Private Enterprise and Financial Markets > Infrastructure and Financial Markets > Infrastructure
Public Utilities Policy
(07/96, GN-1869-3, En, Es)
This policy (GN-1869-3) was formally considered by the Bank's Executive Board and Management on August 15, 1996.
The objective of the Public Utility Policy is to promote the provision of public utility services that contribute to the long-term economic development of the region and to the well-being of its people by adopting a sector structure and regulatory policy seeking to:
a) ensure the long-term sustainability of the services;
b) achieve economic efficiency in the provision of the services;
c) safeguard the quality dimensions of the services;
d) promote the accessibility of the services to all citizens; and
e) meet wider national objectives, in particular the protection of the environment.
To ensure long-term sustainability of the services. Ensuring long-term sustainability of the services is contingent on the availability of resources to fund the operation, maintenance and investments that are required to improve and expand the services to existing and future consumers. Therefore, service suppliers must be assured a stream of financial flows that covers the operating, maintenance and capital expenditures associated with the services; macroeconomic and sector conditions must foster a favorable investment environment in the industry, facilitate access to financial resources and reduce the cost of capital; and consumers must be satisfied or the political sustainability of the services may be in jeopardy.
To achieve economic efficiency. When economic efficiency is achieved, prices can be kept at the minimum level compatible with the long-term sustainability of the service, and at the same time, they can provide consumers with incentives resulting in an optimal use of the services. If circumstances permit, competition will be the most effective means of promoting economic efficiency. However, when circumstances do not permit, efficiency incentives can still be enhanced through a variety of institutional and regulatory mechanisms.
To safeguard quality. The adequacy of any public service will be contingent on safeguarding the quality provided to the consumer. It is therefore important to ensure that cost changes are properly balanced with any change in the quality of service. This balance can be obtained only with the development of a sound framework for quality of service regulation. This framework will encompass a set of procedures whereby feasible quality standards are clearly defined with reference to the balance of costs and benefits, and subsequently monitored and enforced via a system of penalties and incentives.
To promote accessibility. Promoting the accessibility of the service to all citizens occupies an important position in the political philosophy of public service provision, particularly for the water supply and wastewater disposal sectors. However, there is evidence to suggest that social policies have not always been effective in reaching the most disadvantaged. There has been a traditional emphasis on improving the affordability of the service to existing users, while often overlooking the fact that those in greatest need lack any kind of access to the service at all. Consequently, social policies should reflect the importance of promoting access to all users.
To meet wider national objectives. The operation of public services may sometimes be in conflict with wider national objectives such as the protection of the environment. Sectors such as power, water supply, wastewater disposal and waste disposal clearly have a substantial impact on environmental quality and/or other uses of water. As a consequence these sectors must be integrated within a framework of environmental regulation which is compatible with the economic circumstances of the country.
Trade-offs among objectives. A number of important trade-offs exist among the objectives. For example, long-term sustainability may come into direct conflict with promoting accessibility and attaining efficiency. Where such situations arise, difficult judgments will need to be made. While the appropriate balance will be highly context-dependent, the resolution of such trade-offs should be guided by the long-run achievement of the objectives; should be based on a thorough analysis of the problem; and should be resolved via the use of transparent policy mechanisms that minimize any economic distortion. Project documents should clearly state the extent to which the objectives are attained. However, there is one area in which no compromise should be made and that is, in meeting the objective of long-term service sustainability by ensuring that financial flows rise to a level compatible with full cost recovery, while guaranteeing economic efficiency as a general goal of service provision.
Last updated: 01/29/07
