Innovative regulations, incomplete contracts and ownership structure in the water utilities

Using an incomplete contract framework, we analyse new forms of regulation and private participation in public services. This paper explains contractual efficiency in the absence of financially guaranteed investments in public private partnerships. The example of a number of African countries underlines how a series of national, normative law reforms can give rise to innovations in approaches to regulation. This new hybrid form of regulation, inspired by a French regulation approach combining commission regulation and franchise bidding, could be more effective than previous approaches to regulation, in the sense of being more stable and more closely aligned with stakeholder expectations. This approach to regulation would appear to be more efficient economically, while integrating the objectives of solidarity tariffs and social water access connections. Based on these analyses, our results show (1) the impact on the robustness of new lease contracts on financing constraints, and (2) the advantages of Asset Owner Companies that reconcile explicit commitments and special purposes. We demonstrate that this achieves optimum efficiency by encouraging parties to determine jointly the optimal level of costs and investment. In addition, the mechanism fosters discussion about the possibility of institutionalizing Asset Owner Companies by predetermining the distribution of risk in lease contracts.