The Liberalization of Infrastructure
Edited by Matthias Finger and Rolf W. Künneke
Chapter 18: Liberalization in the Water Sector: Three Leading Models
Claude Ménard and Aleksandra Peeroo INTRODUCTION Over the past 15 to 20 years, problems in the water sector have become more visible and pronounced. Developed countries struggle to provide the much needed investments to maintain and update their water systems. The main concern in less developed countries on the other side is the lack of access to safe drinking water which combined with inadequate sanitation causes more than 5 million deaths every year.1 Being aware of these difficulties and the pervasive changes in other infrastructure sectors, one must note the remarkably slow pace of reform in the water sector. Moreover, the most systematic reforms until now have been implemented in developed countries although the situation of the water sector seems less urgent than in the developing world.2 By reform, we mean substantial changes in decision rights, changes that modify the governance and in many cases the allocation of property rights of the existing operator. Thus understood, reform can take many different forms. Since the early 1980s, its epitomized model has been that of liberalization, identified with the introduction of competition and, most of the time, with privatization. However, it might be relevant to retain a broader definition of liberalization, particularly in the water sector, in which competition in the market barely exists while competition for the market remains a challenge. In this chapter we consider liberalization in the continuation of Baumol et al. (1982) as reforms that introduce contestable markets. Beside full privatization, private sector participation in its different...
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