition parties and one member representing consumers. This direct representation of consumer interests on a regulatory body is unique, reflecting the widespread dissatisfaction among consumers over the Argentine privatisation programme. But the direct inclusion of consumer interests in ERSEP has also come in for criticism because of the danger of them being overwhelmed by the other political interests represented on the board. ERSEP will be financed through a 1.5% levy on the tariffs of the privatised utilities, as well as any fines that it imposes. In the particular case of urban water supply for the city of Córdoba, ERSEP contracts out responsibility for monitoring water quality to a state-owned laboratory that examines 600 samples per month. ERSEP also monitors implementation of the investment programme of the concessionaire, Aguas Cordobesas. The company carries out repairs worth US$20,000 per month and submits a monthly report to ERSEP. It is still unclear whether the newly established ERSEP will play the role of a regulatory body, ente regulador, balancing the interests of consumers and of the private concessionaire, or whether it will play the role of contract enforcer, orgáno de control, on behalf of the provincial government. The confusion is enhanced by the fact that ERSEP is not an autonomous body, nor does it report directly to the provincial governor. Instead, it comes under the remit of the provincial government's Ministry of Public Works. In practice it seems that ERSEP is likely to carry out both functions - contract compliance and wider regulation. In summary, the new regulatory agency established in Córdoba is highly novel but also controversial. Its collegiate members are overtly political, its multisectoral remit endows it with a range of complex responsibilities, and the inclusion of consumer interests on its board (rather than in an independent body), while promoting transparency within the regulator, runs the risk of their domination by political interests.
|