LEGAL FRAMEWORKS FOR PRIVATE SECTOR INVOLVEMENT IN THE WATER MARKET IN THE EU COUNTRIES


LEGAL FRAMEWORKS FOR PRIVATE SECTOR INVOLVEMENT IN THE WATER MARKET IN THE EU COUNTRIES

David-Nicolas Lamothe

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291
aqualibrium – Legal frameworks
David-Nicolas Lamothe
LEGAL FRAMEWORKS FOR PRIVATE SECTOR INVOLVEMENT
IN THE WATER MARKET IN THE EU COUNTRIES
Author
David-Nicolas Lamothe
292
aqualibrium – Legal frameworks
David-Nicolas Lamothe
1 INTRODUCTION
The overall objective of the aqualibrium
accompanying measure is to study public-private
partnership in urban water management in all
Member States in order to draw a picture of the
situation in Europe278.
At the same time, it is also possible to provide a
dynamic vision of major issues and trends
concerning legal frameworks: main concerns at
European scale on the one hand, ongoing and
coming changes at member states level on the other
hand.
As a preamble, it is important to determine more
precisely the scope of this note and to define
concepts. Indeed, all over Europe, several forms
and degrees of private sector participation in the
running of water services are used. This is related to
national history and legal framework, culture,
situation of water resources, etc.
Private participation is generally present on a
contractual basis; it ranges from outsourcing of the
provision of non-core services to full privatisation
of assets, and includes management contracts and
joint stock companies. Of course, several degrees of
involvement of private operators may be used in
each of these (very general) four categories.
While we will present the main characteristics of
these various schemes and the situation across EU,
we will pay special attention to public private
partnerships (PPP). This one scheme is considered
as one subcategory of private participation as we
hold that all types of private participation are not
PPP.
Rather than a description of national cases, this note
intends to propose a general overview of legal
frameworks applying to water services organisation
and management as this approach is likely to
enlighten common trends and to provide some
elements for a rough typology.
278 Portugal is not considered here due to a complete lack of
information.
2 THE LEGAL FRAMEWORKS
2.1 A common European background…
In spite of strong national peculiarities in
organisation and management of water services,
European-wide comparison brings into light the
existence of a common background.
Three major characteristics are generally present all
over Europe:
􀁹 water is a common good: it belongs to the
community and it is not subject to private
ownership. Although this is a fundamental
principle in most countries, focus on this issue
is much higher where pressure on resources is
high as in Mediterranean countries279;
􀁹 access to water services is a basic human right:
in most EU countries, it seems that this
statement is globally accepted even it is not
formally transposed into legal provisions. Yet,
social measures in this sector are very scarce
and national policies are very unusual280. Social
policies in connection with water are often left
to services’ initiative;
􀁹 the organisation of water services is public and
local: whatever the national institutional
organisation (centralised, federal…), local
authorities (municipality, county…) are in
charge of drinking water supply and wastewater
treatment. Their monopoly is more or less
clearly stated in legal provisions. Local
authorities are generally also granted the right
to decide how to operate the service.
2.2 …facing changes
In all EU countries, changes in the organisation of
water services are becoming necessary as the general
context has evolved. In fact, it seems water services
are entering a new period.
Over the last decades, the main concern for water
services was to build plants, to extend networks and
to increase the connection rates in order to ensure
access of the wide majority of population to water
services. Consumers (who were not clients yet)
demanded mainly for running water. Wastewater
279 This is also the case in Austria though for completely opposite
reasons: resource is abundant and Austrian people want to keep the
control over this national natural asset. Exportation of water is also
under consideration.
280 E.g. 15 m3/year are granted free of charge to each consumer in
Flanders. The English Water Industry Act 1999 removed the
companies’ ability to disconnect household customers for non-payment
of charges. The French national “Convention solidarité-eau” opens the
possibility for renunciation of debts to the benefit of poor consumers.
