Common Regulatory Principles and Regulation of Water and Sanitation Services

The report examines the evolution of public utility regulation, contrasting legal-based regulation with contract-based concessions. It argues that contract-based systems, particularly in water and sanitation, are prone to opportunistic bidding, under-investment, and frequent renegotiations. The author advocates for the application of common principles of law—including efficiency, good faith, and the ability to implement ex-post regulation—to protect public interests and ensure service sustainability, noting a significant gap between these national regulatory standards and the decisions of international investment arbitration courts.

• Water and sanitation services are natural monopolies that require government regulation because competition is impractical due to the economic inefficiency of duplicating network facilities.
• Regulation based on law is generally more effective than contract-based regulation (such as concessions) because it reduces the potential for the capture of public authorities and prevents parties from disregarding regulatory provisions.
• Water concessions in Latin America and the Caribbean during the 1990s experienced high rates of post-award renegotiations, with 75% of drinking water and sanitation concessions being renegotiated, compared to 29% across all infrastructure sectors.
• Long-term concessions (typically 25 to 30 years) in the water sector often lead to a lack of maintenance and investment toward the end of the contract, as assets are underground and difficult to value, giving franchisees an incentive to stop maintenance or strip assets.
• There is a significant discrepancy between the decisions of international investment arbitration courts and national courts, as the former often ignore governance-inspired regulatory principles like efficiency and due diligence in favor of a private-oriented concern.
• Ex-post regulation—the ability to superimpose or change regulations on existing contracts—is justified in the public interest, provided it does not deprive companies of reasonable profits or become confiscatory.
• The duty of efficiency is critical to prevent public utility providers from over-investing, overcharging expenses, or using transfer pricing to inflate costs through affiliated companies.
• Corruption in the water sector significantly increases costs; in developing countries, it is estimated to raise the price of connecting a household to a water network by up to 30%, adding over US$48 billion to the cost of achieving Millennium Development Goals.
• Public utility contracts should be viewed as fiduciary obligations, requiring a high standard of good faith and loyalty because providers act as agents of the state to realize a public interest.

APA

Solanes, M. (2009). Common Regulatory Principles and Regulation of Water and Sanitation Services. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/water_and_sanitation.pdf

Chicago

Solanes, Miguel. Common Regulatory Principles and Regulation of Water and Sanitation Services. International Institute for Sustainable Development, 2009. https://www.iisd.org/system/files/publications/water_and_sanitation.pdf.

Wikipedia

{{cite report |last1=Solanes |first1=Miguel |title=Common Regulatory Principles and Regulation of Water and Sanitation Services |publisher=International Institute for Sustainable Development |date=December 2009 |url=https://www.iisd.org/system/files/publications/water_and_sanitation.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{solanes2009common, author = {Solanes, Miguel}, title = {{Common Regulatory Principles and Regulation of Water and Sanitation Services}}, institution = {International Institute for Sustainable Development}, year = {2009}, month = dec, url = {https://www.iisd.org/system/files/publications/water_and_sanitation.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }