Governments use many types of regulatory instruments for PPPs in infrastructure services; the following briefly looks at the main ones.
Rules and enforcement. The most common regulatory tool is to make rules and enforce them. For example, a government may impose rules on the ownership of certain infrastructure services, which are then operated by the private sector. Governments typically impose rules on the number of required bids for infrastructure PPP projects. These rules are usually set by PPP laws, sector laws, executive orders, circulars, policy frameworks, administrative measures, and implementation guidelines.
Licensing. This is highly relevant for PPPs in infrastructure services because it provides a mechanism for governments to withdraw from public ownership while retaining some control (Scott 2014). In the power sectors of many countries in Asia, regulators issue licenses for generating, transmitting, and distributing electricity. Typically, licensing requires legislation under which government departments or agencies are empowered to grant licenses.
Discretionary regulation. This is used primarily in economic regulation. Discretionary regulation provides regulatory agencies with the power to unilaterally set tariffs and service standards for regulated firms (Gómez- Ibáñez 2003). Cost-of-service and price-cap regulations are examples of discretionary regulation.
Deregulation. This is highly relevant for PPPs because the emergence of PPPs in infrastructure services is the result of the removal of key restrictions, such as government financing, and the provision of certain infrastructure services.
Benchmarking. Benchmarking for PPPs in infrastructure measures the performance of a regulated entity and compares it with a sample group of firms or industry averages to show its relative standing or past performance to reflect changes in production, efficiencies, and service quality.