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treatment was not yet a priority. Water services
development was widely a “engineer period” at that
time.
This period is over now as these goals have been
achieved. The situation is thus much different with
new types of constraints:
􀁹 norms have significantly hardened both
regarding drinking water and wastewater
treatment. Besides, both dense networks and
infrastructures now have to be monitored,
maintained and upgraded and the most ancient
elements already have to be renewed. All this
requires heavy investments in all countries, with
a high concern on quality;
􀁹 consumers are getting more and more
demanding and services have to develop
customers oriented policies. Consumerism is
growing, and people do not simply expect a
connection to the network anymore: they
demand quality, reasonable price, and
transparency from services and insist on being
involved in the management of the service.
They do not hesitate to challenge water services
to courts in the case water does not fulfil all
quality parameters, if distribution is interrupted,
etc.
As a consequence, water services have to change
both to integrate this new financial burden and to
develop a new culture vis-à-vis consumer.
This trend is present in most EU countries in the
form of recent and ongoing reforms of legal
frameworks. This evolution focuses particularly on
the following aspects (table 1):
􀁹 a clarification of the role of the different actors,
as well as of their responsibilities, what will
benefit to everybody, both actors involved
themselves and consumers;
􀁹 a reorganisation of water services: renovation of
legal frameworks was/is made necessary by
private participation and now also applies to
public operators;
􀁹 a modernisation of water services: public
operators’ involvement is made under more
private-like rules: public autonomous water
companies are being created in many countries
though under municipal control, management
methods are similar in private and public
companies, etc.;
􀁹 more transparency is applied to all operators:
new rules are defined for price setting (full cost,
etc.), benchmarking is often considered as a
future decisive evolution.
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Table 1 – Major legal provisions regarding water services management281
COUNTRY ACT YEAR MAIN CHANGES NOTES
Austria Public procurement law (“Vergaberecht”) Legal framework for co-operations between municipalities and private operators in all businesses (no mention of water
services. As it is not excluded, it is implicitly included).
(a)
Belgium Brussels Law on the protection of surface water against the pollution 1971 (b)
Flanders Flemish regional act on administrative policy 1990 Comprehensive reform of policy of water quality (b)
Wallonia Walloon regional act on water cycle 1999 Overall reform of the organisation of the water sector
Creation of a public water management company (SPGE)
(b)
Denmark Water supply act 1998 Municipal competence for water supply
Possibility to establish local joint water committees likely to develop into true water companies
(c)
Finland Water services act
“Package of renewed legislation”: protection of environment, land,
health protection, etc.
2001
2000 /
2001
Regulation of all water services for population: contract procedures, charges, consumers protection…
Legislative framework for water services management
France Law on corruption prevention and transparency of economic life 1993 Procedures for establishment of delegation contracts (2 amendments in 1995) (d)
Germany Amendment to Law against restraint of trade 1996 Municipal monopoly on water supply services
Freedom of choice of the organisation of services
Greece Reform Ongoing Water sector issues
Ireland Local government act
Local government bill and water services bill
1997
Drafted
Abolition of local authorities’ power to levy water charges
Organisation of PPP
(e)
Italy Galli Law 1994 Creation of integrated water resources services
Disappearance of direct municipal operation
Luxembourg Decree 1999 Administrative reform of water sector (f)
Netherlands Drinking water supply act 2000 Private sector participation limited to big-scale users (g)
Portugal no data available
Spain State legislation
National water law
1998
1999
General provisions regarding contracts for public services (h1)(h2)
Sweden Municipality act
Public Water & Wastewater Plant Act
1998
1970
Overall municipal responsibility for water supply and wastewater disposal services
Profit making from ownership of water and sewage facilities is illegal
(i1)(i2)
UK England & W Water act 1989 Full privatisation of water industry (j)
Scotland Water industry act 2002 Establishment of a single water and sewage service provider (Scottish water) (k)
N. Ireland Consultations Ongoing Options under consideration for PPP (l1)(l2)
281 Only major provisions linked to private sector participation are listed. All countries also have provisions regarding quality of water, water resources management, etc. not referred to here.
