Moving Towards Competition in Water: Lessons from Gas and Electricity Regulation

After more than ten years of prescriptive regulation of the privatised water industry, very recently there has been a change of view about the feasibility and the likely benefits of water competition. This paper reviews some of the factors behind the change and some of the advantages of proceeding with water competition. In so doing, it discusses where the boundary line between competition and regulation should be drawn in water and the extent to which structural change is necessary for a competitive market to emerge. Continuation of the present regime is not a genuine option. It is not working well and in any case it is unlikely to be sustainable. But a serious effort to consider and overcome the practical difficulties should be very productive. By the early years of next century there could be a genuine market system of incentives to increase efficiency and improve standards of service in water in place of the present excessive reliance on regulation. Indeed, economic regulation would be confined to the network of pipes.