DROWNED IN AN INCH OF WATER. HOW POOR REGULATION HAS WEAKENED THE ITALIAN WATER REFORM

Italy reformed its water and sanitation services in 1994. The strategy aimed at transforming public entities, financed by the central budget, into self sufficient professional companies regulated at arms’ length. Nearly 20 years after, the reform has failed to deliver (despite some partial success). Italians have been divided in two parties: those blaming public sector inefficiencies and calling for competitive tendering; and those refusing to privatize water and willing to go back to the fiscal budget. In this article, we suggest that both parties are wrong. Underperformance is not related to the ownership structure of water companies, but rather to poor regulatory design and lack of understanding of the regulatory requirements that are implicit in the management model chosen, namely the concession contract.