The water infrastructure regulation reform in Italy in 1994 aimed to introduce a hybrid regulatory model combining public ownership with regulation of access, quality, and prices. However, implementation was slow and uneven across regions due to political and economic factors. By 2006, most regions had established regulatory authorities but investments still relied heavily on public funds and ownership remained largely public. The hybrid model that emerged appeared to fit Italy's political economy better than the original design. However, the willingness of stakeholders to improve performance under this hybrid regime remains uncertain.

1. Conference on
Infrastructure Regulation: What Works, Why, and How do We Know it?
26-27 February 2009
University of Hong Kong
Water Infrastructure Regulation in Italy:
How Does it Work, Does it Work, and Why?
Alberto Asquer
Lecturer, Faculty of Economics, University of Cagliari, Italy

2. Research question
How did water infrastructure regulation in Italy work following
the 1994 reform, how to assess the 1994 reform,
and what explains the current water regulatory regime?
Broader issue at stake
How do regulatory regimes actually work,
and – in particular –
what are the advantages and limitations
of regulatory regimes which combine selected features
of different regulatory regimes?

3. 'Basic models' of infrastructure regulatory systems:
(focus on economic regulation; Gomez Ibanez, 2003)
Public ownership
Public franchise allocation
Discretionary regulation
Liberalization with regulation of access, quality, and price

4. The 1994 water reform: the overall design
Supervising
Regional governments Central government
Committee
on the Use of Water
Resources
OTA territory
Local governments OTA Authority Water firm
Private investors

5. The 1994 water reform: the realised system
Supervising
Regional governments Central government
Committee
on the Use of Water
Resources
OTA territory
Local governments OTA Authority Water firm
Public sector-owned Merged/restructured
Private investors
water firms water firms

6. Implementing the 1994 water reform: a narrative perspective
Transposing the water reform
into the regional legislations
Planning water infrastructure
development and tariffs
Awarding water concessions
1994 1997 2000 2003 2006

7. Implementing the 1994 water reform: a narrative perspective
Programming 1994-2000 CSF-funded infrastructure development
Designing performance targeting in the 2000-2006 CFS
Programming 91/271/CE-compliant investments
2001 local public services reform
2003 local public services reform
Transposing the water reform
into the regional legislations
Planning water infrastructure
development and tariffs
Awarding water concessions
1994 1997 2000 2003 2006

8. The outcome of the 1994 water reform
1994 1997 2000 2003 2006

9. The outcome of the 1994 water reform
Number of regions having
transposed the 1994 water reform
19
15
10
5
1994 1997 2000 2003 2006

10. The outcome of the 1994 water reform
Number of OTA authorities established
Number of regions having
transposed the 1994 water reform
19 87
15 67
10 45
5 22
1994 1997 2000 2003 2006

11. The outcome of the 1994 water reform
Number of OTA authorities established
Number of regions having
transposed the 1994 water reform Number of OTA plans approved
19 87
15 67
10 45
5 22
1994 1997 2000 2003 2006

12. The outcome of the 1994 water reform
Number of OTA authorities established
Number of regions having
transposed the 1994 water reform Number of OTA plans approved
Number of water concessions awarded
19 87
15 67
10 45
5 22
1994 1997 2000 2003 2006
(source: Supervising Committee on Use of Water Resources annual reports, 1996-2008)

13. The outcome of the 1994 water reform
Investments in water collection and Investments in sewage
distribution infrastructure (€ m) infrastructure (€ m)
Public sector & non-profit entities
Business companies (including those local government-owned)
(source: ISTAT, 2008)

14. The outcome of the 1994 water reform
Average financing sources for infrastructure investments
Other 7%
Debt 14%
EU funds 21%
Equity 11%
Local
governments 1%
Retained earnings 46%
(source: Supervising Committee on Use of Water Resources, 2008)

15. The outcome of the 1994 water reform
Average financing sources for infrastructure investments
(planned financing sources)
Other 7%
Debt 14%
(23%)
EU funds 21%
(15%) Equity 11%
(1%)
Local
governments 1%
Retained earnings 46%
(56%)
(source: Supervising Committee on Use of Water Resources, 2008)

16. The outcome of the 1994 water reform
To whom are water concessions awarded
In-house (100% local government-owned)
Local government-owned traded company
Mixed public-private ownership company
Exemption/transition regime clauses
Tendered out to business company
Not awarded yet
(source: Bluebook, Utilitatis, 2008)

17. An assessment of the 1994 water reform, so far
• Late implementation
• Modest effects in terms of new investments
• Funding still relying on public sources
• Difficulty to access debt financing
• Unrealistic planning
• Retained presence of large public sector ownership, in
conjunction with local regulatory authorities regulating
access, quality, and tariffs

18. Regions
Transpose the reform
Not transpose/delay Local governments
Establish the OTA authorities
Not establish/delay OTA Authority
Approve water plans
Not approve/delay OTA Authority
Not award/delay
Directly Award through
award the tender offer
water concession competition

19. Explaining the 1994 water implementation:
the political economy of the water regulatory reform
Regions
Political situation/ Establish
Pursue of self-interest Urgency/attribution of threat
OTAs
Refuse/postpone Local governments
(S1)
Pursue of self-interest Establish Institutional changes/
OTAA Attribution of
opportunities
Refuse/postpone
OTA Authority
(S2)
Goal displacement
Direct Tender offer
assignment competition
(S3) (S4)

20. Conclusions: some insights from this case study
Groom et al. (2006): Rationales and effect of 'hybrid'
design public ownership + discretionary regulation: this
design can overcome the limitation of public ownership by
promoting greater accountability, transparency, and better
performance from separating governance, policy, and
regulatory functions.
Here: 'hybrid' design resulting from emergent adjustments
to the water infrastructure regulatory reform rather than
from any deliberate design = this regime can 'fit' the political
economy of the regulated sector.
How willing are the 'winners' of the implementation game to
improve performance?