Knowing the FIELD for water service regulation at local level: actors

Knowing the FIELD for water service regulation at local level:
actors, information, incentives
Franco Becchis1*, Elisa Vanin1 and Daniele Russolillo1
1
Fondazione per l’Ambiente and Turin School of Local Regulation / Via Pomba 23, I-10124 Torino,
ITALY
*Corresponding author’s contact details: [email protected]; phone +39 011 5714750.
Abstract:
The design of institutional mechanisms and individual incentive schemes is a crucial task to regulate
and manage municipal services, included water and sanitation services: at local level relations are so intertwined
that it becomes difficult to enforce the hardest part of regulation (franchising, investments, tariffs and prices,
rent control, punishment). Indeed, when designing policies and investing in public services and infrastructures,
an important issue to consider is the tangled web of complex, difficult and asymmetric relationships among
actors. The nature of these actors (players), their information endowment and the information flow amongst
them, the incentives that drive their choices, the types of relationships established, are all features that influence
the outcome of policies and projects, their success or failure. This is why a preliminary field analysis appears to
be necessary before drawing any new policy or to design any new mechanism.
In the first part the paper intends to present FIELD (Framework of Incentives to Empower Local
Decision-makers), a multidisciplinary methodology for the analysis of local actors, incentives and information
endowment that surround and lie behind the success or the failure of local services, infrastructures and projects,
defining the playing field where such activities and projects are implemented. The methodology, which is under
development and refinement within the network of the Turin School of Local Regulation, draws mainly on
political economy, game theory, social network analysis, passing through sociology, social physics
and
anthropology. It aims to narrow the gap between the outcomes of academic research and strategic decisions
making process local public service governance and regulation.
In the second part, the paper presents the preliminary results of the application of this methodology
(through an ad-hoc matrix for data collection) to some selected case studies in the field of municipal water and
sanitation services. Three case studies are presented: Sofia in Bulgaria, Belgrade in Serbia and Bangalore in
India. The number of Countries analyzed and their limited representativeness in terms of geographical
distribution do not allow to provide a relevant comparative analysis at this stage: nevertheless the first results
suggest fruitful patterns of research that can enrich the current debate on local regulation. In particular, the
methodology can be a useful instrument for better decisions on water sustainability issues.
Turin School of Local Regulation | www.turinschool.eu | [email protected] |
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An initiative of
2
1. Introduction
In the field of the theory of regulation when problems of control, tuning and planning under
incomplete information emerge, the focus on the institutional and market peculiarities at local level is
still under preliminary scrutiny and struggles to find room in the academic and policy oriented research
and education.
Indeed, the academic and policy-oriented research on the national regulation of natural gas,
electricity, transport and telecommunications is a well-established stream since the literature advances
in the ’80s and the privatization, liberalization and regulation policies after the ’90s.
At the beginning of the ’80s, several contributions linked regulatory theory with game theory and
information theory, in particular Baron and Myerson [1] and Sappington [2][3]. A seminal stream of
work came from Weitzman [4] and Loeb and Magat [5]. Yet research has persisted in its focus on
national regulation: as a consequence, the analysis of the peculiarities of the local dimension of
regulation are far more weaker and a scientific and policy-oriented approach is missing.
Nonetheless, historically, the growing medium of regulation seems to have been in the
municipalities. Concessions, franchising, licences and authorizations issued at local level have always
been accompanied by mandatory provisions and rules on price, quantity, quality, accessibility, safety
and so on. Scale economies, neighbour externalities and coordination needs are at the basis of
regulatory take-over by central governments. Otherwise, municipalities have generally retained a
regulatory role, which is played in ways that differ alongside institutional frameworks, level of
development, and cultural features of local communities.
Local regulation is concerned with sectors in which market dimension is geographically limited by
physical and technical factors: the main sectors involved are household urban waste, water and
wastewater services, district heating, local public transports, green areas, sport pools and other urban
services. Concerning the regulation of these services, the presence of “power-endowed” regulators is
actually not so frequent. Indeed, while regulation for large network services (telecommunications,
natural gas, electricity), at least in OECD Countries, is generally designed and implemented at national
level with national agencies and independent authorities, at local level the regulatory framework for
urban services is usually patchy, weak or not existent at all: nevertheless these services produce a not
negligible quota of the national GDP and give a relevant contribution to people well-being. Of course
the services cited above have very different characteristics, but the conditions of information
asymmetries between public administrators and incumbents are common to all of them: the theory of
incentives and mechanism design, in the framework of game theory, can provide a common approach
very useful when designing a regulatory framework.
