The need for price regulation is linked to the existence of a monopolistic environment. If there is adequate competition, the price may be determined by the market. In some network services such as telecommunications and electricity and to some extent water and sewerage, many providers have market power, suggesting the need for price regulation. This is likely to include the level and structure of the price (tariff) and the mechanisms for adjusting the price (Who? When? Which calculation?).
Experience suggests that the most positive outcomes from private sector behaviour come about through incentive- or performance-based forms of price regulation. Disincentives may be created by overly prescriptive control mechanisms that threaten the viability of business, and give operators no mechanism to influence price in relation to cost.
Service delivery to the poor will be affected by price regulation. On the one hand, it is important to recognise that price regulation may be hindering improvements.
• Lower tariffs for services to the poor only help those who already obtain a service from a regulated provider. Many of the most vulnerable groups will obtain their water and sanitation services informally, and many will not obtain any solid waste service at all.
• Regulated tariffs that do not reflect real costs often work to the benefit of those in remote locations (where the cost of supply is more expensive) - this will include the poor and the non-poor. But it will deter private providers from extending networks to remote areas, and thus exclude further the unsupplied vulnerable groups.
On the other hand, the suppliers of many poor communities have been unregulated for decades, and in those instances where the market has failed to produce reasonable prices, the poor may be paralysed by exorbitant rates. The regulation of the informal sector (such as provider associations) needs careful consideration, and municipalities should be aware that this is likely to be most effective at the local level, closer to the consumer and the suppliers. That is not to say that it becomes a municipal role, but that municipalities may need to facilitate at an early stage options that address the reality of service delivery to the poor. Municipal action towards such regulation is described in Box 10.10.
Price regulation is complex and it needs to address the range of suppliers and balance the key issue of improving access for the poor, which is linked to affordability, against political pressures and pressures from the private sector. In practice, price regulation is difficult to resolve and, in any case, used for political gain. Removing it from the political domain is the only way to ensure that mechanisms are structured to meet predetermined and agreed transparent objectives. This issue concerns the process of regulation.
At the national level, South Africa has developed a Municipal Infrastructure Investment Framework (MIIF) to deal with the challenge of improving basic services for the poor. As in many middle- and low-income countries, a large proportion of the South African poor lack the income to pay for services at rates that would make service provision viable for private operators, and poverty tends to create a disincentive to potential private investment. Recognising the implications of this, and with a clear mandate to improve basic services as part of the post-apartheid Reconstruction and Development Programme, the government introduced a differentiated service plan that matches affordability. The MIIF policy statement, established in 1995, now provides guidance for (mostly municipal) service delivery, dealing with national and municipal priorities and the challenges of realistically addressing backlogs. The aim is to facilitate PSP by providing municipalities, service providers and communities with a framework within which they can negotiate service levels and costs. The Municipal Infrastructure Investment Framework: • estimates services backlogs for local governments throughout South Africa; • proposes affordable service levels; • suggests how the backlogs can be addressed in an affordable manner; and • suggests institutional and financial approaches to the challenges of providing services. As such, it forms the basis for a Consolidated Municipal Infrastructure Programme (CMIP), established in 1997, to ensure: • at least a basic level of services for all South Africans within 10 years; • long-term financial sustainability; • strengthened institutional capacity of municipalities; • a single coherent funding process for municipal infrastructure; • rapid improvement of delivery; • synchronised housing and infrastructure delivery; and • integration of rural and urban service delivery. As a guideline to stakeholders and municipalities, the MIIF defines different levels of services. This is intended to allow for the installation of services in combinations, and in sequences, that consumers choose and can afford. The proposed levels are depicted below.
While these levels are merely indicative, they provide a basis for differentiated levels, structured around what municipalities and customers can afford. The South African government has made a commitment to ensuring the delivery of at least a basic level of municipal services to all households, and free basic services for poor citizens who cannot pay. The gradation of service standards in the MIIF establishes a stepping stone towards that end.
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