The Government may be assisted in its monitoring/ management function by third parties. For example, an independent specialist may be appointed under the contract to act as the monitor of compliance with contract obligations by the parties.13 Equally, the sector regulator (e.g. the water sector regulator) will be monitoring the project company's performance, and may agree to monitor generally the parties' compliance with their obligations under law, which may well coincide with their obligations under the relevant contracts. The difficulty with this approach is the need for the regulator to operate in accordance with its mandate, with the usual discretion given to regulators. Often, this discretion cannot be limited (or "fettered") and therefore the regulator must comply with its legal mandate first and its contractual role as a secondary function.
Where the site country has a history of regulation, the regulatory structure may be predictable and may provide comfort to the project company and especially to the lenders. However, in many cases the regulator's role may be new, possibly the product of a hasty response to the involvement of the private sector, or it may not yet exist.
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13 Tremolet, Shukla and Venton, Contracting Out Utility Regulatory Functions (World Bank 2004).