Notes
(a) Major concern on ownership of water resources. Debates on water exports.
(b) No specific legislation preparing to private participation in the country.
(c) First full privatisation of a utility in 1997 (Farum).
(d) Water bill was prepared by the former government addressed several aspects of PPP
then given up by the new government. A new water bill is planned (2003 or 2004).
(e) Establishment of a unit to promote and facilitate PPP in 1999.
(f) Provisions to be completed by a bill under preparation
(g) Committee Cohen presents government’s view on PPP in 1998.
(h1) 1998 White paper on water; 2001 National Hydrographic Plan.
(h2) Many provisions at autonomic communities’ scale.
(i1) In 2002 government ordered an investigation on legal measures to avoid further
privatisation.
(i2) First full privatisation of a water supply and wastewater treatment facilities in 2001
(Norrköping).
(j) Publication of series of consultation papers on (extending) competition in water industry
(2000, 2002)
(k) PPP arrangements in wastewater sector since 1997.
(l1) Publication of a consultation paper on how to manage the future of water and
sewerage services (1998).
(l2) Formal government decision: water service remains in the public sector (1999)
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2.1 What are water services?
In all EU countries, water services activities range
from drinking water supply to wastewater
treatment. Although the legal framework regarding
the organisation of services is specific to each
country, lots of provisions are common to all
member states as they derive from European
directives, namely directives 91/271 and 98/83.
2.1.1 Drinking water supply
Three stages follow each other, each of them having
specific connections with private sector
participation:
􀁹 water catchment: this activity is closely
connected to water resources management. Yet,
they are generally separated as the latter remains
in the State’s hands. Besides, any form of
participation of private operators in water
resources protection is generally much
debated… even if private operators may show
some interest for some form of involvement:
monitoring, etc.;
􀁹 production of drinking water: in most cases,
this activity requires large infrastructures and
more and more sophisticated technology. These
prerequisites may favour private operators, as
they are able to develop important research
programs and to operate high-tech facilities282.
In many cases, technology is an important
factor to explain why local authorities call for
private operators;
􀁹 supply to consumers: private operators are
traditionally considered as more sensitive to
consumers’ views than the public ones.
However, changes are going on, and the
situation is not that caricatural anymore.
In all countries, drinking water supply is a highly
symbolic activity:
􀁹 it is considered as a natural public activity, with
a very passionate and emotional perception of
“public utility” or “public service” concepts283, of
profit making, of responsibility for
management, etc.;
􀁹 drinking water supply is a vital need and water’s
public good character makes it very specific.
282 The need for technology will certainly develop as the quality of raw
water is often declining, partly due to new pollutants (chemicals…).
283 French situation is interesting regarding this point as “public
service” is a widely unwritten concept, often mistaken for public
operator.
As a consequence, this issue concentrates most
debates on private sector participation.
2.1.2 Wastewater treatment
As for drinking water supply, different phases may
be separated in connection both with technical
constraints and with private sector participation:
􀁹 collection and treatment of wastewater: growing
technical and financial constraints are certainly
favourable to private sector participation, as for
the production of drinking water.
Environmental matters also have to be taken
into account, not only regarding the quality of
the effluents discharged, but also in connection
with the other two phases, namely reuse of
treated water and sludge disposal;
􀁹 reuse of treated water: this question is raising
more and more interest, particularly in
countries where water resource is scarce, as it
may be used for irrigation as a substitute of raw
water that can thus be used for production of
drinking water. Although this aspect was not
covered by this project, it seems that some sort
of private participation is common in the
irrigation sector even if private actors involved
may not be the same as for water services284.
