The paper presents the results of field and secondary research in Asia, Latin America and Africa on the development of regulatory regimes for the water sector. There is evidence for direct political intervention in many cases, as well as more subtle forms of regulatory and political capture. However, the extent and impact of capture on the quality of regulation varies across the cases studied. Regulators may still be able to balance the interests of consumers and investors if there are adequate institutions in place external to the contract that limit arbitrary action by government and limit the influence of private sector actors on administrative processes. The article concludes with policy recommendations. In particular, national efforts to increase transparency and accountability may be more important than sector level policies and laws.
This paper analyses the political economy of regulation, drawing on case studies of global water concessions. Economic regulators in utility and infrastructure sectors may be susceptible to ‘regulatory capture’ by the regulated industry, or to ‘political capture’ by the government. Both types of capture undermine the role of the regulator in protecting consumer welfare. Potential for capture may be more acute for young regulatory agencies which have not yet been able to build up their capacity.