Moreover, the debate on the trade-offs related to centralized or decentralized regulation of local
services like water and sanitation services is still open, especially – but not only – in developing
countries: while a centralized form of regulation appears to be the best response to limited capacity in
these countries and might help avoiding collusion between the local regulator and the incumbents
against the centralized administrations, at the same time decentralization may favour differentiation of
3
policies in different regions, higher level of information endowment by local authorities and better
enforcement thanks to the higher level of engagement and accountability of the local administrators
[6].
Even in cases when the centralized solution is chosen, which is increasingly the case for water and
wastewater services, a need of local regulation remains and it happens that centralized authorities
coexist with regulatory activities at local level. An example is the Italian case, where regulation of
water and wastewater services has been centralized in 2011 [7], shifting from a local and single-sector
form of regulation to a national and multi-sector one (with energy); notwithstanding this regulatory
overhaul the former local regulatory authorities (Autorità d’Ambito Territoriale Ottimale) still exist
and exert some regulatory functions.
A final consideration about the local dimension in regulation is that it shows some specific and
additional factors of weakness compared to regulation implemented at national level. These factors lie
in the existence of “improper costs” for the regulatory activity at local level, being these improper
costs able to distort the well-known model of a regulator maximizing social welfare/benefits [8]. As an
example of improper costs borne by local regulators there are the psychological, human, professional
costs associated with sanctioning (removing, fining, refusing accounting outcomes, …) in a context of
tight social networks and the possible loss of future income associated with hard present decisions
against regulated firms and agents.
The improper osmosis among professional roles – which is an enlarged version of the well-known
phenomenon of “revolving doors” – simply amplifies these improper costs: at local level the osmosis
of people among roles (politics, regulation, business, consultancy, bureaucracy, lobbying and so on)
seems, anecdotally, more frequent in comparison with the national level, posing a threat to the
incentive structure lying behind regulatory work [8].
Other factors that can weaken the local regulation are as follows: first, the quality of human capital
engaged in regulatory-like tasks can be significantly lower, in terms of competences and experience,
than that of national governments and regulatory agencies. This is common to many situations and
especially relevant in developing Countries [6][9][10]; second, the difficulty of separating public
enterprises from the damaging consequences of the political cycle is particularly challenging at local
level, also for the cited osmosis phenomenon and for the length of political/administrative
appointments at local level. As a consequence investment and pricing decisions can be substantially
distorted. Third, the incentive structure behind public functionaries, already weakened at local level for
the cited osmosis problems, seems poorly designed in comparison with more endowed central
government/agencies.
Consequently, when designing policies and investing in public services and infrastructures, an
important issue to consider is the tangled web of complex, difficult and asymmetric relationships
among actors. The nature of these actors (e.g. franchisers, government, insurance companies, banks
and other financial actors, consumers, environmental lobbies), their information endowment, the
incentives that drive their choices, the types of relationships established, are all features that influence
the outcome of policies and projects, their success or failure.
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2. FIELD Methodology
2.1 Rationale and scientific background
FIELD (Framework of Incentives to Empower Local Decision-makers) is a multidisciplinary
methodology for the analysis of local actors, incentives, information endowment and transfer,
relationship and pressures among actors. Understanding this scenario can help to understand some
reasons behind the success or failure of local services, infrastructures and regulation.
The rationale of the instrument is that people as individuals and people in organizations behave
following incentives and use information endowment in their relationship with other to pursue goals.
Information endowment is a key part in the regulatory game; without reducing the complex social
interaction to a simple sequence of strategic moves among robots/actors, it can be useful to design the
main feature of regulatory relationship at local level detailing different typologies of actors,
incentives, information, relationship to anticipate unintentional consequences, breaking points,
misaligned incentives or counterintuitive outcomes, all factors that can cause policies/investments’
failures.
FIELD aims to narrow the gap between the academic research and strategic decision-making
process in local public service governance helping policy makers, regulators, project developers,
financing institutions, and other stakeholders to better understand the playing field of local regulation.
Its fallouts can be ex-ante (for "to be implemented" actions), in progress or ex-post (screening the past
for better future interventions). More specifically, the methodology aims to:
 strengthen awareness in public and private choices
 increase effectiveness of local policies and projects
 prevent or manage conflicts amongst stakeholders
 set the basis for future mechanism design.