The close connection with urban wastewater
treatment is likely to make things change;
􀁹 sludge disposal: this activity is addressed in
different ways according to countries. The most
sensitive solution seems to be spreading on
agricultural land as social acceptance is very
variable. It is not clear whether there is any
difference between public and private operators
regarding this issue.
Unlike drinking water supply, wastewater treatment
is not addressed in such a passionate way. It
certainly does not have this very symbolic
dimension. In connection to this, the high need for
investment in this sector is likely to make people
more pragmatic concerning private sector
participation. People also “forget” wastewater
which is “underground environment”, widely out of
sight.
We can also point out that wastewater treatment is
subject to very specific policies and legal
frameworks in several EU countries:
􀁹 projects in this sector are granted specific
(bigger) subsidies in Austria, Belgium and
Greece;
284 In many countries users gather under several forms of co-operation.
Private companies may thus be held. Some subsidiary companies of
major water companies may also be involved in this sector.
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􀁹 a specific taxation provision applies to
wastewater treatment in Germany, consequence
of which is the complete absence of private
operators in this sector;
􀁹 the first (and only to date) experience of full
privatisation involved a wastewater treatment
plant in Denmark;
􀁹 first developments of PPP in Scotland occur in
the wastewater sector.
2.2 How are services organised?
As previously indicated, a general common
approach applies to this aspect in most EU
countries.
􀁹 Public supply
Public supply lies in local authorities’ hands, in most
cases municipalities or equivalent. England and
Wales are the very exception as only licensed private
operators are in charge of public supply. In other
countries, local authorities often have the possibility
(generally not the duty) to gather at local or regional
scale in order to provide more efficient services:
such a trend tends to develop in Finland, in France,
in Italy285…
􀁹 Individual supply
Specific legal provisions generally address individual
supply: in most countries, self-provision of water in
isolated areas is possible without any specific
procedure up to a certain quantity of water
withdrew or to a certain number of people
supplied286. Small-scale operators may be submitted
to specific provisions: e.g. in Ireland Group water
schemes are organised in order to provide drinking
water to small communities.
Given this general legal framework, several
possibilities are opened for the management of
services, from fully public to fully private, with a
number of degrees of private participation in
between, including combinations of PPP.
Authorities responsible for public supply of water
generally have a freedom of organisation, but not all
possibilities are allowed in all countries.
2.2.1 What kind of public operators?
285 In Greece a 1997 law went even further as it organised the merging
of municipalities into larger entities (1033 by now).
286 The same rule applies in England and Wales in spite of a very
specific organisation of the water sector.
Management of water services by some sort of
public operator is the very traditional scheme at
European scale. In some countries there has
sometimes been periods of strong private
involvement, particularly when first pipes were
created: water supply was then profitable as it
served well-off population. Later on, private
involvement often seriously decreased when it
became necessary to build all networks and facilities
to connect the wide majority of the population: this
was not anymore profitable in a short term. Over
the past two centuries, the main model thus was
direct public operation of water services.
The most simple and traditional organisation is to
keep water services as a municipal department. In
some countries, multi-utilities public companies
(electricity, transports, water…) are still common,
though at various degrees such as in Germany,
Sweden, Denmark and, to some extent, Italy.
However, the general trend is to unbundle water
services from municipal administration and to
create autonomous public water companies in order
to ensure more transparency (regarding prices,
subsidies, etc.) and thus certainly more efficiency
too.
Besides, although the degree of autonomy of the
company towards the local authority may vary,
public water companies generally enjoy legal and/or
financial autonomy.
Although private participation grows in most
countries, a wide majority of services are publicly
operated. Private participation exists in all member
states but two though for different reasons:
􀁹 in Luxembourg, it is considered that there is no
need for private operators’ involvement as the
resource is of good quality (thus no need for
high-technique devices) and as there is no
financial necessity (both the state and
municipalities finance services to some extent);
􀁹 in the Netherlands, private sector involvement
in the management of water services is banned
by law, in spite of discussions for an evolution.
