The privatization of public water utilities

Abstract

Latin America has kept in step with the worldwide trend towards the privatization of public utilities. Its motivation for doing so stems from a number of factors: an economic philosophy, its quest for greater efficiency, macroeconomic situations, debt-equity swaps, decisions to bring private capital into the management of public utilities during times of economic crisis, and others. This article analyses the characteristics and components of public utilities, the differences existing between one utility and another (particularly in terms of their capital/revenue ratio);, the rigidity of supply and investment, the possibilities of giving consumers a choice, the concept of economies of scale and how it ties in with the notion of monopolies, and the legal implications of monopolistic systems. It also examines some aspects of the legal regulation of utilities, such as administrative controls, the idea of reasonable profit levels, control by holding companies, regulation and monitoring mechanisms, and terms and conditions of service, including some components of the relationship between water use and the management of water resources. Among the specific cases of utility privatizations which are reviewed, particular attention is devoted to the case of the United Kingdom, which is currently the subject of public debate; selected aspects of Spain's Public Administration Contracts bill are outlined as well. In conclusion, the author suggests that the countries of the region should take comparable legislation and the experience of other nations into account and should set up suitable regulatory and monitoring systems prior to privatization.