Centre on Regulation and Competition WORKING PAPER SERIES

The objective of this paper is to understand the impact of regulation and competition policy upon low-income households. A further objective is to consider how regulatory and competition policies might help to reduce the scale and level of poverty. In order to narrow down the study to a manageable size, it has been decided to focus on a single sector. The chosen sector is water. Water has been selected because it is a basic need in maintaining life and improving well-being in the short, medium and long term. The water supply sector has a number of particular features: competition and regulatory issues are currently being reconsidered in the context of growing private sector participation, changes in competition and regulatory frameworks have been relatively well documented, large-scale providers co-exist with small-scale water vendors offering a potentially competitive environment, and finally the literature on sustainable livelihoods is beginning to consider water-related issues. The general focus of the discussion is on water supply in urban areas. The paper is divided into a number of sections. Section II considers the significance of water for the poor. The analysis draws on the sustainable livelihood framework to understand the different ways in which the availability of water affects household well-being. Section III then identifies and summarises three “models” of water supply: large-scale formal networks, generally smaller-scale, sometimes informal, water providers and community-managed systems. Section IV to VI consider affordability, access and quality respectively. Section VII looks particularly at issues related to employment and income-generation related to the water sector. Regulatory and competition policy directly and indirectly influence the situation of low-income households. Four emerging research themes are identified: Understanding the consequences of private sector involvement. Whilst much has been written about private sector involvement in the water sector, the focus has been at the level of the industry. There is little information about how the urban poor are responding to the new situation, how they are changing water suppliers (if at all), and if there are specific groups that have either been left out or who have subsequently been disconnected from the public network. The informal/formal sector interface. How might formal sector suppliers work with the informal small-scale water vendors to improve consumer choice? In many cases, the role of small-scale water vendors has not been recognised. If the authorities seek to integrate services, how might they maximise the advantages for the urban poor? How might access and affordability best be achieved for the poorest families? A number of subsidy regimes are proposed. Are there are any emerging conclusions? Competition, regulation and political power. Private sector involvement was proposed to reduce the politicisation of decision-making in the water sector. However, emerging experiences suggest that there continues to be political involvement. How might regulatory authorities best response to this situation?