2.2.2 What forms of private operators’
participation?
As previously indicated, there exist numerous forms
of private participation, which we gather in three
categories: outsourcing, PPP and privatisation.
2.2.2.1- Outsourcing
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Outsourcing is a form of externalisation of specified
activities based on a contract for the provision of
goods and/or services granted following open
tendering among private contractors. It is generally
applied for non-core goods and services: design of
plants, monitoring, etc. Although this sort of
contracts may be used all over Europe, it is nowhere
developed as it is in the Scandinavian countries,
where outsourcing may also include some core
activities. As an example, up to 80% of utilities’
turnover may be so outsourced in Finland with an
average of approximately 40%. Similar trends can
be seen in Sweden and in Denmark.
In these countries, this solution appears as the most
prominent form of private sector participation. It is
often seen as the most efficient one as it is based on
short-term contracts (less than 3 years in general)
what facilitates the renewing of subcontractor if
service is not good/efficient/valuable enough.
Competition between actors is thus permanent and
prices remain reasonable. Besides, local authorities
keep the control over the entire service, as
outsourced activities are very fragmented.
From a methodological point of view a question
thus arises: when outsourcing is developed to such
an extent, shouldn’t it be considered as a specific
form/category of management of water services by
itself? Outsourcing indeed appears as a very
heterogeneous category as it includes very different
situations ranging from the provision of a couple of
goods (e.g. computers) or services (e.g. consulting)
by private actors to the externalisation of (almost)
all activities of the water service. In this latter case,
local authority’s involvement may be limited to a
control and co-ordination function, what is the very
heart of its role.
2.2.2.2- Public Private Partnership
The paramount property of public private
partnership is the partnering dimension, which
implies two main attributes:
􀁹 a common project:
– “common” referring to the joint definition and
elaboration of the project by the (2 or more)
partners;
– “project” implying a structured plan of
operations: e.g. renew a piece of pipe or send
invoices are not projects whereas design and
build a wastewater treatment plant is. To be
carried out, a project also requires a certain
period of time.
􀁹 a balanced relationship: the balance is
fundamental. Partners have to consider each
other as equal from all points of view: they are
all involved and interested in the success of the
project, thus they share risks and benefits287.
Given this definition, the classification of very
developed forms of outsourcing is not clear. We
suggest that the degree of fragmentation of activities
outsourced and of operators involved may be used
to set the limit, but this issue would require more
investigation. Regarding this uncertainty, we
consider here that two main forms of PPP are used
in European countries.
􀁹 Joint stock companies
A local authority and one or more private
operator(s) jointly create an autonomous water
company. In most cases, public sector keeps the
majority of shares; a 51%-49% partition is
customary. It seems this organisation is mainly
developed in urban sectors: as it implies a strong
involvement of the local authority, rural
municipalities may be more reluctant to choose this
form of PPP. Besides, it may be less attractive for a
private operator to invest in a small joint stock
company.
Where this form of PPP is used (e.g. Spain,
Germany), partners appreciate this share of risks:
􀁹 local authorities take private operator strong
financial investment both as a testimony of
confidence as well as a guarantee of
involvement for the success of the project;
􀁹 private operators appreciate that local
authorities show interest in the running of the
service.
􀁹 Delegation / Management contracts
Although several forms of contracts may be signed
between local authorities and private operators, two
main categories are the most common ones:
􀁹 delegation covering only the running of the
service: daily operations, maintenance of
existing facilities, which are upgraded and
renovated by local authority. Disputes may arise
regarding each partner’s responsibility if the
contract does not determine this point precisely
enough;
􀁹 delegation including building of infrastructures
and running of the service: Build, Operate and
Transfer (BOT) contracts also called
287 Of course, this definition is general and theoretical: as water services
are monopolies, the degree of risk associated to the running of a service
may be discussed. This is particularly the case in mature markets such as
in most European countries: technical indicators are globally stable
(volume of water sold and consumed, size of the network, number of
consumers served, etc.) and (all) consumers are solvable.
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“concessions”. The operator is also often
required to design infrastructures and plants
and to ensure a part of maintenance and
renewing of equipment. Such contracts are
generally longer than the former as they
integrate the depreciation term: beyond 20 years
in several countries.
In both cases, infrastructures remain under the
permanent ownership of local authorities (BOOT
contracts seem unusual).
Such contracts may fit better than the former to
small-scale services than joint stock companies, as
they require less involvement from local authorities.
Indeed, although they have to keep playing a
control and regulation role, they do not have to
ensure as much human, financial and technical
involvement as in the case of joint stock companies.
2.2.2.3- Privatisation
Privatisation designates here the full ownership of
assets and utilities by private companies. Local
authorities’ involvement subsequently disappears, as
they have no more role in the management of the
service.
To this regard, a specific mention of the English
case must be made. Indeed, private participation
was brought to the highest degree possible when all
assets were privatised in 1989. Therefore, local
authorities are not involved anymore in water
services management: regional water companies are
under the control of a strong national regulation
authority (OFWAT). This is very unique case288.
Privatisation is thus a specific category of private
participation, as there is no more relationship
between local authority and the operator. Indeed,
privatisation is even beyond private sector
participation as it is a bilateral relationship (between
operator and consumer) in which the operator acts
for its own interest. In most other countries there is a
triangular scheme (local authority, operator, and
consumer) where the private sector operates on
behalf of the local authority, either within a PPP or an
outsourcing contract.
2.2.3 What room is left to private operators?
Given the three above-mentioned categories forms
of private sector participation, many degrees and
subcategories may be decided at services-scale as
local authority often demand for very specific
288 This is the only example in Europe and there only are very few
others in the world (Chile and to some extent New Zealand).
organisation, as adapted as possible to each local
context. Figure 1 provides a (very) general mapping
of national legal frameworks applying to private
operators’ involvement289.
Besides, it must be pointed out that there may be
(major) differences between the legal framework in
force and the reality of water services management.
Private participation is possible in all countries but
in the Netherlands. In a few cases, full ownership of
facilities by private companies is legally possible
since it is not outlawed (nor encouraged). This is the
case in Sweden, Denmark and Finland, even if the
reality of services management is far different from
a privatised system290. In other countries, various
degrees of private participation exist, although there
are no major legal differences (any incentive, any
hinder): differences rather come from national
factual origins.
Luxembourg is also an interesting case regarding
this aspect. Although the legal framework has much
in common with the French and Belgian ones, thus
allowing private participation, no private company is
involved in the water sector. Financial and technical
concerns, which often explain the interest of local
authorities for private companies’ involvement, are
here rather specific. Water resources are of good
quality and public finances are wealthy. It is thus
considered that there is “no need for private
operators”.
From a legal point of view, conditions for the
participation of private operators in water services
management are linked to each country’s experience
in this sector:
􀁹 where private sector participation is traditional,
legal procedures are globally well defined.
However, administrative organisation of each
country is an important factor: in the highly
decentralised Spanish context, contracts with
private operators are heterogeneous and some
rules depend from one autonomic community
to the other. On the other hand, in centralised
France, a compulsory national framework
applies regarding bidding procedure, quality of
water, price setting rules, etc. Specific
commitments may then be added depending on
289 It is important to keep in mind that situation is currently very
changing in most countries, particularly where private participation is
recent: it is being organised, specific legal frameworks are currently
being developed, regulation schemes have to be designed or improved,
etc.
290 In Denmark and Sweden, a couple of examples of privatisation of
facilities can be found, but they remain isolated cases.