The reason for looking at actors, incentives and information when studying local contexts for
regulatory purposes are deeply rooted in a domain of interdisciplinary knowledge and literature,
mainly from Game Theory [1,11] to Social Network Analysis [12,13], Political Economy Analysis
[14] passing through sociology [15], social physics [16] and anthropology.
2.2Description of the methodology
Developing the matrix
The research tries to collect relevant information on the four issues, according to a pre-developed
list of questions to be submitted to privileged observers, here named as “correspondents” (Annex 1
contains a snapshot of the Matrix used to collect data). Firstly, correspondents are asked to identify the
most relevant players (those who have real influence) in the sector analysed, according to the
categories presented in Tab.1. In particular under the category of non-financial market actors many
different players can be included: publicly-owned companies, private operators, public-private
partnerships, NGOs technically supporting the service management, informal actors.
5
Secondly, for each player identified correspondents are asked to spot the incentives that drive their
choices, making a distinction between institutional incentives (directly linked to their mission or
mentioned in their statutes or other institutional act) and shadow / improper incentives and ranking
them according to their priority (see Tab.1).
Third, relations between the players are identified. Both institutional relations (established by law)
and informal relations are taken into account, following the seminal suggestion by Erving Goffman
[15] (see Tab.1).
Table 1. Categories of players, incentives, relationships, information endowment







Players
politicians
public officials
market actors
(financial and
non-financial,
local or national
or international)
lobbies
consumer
organizations
administrative
tribunals
consumers /
final users
Incentives
(Institutional
incentives)
 efficiency in
provision of the
service
 profit
 market share
 efficacy and
quality
 equity /
redistribution /
accessibility
 legacy
(Shadow incentives)
 electoral consensus
 consensus
 political control
 religious control
 ethnic control
 bureaucracy
(maintaining own
budget)
 financial public
budget constraints











Relationships
Appointment: when a person or an
institution is responsible for appointing
a person to a specific role in another
institution
Election
Lobby pressure
Strong political influence: political
influence strictly speaking, that is to say
toward politicians or the electorate.
Corruption: it is worth noticing that in
some cases this relation has been
understood as bribery, some further
specification is necessary in the future
Command and control
Regulation (under different forms:
regulation of price, quantity, quality,
accessibility, distributional aspects)
Rule of law / judicial enforcement
Assignment: when a player assigns a
service to an operator through e.g.
concession, public tender, direct
assignments
Business relationship
Market power: a company's ability to
influence the market
Information
 information on
industrial costs of
the service
 information on
investment costs
 information on
physical assets
(length of network,
buildings,
geolocation,
equipment, …)
(added at a second
stage)
 information on
revenues
 information on
demand side
Correspondents are asked to specify if relationships are outbound or inbound (if the player analyzed
is the agent or the target of the action). Each category of relation was formulated so that players who
register an “outbound” entry in a given relation exert some form of power toward the player who
registers an “inbound” entry.
Finally, the information endowment of each player, according to typologies outlined in Tab.1, is
explored. A distinction is made between the ownership of the information: resident information (e.g.
the service operator owns the information on industrial costs of the service) vs. non-resident
information, depending on transmission by another player (e.g. when the regulator receives
information from regulated companies). Sometimes it happens that more than one player has the same
information, but only one is the initiator, being the others recipient of a transmission process which is
of particular interest for regulation.
6
Collecting data
At the beginning of the research, the methodology was based on an ad-hoc survey for individual
experts, invited to provide insights and data for a specific sector in a certain local context. As known,
there can be a trade-off between knowledge and independence: being strictly embedded in a particular
context provides comparative advantages in extracting sensible information but at the same time imply
the emergence of personal incentives that could hinder a truth-revealing behavior in answering the
questions. In the selection of correspondents, at this stage priority has been given to independence. The
three case studies were developed following this approach. This naturally leads to a high degree of
subjectivity in answers provided. Some further observations about the method of collecting data are
provided in the conclusions.
Methodological limits of the approach
As already mentioned, the main limits of the approach concern the high degree of subjectivity in
answers provided, especially when a single correspondent is involved. According to the research
group, despite limiting such subjectivity is a task for the next future, this is an aspect to be taken for
granted. Removing subjectivity completely would make the process of analysis too much resourceand time-consuming, posing a serious obstacle to its policy-oriented use, which is the ultimate goal of
the methodology. Also, the difficulty to compare case studies that are economically and socially
different is an important issue. But again, comparison is used at this stage to test the methodology
itself and its reliability rather than being the final goal. Finally, the link between the descriptive task of
this phase of the work and possible normative consequences is still under investigation and needs
further analysis. Some hints about this last point will be provided in the conclusions.
Pure academic research is not the focus, for the time being. Advancing and testing hypothesis about
driving factors for projects success or failure calls for a selection of relevant variables and guess on
dependence links: both tasks are slippy in the context of local policies, so rich of social aspects,
anthropological and psychological nuances that make it difficult to capture phenomena into
quantitative functions.
3. FIELD Application: some case studies in the water and sanitation sector
This section is intended to present the preliminary results of the application of FIELD methodology
to some specific case studies. The analysis on the water and wastewater sector (WWS) has been
implemented in four cities so far: one city in northern Africa (Cairo), one city in Asia (Bangalore) and
two cities in South-Eastern Europe (Belgrade and Sofia). Nonetheless in this paper the authors decided
not to include Cairo case study since the analysis is related to the situation before the social uprising of
2013, following the destitution of Morsi’s government, and it needs now an important revision. All the
three cities presented here are located in non-OECD Countries. Two of them are located in uppermiddle income economies (Bulgaria and Serbia) according to the classification of the World Bank
[17], while Bangalore (India) is located in a lower-middle-income economy. Belgrade is located in a
7
Country (Serbia) in transition from centrally planned to market economy, according to the
classification of the United Nations [18].
In Table 2 the regulatory framework of the services analyzed is described, according to a set of
questions designed by the Turin School of Local Regulation within the LO.RE.NET. initiative [19].
Table 2.Regulatory framework of the services analysed
Who is responsible for
regulatory (industrial)
POLICY DESIGN at
national and local level?
Who has the ownership of
waterworks and plants?
a) State
b) Local governments
c) Companies owned by the
State or local public bodies
d) Private entities
e) Mixed private / public
How is the service assigned?
a) Public tender
b) Direct assignment
c) Other (please specify)
If applicable, who is in
charge of tendering the
services?
What is the average
duration of concessions?
Can they be re-negotiated?
Who manages the services?
Is Public-Private
Partnership a common
practice in the sector?
Who regulates tariffs,
profits/revenues and so on?
Who plans investments?
If a regulatory body exists
(authority / agency /
department), who appoints
who in its governance?
What is the level of
independence of the
regulatory body from the
Bulgaria
At national level:
- State Energy and Water
Regulatory Commission
Water and sanitation
India
At state level:
- Provinces
Serbia
At national level: the
Ministry of agriculture,
Forestry and Water
Management / Water
Directorate; the Water
Council
At local level: municipalities
a) State
b) Local governments
c) Water service operators
owned by the State or local
governments
b) Local governments
a) State
b) Local governments
a) Public tender
c) Others: in-house
providing
b) Direct assignment
Municipalities and the State
administration
Only the capital works are
tendered. The utility tenders
the work on behalf of the
local governments
Municipalities
On average: 25 years
Renegotiation: yes
N/A
By law: up to 99 years.
Renegotiation is possible.
In practice: no experience in
the water sector.
Generally public companies. Local governments
One case of PPP
No. It exists, but this model No
is not common.
Municipalities and public
companies
No
The State Energy and Water Local governments
Regulatory Commission
The Government sets a
reference price, local
authorities set tariffs.
The Directorate for Water of
the Ministry of Water
Management and local
authorities
N/A
Water services operators
with approval by the
regulator
Local governments
The Ministerial Council
N/A
appoints the members of the
regulatory body
Medium
N/A
N/A
8
government?
What is the structure of
revenues?
Customer bills (+)
EU funds (-)
Customer bills
State subsidies
Customer bills (mainly)
and subsidies
Source: LO.RE.NET comparative tables on regulatory frameworks in 6 local public services
www.turinschool.eu/lorenet
We spot three different situations: in Bulgaria water services are regulated by a national
independent authority; in Serbia regulation is implemented by local governments, as it is in Karnataka
State (where Bangalore is located), where, however, the State Government sets a reference price.
3.1 Presentation of preliminary results
In the next pages some preliminary results about the players identified in the sample cities analyzed,
on the incentives that drive their decisions and on the types of relations that link them are provided.
