Private Sector Involvement in Water Services: Theoretical Foundations and Empirical Evidence

Water services management has become a key issue as urban water supply is considered a service of general interest in the European Union (EU, 2001). In this context, public-private partnerships (PPP) have emerged as a usual way of local water services provision. This paper contributes to analyze the effects and consequences of PPP in the management of water resources. First of all, we develop a theoretical framework to show the effects of water services contracting-out on water prices. Second, we estimate the model using a sample of Spanish municipal water services recently privatized. Our findings support that, in a context of limited resources, local governments are using public-private partnerships in order to get additional fundings to reduce their indebt- ness levels. Moreover, the fact of setting a high reservation price as a way to guarantee a minimum amount of resources has had consequences in terms of water price increases after water services privatization