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local context (level of service to consumers,
detailed provisions for water catchment, etc.);
􀁹 where private operators’ participation is recent
(as in most countries), bidding procedures are
still fairly opened: competition between bidders
is not necessarily compulsory or precisely
organised291. Besides, regulation schemes are
still being developed (and debated):
identification of regulation authority, definition
of general rules…
Although a permit is necessary for water catchment
in all countries, there is no license scheme specific
to private operators. The only exception is England
and Wales, where licensing is a very basic
requirement for private operators.
291 Even in the French context, where private sector participation is
much developed since the middle of the 19th century, the main piece of
legislation dates back (only) to 1993.
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THE NETHERLANDS
Fully public municipal companies
Private sector participation is not allowed for
water services management (issue debated)
Private sector involved via outsourcing
Figure 1 – Legal provisions for private sector participation in European water services (1)
BELGIUM FINLAND
Different forms of (recent) private participation in
the country.
Organisation at regional scale.
Mainly outsourcing; little experience of delegation
Harmonisation of rules for service management
applying to all operators
No legal obstacle to full privatisation
FRANCE – SPAIN GERMANY, GREECE, IRELAND, ITALY,
NORTHERN IRELAND, SCOTLAND (2)
Long tradition of private participation: delegation
contracts (F); joint stock companies (Sp)
Comprehensive legal framework on private
participation, more homogenous in (centralised) France
Major international water companies
Private participation is recent (contracts, joint stock
companies) and is still being organised (procedure
for bidding, compulsory duties applied to
operators…)
Strong financial motivation for involving private
operators (for wastewater in particular)
LUXEMBOURG
Private sector participation legally possible but
regarded as “not necessary”
Municipal and intercommunal services
AUSTRIA DENMARK – SWEDEN
Several possibilities for private participation
Strong financial motivation enhanced by the
decrease of State subsidies
Water services are often turned into autonomous
public water companies
Outsourcing is very developed
No legal obstacle to full privatisation (issue debated
in Sweden) (3).
ENGLAND & WALES
Full privatisation in 1989; then heavy
upgrading investments
Very strong regulation frame / authority
(OFWAT)
Continuous iterative dialogue between all
actors
Ongoing debate on means to enhance
competition
(1) Information gathered refers only to legal provisions. Thus it may be different from the reality: e.g. private sector participation allowed but not applied (e.g. Luxembourg).
(2) Although gathered in the same group as regards main conditions for private participation, these countries all have strong specificities.
(3) E.g.: Farum wastewater treatment plant (DK), water and wastewater facilities in Norrköping (Sw). These are two unique examples. In the case of Norrköping, the facilities were sold as part of a multi-utility.
NO PRIVATE OPERATOR
ALLOWED
SEVERAL FORMS OF PRIVATE PARTICIPATION ONLY PRIVATE OPERATORS
NO PROFITS ALLOWED
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3 DEBATES AND TRENDS
As previously indicated, running of water
services by public operators is the traditional
scheme in most EU countries. In recent years,
several forms of private participation have
developed all over Europe. Such private strong
involvement in an activity aiming at the
satisfaction of a fundamental need gave rise to
intense debates everywhere as regards regulation,
price of water, etc.
However, an interesting point is that discussions
have soon included publicly operated services, as it
is regarded relevant to address these issues without
consideration of the type of operator. This is
generally very new as such questions had generally
never been seriously considered when operators
were only public.
Therefore, although “pros and cons”
controversy still exists in relation with private
sector involvement, a wider debate also takes
place regarding water services. As a result, legal
frameworks are being tightened in all countries
with the quality of the service in view.
Some issues are at stake in all countries and are
debated all over Europe, independent from the
solutions that may be implemented locally.
