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Regulation, Markets and Poverty

Edited by Paul Cook and Sarah Mosedale

Regulation, Markets and Poverty incorporates the main policy implications arising from theoretical and empirical research into competition, regulation and regulatory governance in developing countries. This analysis often challenges conventional wisdom and draws on the work of leading experts from a range of disciplines.
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Chapter 7: Regulating Utilities in Developing Countries


INTRODUCTION In the past, network utilities like railways, telecommunications, gas, water and electricity supply were normally state-owned and run. The idea of a private company having control of the country’s water supply, for example, was seldom considered. How would a private company raise the necessary capital for investing in a national infrastructure? What incentive would it have to expand the supply network into impoverished and difficult to reach areas? How would the government prevent it suddenly raising its prices if there was no alternative supplier? But from the 1980s, driven by the UK experience of privatization, opinions changed. It was argued that the public delivery of services was inherently wasteful and inefficient and that only private ownership could provide enough incentive for good management (World Bank, 1995). Also, technological advances made it possible to imagine ‘unbundling’ network utilities and introducing competitive pressures to perform. Developing countries were encouraged to follow the UK example, which, in large numbers, they did. However, privatizing public services has not always delivered the expected benefits through improvements in financial performance and efficiency. To succeed, the process of privatization has to be fair, transparent and efficient – this requires competent and honest administration. Furthermore, if privatization is to improve performance over the long term, policies to promote competition and the ability to regulate non-competitive utilities are needed (Parker and Kirkpatrick, 2005a). In this chapter we review our research into the problems of regulation and results of regulation of infrastructure in developing countries,...

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