Water sector ownership and operation

In water system operations, what matters most is the ability to provide reliable, efficient, affordable supply of high-quality water to citizens. This CERRE report highlights that for both private and publicly owned models, an independent regulator is crucial to ensure appropriate level of infrastructure investments that will guarantee optimal water supply to citizens.

The issue of water sector ownership and operations has grown in political importance recently with Italy and the UK currently considering the review of the organisation of their water sector. The report ‘Water Sector Ownership and Operation: An Evolving International Debate’ reviews international and economic considerations, providing a framework for thinking about the complex issues at hand. It highlights that the investments and quality incentives created by a regulatory regime are more important than simply the ownership of assets or operations.

“The water sector relies heavily on a long-lived fixed infrastructure that is too costly to duplicate. This implies limited potential for direct competition. At the same time, the state of this infrastructure is fundamental to deliver reliable supply of high-quality affordable water, as well as environmental protection and water conservation”, explains Professor Sean Ennis of the University of East Anglia, lead researcher for the CERRE report.

With ageing water systems around Europe, investment has become ever more critical. Some estimate that OECD countries need to invest $17 trillion in their water systems in the coming decades. Whatever operational structure is chosen, determining the optimal level of investment for necessary infrastructure or treatment upgrades remains crucial for water systems going forward.

To achieve the right balance, the authors insist on the need for a strong economic regulator independent of both government and firms, which can act to ensure the necessary level of investment occurs.

“Appropriate and independent regulation plays a key role in water system operation. An independent regulator can act to prevent excess investment or encourage investment where it is lacking, and limit the potential for political intervention. Even under public operation we note that an independent economic regulator can be valuable, this time to mitigate under-investment”, highlight the researchers.

The report features possible options that are worth exploring, including on the on-going revision of the Drinking Water Directive: “a well-functioning water sector in Italy as well as in other European countries requires dealing with multiple and somewhat contradictory goals such as access to water, environmental performance, public health, affordability, investments and scarcity management. A one-model-fits-all approach is not an option given the significant differences in local geography and climate across Europe. Nevertheless, having robust European legislation would allow for a more dynamic and efficient water sector. Increased transparency for consumers will certainly remain a cornerstone to be further factored in future regimes too,” concludes Ennis.