3.1 Regulation and Control
Although all actors involved agree on the need for
regulation and control, there is also a consensus on
the need for specific provisions in the case of
private operators. Debates cover several “new”
aspects:
􀁹 what degree of regulation? The most
stringent frame is the English one. Although
developed in a very specific context (full
privatisation), it has reached a high degree of
efficiency under very transparent
procedures;
􀁹 what is the most adequate scale for
regulation? Several solutions may be applied
depending on the countries’ administrative
organisation. However, a certain level of
national regulation may be relevant in order
to ensure a minimum level of protection for
consumers;
􀁹 should environmental and sanitary aspects
be addressed in a specific way according to
the type of operator? Regulation could
include these two dimensions even if legal
duties are common to all operators and often
based on European directives (91/271;
98/83…);
􀁹 how to enhance competition, particularly where
private sector is strong and concentrated?
Regulation powers may intend to ensure equity
for all operators, but may also be used as a
mean for ensuring more competition, what
generally benefits to price and quality of service.
Most experts consider regulation frame as a prerequisite
to ensure efficiency of water services,
whatever the operator’s status.
3.2 Efficiency and Quality of the Service
Concern about efficiency of operators and quality
of the service provided to consumers has developed
in the context of enhanced competition i.e. in most
cases when PPP has been considered or
implemented.
A major obstacle is the measurement of the
efficiency, which raises several questions:
􀁹 the necessity to use common indicators, in
connection with the definition of such
indicators (by whom?…);
􀁹 should benchmarking be compulsory? As the
measurement of efficiency requires the
comparison to a validated reference,
benchmarking should at least be transparent.
Here again, the English case may provide useful
information292;
􀁹 what information should be made available? If
information concerning efficiency of the service
is undoubtedly useful for operators’ internal
needs (management, improvement, price
determination, etc.), it is also a fundamental
tool for municipalities, public authorities,
consumers…293 The necessary transparency
may be limited by competition rules.
The quality of the service is also a rather new issue in
many countries as consumers’ expectations have
recently increased (quality, price, extra services…). To
some extent, private participation in water services
292 OFWAT publishes an annual level of service report after assessing
water companies against four categories of indicators: a) water supply
(pressure, supply interruptions, hosepipe bans, drinking water quality);
b) sewerage services (risk of, and flooding incidents); c) customer
services (written complaints, billing contracts, meter reading, telephone
answering, debt policies, payment options, compensations, special
needs, customer information, and pipe repairs); d) environmental
impact (leakage, bathing waters, sea outfalls, pollution incidents,
combined sewer overflows, sewage treatment and sludge disposal).
293 With international companies getting more and more involved in
the water sector, local authorities and consumers may also be interested
in data on operators’ performance in other countries before granting a
contract.
302
aqualibrium – Legal frameworks
David-Nicolas Lamothe
management has certainly had a positive impact on
this point. Once again, performance measurement
raises many new questions, particularly regarding
indicators.
3.3 Pricing and financing
This issue raises very contradictory constraints.
On the one hand, infrastructures have to be
(seriously) upgraded or even built for the first
time (e.g. wastewater treatment plants). This is to
be done in a very difficult context: water services
budgets have to be balanced, subsidies are
decreasing and efficiency obligations are more
and more stringent. WFD requirement to strive
to implement full cost recovery is also likely to
have a strong impact on the structure of water
services’ income.
On the other hand, water must be kept
affordable for (almost) all population. This
factor is of course fundamental regarding the
very specificity of water supply.
In several countries, the satisfaction of these
potentially contradictory requirements will be
very difficult. Will efficient regulatory
frameworks be sufficient to ensure both aspects?
3.4 Evolutions on-going
Few major trends are seen all over Europe,
though at several degrees:
􀁹 regarding the organisation of water services
– partition of water services from
municipalities, to ensure more transparency
and to put an end to the uncomfortable
municipalities’ position of regulator /
operator;
– private sector participation is growing,
mainly for both financial and technical
factors;
􀁹 regarding general framework applying to
water services
– more control and regulation is expected,
with a stronger role for consumers, who
will have some responsibility in initiating
this evolution and will play a role in the
control;
– concern for financial considerations is
growing;
– social dimension of water supply is gaining
more interest as competition and prices
increase: access to the service, affordability,
etc.

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