ENG. R. GAKUBIA CEO -WASREB ENGINEERS INTERNATIONAL CONFERENCE 9 TH -12 TH MAY 2012 THE REGULATORY FRAMEWORK FOR EFFICIENT, AFFORDABLE, RELIABLE WATER SUPPLY SYSTEMS FOR THE COUNTIES

CONTENTS 1.What is Regulation? 2. Regulatory Models. 3.Key functions of Regulations 4.Benefits of Regulation 5.Regulatory Framework for the Counties. 6.Guiding principles of Regulation. 7.Lessons learnt 8.Wayforward. 9.Conclusion

What is Regulation?  Process by which oversight and rules are set for public or private companies in an industry.  The oversight and rules often have to do with:  economic factors (tariffs or pricing)  service level factors (water quality, pressure, access to services, etc.).  Regulation places constraints on behavior, through incentives and sanctions.

Clientilist model of water provision Source: Vivien Forster, ‘Ten years of Water Service Reform in Latin America: Towards an Anglo-French Model’ [2005]

Reformed model of water provision

But: Some Missing Features ??? Water Service Board/Water Service Provider Regulatory Agency Policy - Makers Politicians Employees Contractors Connected population Unconnected population Lay-offs Undue influence Price rise = ??

WATER ACT 2002: INSTITUTIONAL SETUP *Details in new institutions flyerSource:WSRS*Details in new institutions flyerSource:WSRS MW&I Policy Formulation Regulation Services Provision National level Regional level Local level Consump- tion, Use Water and Sewerage ServiceWater Resources Management Water Appeal Board WAB Water Services Regulatory Board WASREB Water Resources Management Authority WRMA Water Services Boards WSBs Catchment Areas Advisory Committees CAACs Water Services Providers WSPs Consumers, Users Water Resources User Associations WRUAs Water Services Trust Fund WSTF

October 10, 2015Water Services Regulatory Board8 WATER ACT 2002: REGULATION OF WATER SERVICES Water Services Regulatory Board Water Services Boards Licence Water Service Providers Service Provision Agreement Customers Service Provision Rules Institutional Framework - Separated Policy, Regulatory and Service Provision Functions

REGULATORY MODELS(1)  Regulatory systems can take different forms according to the existing legal traditions and system in the country. The most common regulatory models are:  Regulation by independent body.  Regulation by contract: Generally used within the context of public-private partnership.

Regulation Models(2) Regulation by institutions (Anglo- American tradition) Regulation by contract (French civil law tradition) Regulator Government Utility Customers ServicesTariffs Set Tariffs and Service standards Appoints Government asset holding company Utility Customers Contract ServicesTariffs Contract Monitoring committees Arbitrator Sets Tariffs and Service standards Source: World bank Institute “ Designing and Implementing Successful Utility Reform” 2010

Key functions of Regulation Licensing – Competition Regulation: ( decides which provider is allowed access to the market ). Setting Performance Standards and Performance Monitoring:( Water quality, service levels, financial standards, defination of consumer rights, complaints handling mechanism ). Tariff Regulation: to promote the financial sustainability of the utility through cost recovery tariffs. Enforcement: taking action when a utility does not meet the established standards.

Benefits of Regulation  Protection from political interference :  removal of tariff-setting decisions from the political environment  Enhancing the utilities to make the business and social arguments for tariff or service level increases.  Improved, evidence-based management and monitoring:  Utilities often lack the systems to effectively monitor their financial and operational performance..  Access to private capital:  boosting of Investors and donors confidence when they make investment decisions.

REGULATORY FRAMEWORK FOR EFFICIENT AFFORDABLE, RELIABLE WATER SUPPLY FOR THE COUNTIES(1)  Provision of water services will be by licence issued by the Water Services Regulator.(otherwise one shall be guilty of an offence).  Licence requirement are exempted in the provision of water services :— (a)by a person to his employees; (b)on the premises of an institution to the occupants where the source of supply of the water is lawfully under the control of the institution or where the water is supplied to it in bulk by a licensee; (c)in circumstances which are prescribed by rules made by the Regulator to be exempt from the requirement for a license.

REGULATORY FRAMEWORK FOR EFFICIENT, AFFORDABLE, RELIABLE WATER SUPPLY FOR THE COUNTIES (2)  Water services shall be provided by water services providers(WSPs) established by county governments.  The WSPs shall comply with standards of commercial viability set by the Water Services Regulator.  The WSP must submit its Memorandum and Articles of Associations that conform to the model developed and approved by the Water Services Regulator.

Guiding principles of Regulations 1.Benefits of Regulation must exceed its Costs 2.Regulation is a Means to an End, not an End in Itself 3.What ultimately matters are outcomes- sustainable water supply and sanitation services - not regulatory rules (“performance not processes”). 4.Quality of service standards must be realistic, affordable, monitorable and enforced 5.Whenever possible, use benchmarks rather than actual costs for prices or subsidies

Lessons learnt 1/3  The monopolistic character of water services provision means that self-regulation is typically inappropriate. Regulation should be separated from provision.  Regulation is one piece of a reform process and must be an integrated part of it  Regulators must operate independently from both short term political pressures and the regulated companies.  Regulation is likely to be most effective if it employs incentives as well as sanctions.

Lessons learned 2/3  Regulation should be transparent, with maximum use of published performance targets and achievements levels.  Good independent information on asset conditions, performance and standards, operating costs and investments efficiency is an essential prerequisite for effective regulation.  Seeking customer input as a routine part of regulation is important

Lessons learned 3/3  Independence is a prerequisite, but also  Coherence-Tariffs and service standards are inter- related: higher service standards, or greater coverage, mean that higher costs will be incurred.  Predictability and Credibility - Depends not only on well-designed regulatory framework, but also on sound policy and governance frameworks for the sector.  Legitimacy and accountability-Regulatory processes need to be understood and generally accepted by consumers, who bear the ultimate impact of tariff and service standards decisions.

WAY FORWARD- COUNTY WATER SERVICES.  Viable water services business will require:  Separation of oversight and operation.  Ring-fencing of revenue accounts to keep track of costs and hold institutions to account. Hence a professional providers(separate legal entity)  good management systems and professional capacity;  tariffs that ensure cost recovery; and,  consumer engagement( happy customers pay their bill! )  Consolidated water services provision to achieves economies of scale and to access professional capacity

CONCLUSION(1)  The principle of regulation under the Water Act 2002 has greatly improved sector performance  There is increased compliance to regulatory requirement.  Trends indicate good performance for WSPs that have: - good governance -right Management quality and skills mix -embraced commercialization.

CONCLUSION(2) Service standards and pricing are dependent on the quality of the water services infrastructure. The IEK( the learned society of the engineering profession ) in persuit of its mission “ providing information and leadership to the engineering profession on issues of concern to public and profession” remains a valued stakeholder in the quality of water services infrastructure. Hence IEK should as right be represented in the board of Water Services Regulator as a body as well as in any other national body set up to develop service infrastructure.

Thank you for your attention!