Some minor working has been done by the authors at this stage in order to allow some comparison
amongst the cities. In particular, some players have been grouped under a single entry and others have
been renamed in order to obtain uniform definitions (see Annex 2 for details).
Table 3 summarizes the key players identified in the three cities analyzed (for the detailed list of
players identified, see Annex 2). Grey cells highlight players who are relevant in the cities. The Table
shows also the players’ information endowment in terms of information on: industrial costs,
investments costs and physical assets; finally, incentives that drive players’ decisions are considered.
Central Government, local government, international financial institutions (IFIs) and donors and
consumers are key players identified in all cities analyzed, as well as formal service operators, who are
nonetheless treated separately due to their different nature (public / private / mixed ownership) that
may lead to different incentives. With reference to IFIs and donors, according to statistics provided by
the OECD [20], in 2009-2010 7% of total annual average international aid was represented by aid
commitments to water and sanitation, amounted to USD 8.3 billion. In this framework, in 2012India
was the first recipient in aid to water and sanitation with USD 991,370 million (of which about 8%
granted by Japan). A national regulatory agency is present only in Bulgaria. In India fundamental
changes are taking place in the institutional design for water governance and the establishment of
independent regulatory authorities is a component of such reforms. Nonetheless, at the time being only
the State of Maharashtra has already established an operational independent authority [21], while it is
not the case of Karnataka State, where Bangalore is located. On the side of institutional bodies a
peculiarity of the Serbian situation is the existence of a Water Council and of a National Conference
on Water with an advisory role. In Bangalore, two individual actors play a relevant role: Members of
the Legislative Assembly (MLAs) and Employees of the Bangalore Water Supply and Sewerage Board
(water supplier). MLAs are quoted because their support is very critical for any government. Though
they are the legislative arm of governance, they get deeply involved in much of the executive work.
This is a non-institutionalized and in many ways extra-legal role, with little accountability. Board
employees exert a relevant role since most of them are the ones with permanent and secure
9
employment with pension benefits. Due to low level of technology penetration, the employees do
exercise large influence on the operations of the Board.
Table 3.WWS: Relevant Players identified, their information endowment and incentives
Information
Categories
Politicians
and
public
officials
Players
(Acronyms
used in Fig. 2)
Grey cells mean that the
player is relevant in the
city
Central government
(CG) (in the case of
India, State
Government)
Members of Legislative
Assembly (MP)
A: Industrial costs
B: Investment costs
C: Physical assets
Banga BelSofia
lore
grade
A
B
C
A
B
C
Local government /
municipality (LG)
None
Local Development
Authority (LDA)
None
 Political control
 Equity / redistr./
access.
 Efficacy and quality
 Equity / redistr./
access.
 Efficacy and quality
 Efficiency
 Political control
 Electoral consensus
 Public budget
constraints
 Consensus
 Efficacy and quality
 Efficiency
A
B
C
B
C
 Political control
 Bureaucracy
 Equity / redistr./
access.
 Equity / redistr./
access.
 Bureaucracy
 Public budget
constraints
 Efficacy and quality
 Efficiency
 Equity / redistr./
access.
A
B
C
 Efficacy and quality
 Equity / redistr./
access.
 Efficiency
 Consensus
 Political control
 Profit
A
B
C
 Efficiency
 Profit
 Market share
 Profit
 Market share
 Efficiency
A
B
C
A
B
C
Mixed publiclyprivately owned
operators (PPP.Op.)
International / foreign
operators (Int.Op.)
B
 Equity / redistr./
access.
 Political control
 Bureaucracy
 Electoral consensus
 Public budget
constraints
 Efficacy and quality
 Political control
 Electoral consensus
None
Publicly-owned
operator’s employees
(Publ.Op.Empl)
Private operators
(Priv.Op.)
International financial
institutions and donors
(in Belgrade domestic
or foreign financial
Sofia
A
B
C
National Conference on
Water (NCoW)
Market
actors
(financial)
Belgrade
None
Political Parties (PP)
Market
actors
(nonfinancial)
Bangalore
 Political control
 Equity / redistr./
access.
 Efficacy and quality
None
Water Council
(consultative body)
(W.Counc)
National Regulatory
Authority (NRA)
Publicly-owned
operators (Publ.Op.)
None
Incentives
(the first three in the rank)
A
B
C
None
A
B
C
A
B
C
None
 Profit
 Market share
 Bureaucracy
 Market share
 Profit
 Efficiency
 Consensus
 Equity / redistr./
access.
 Efficacy and quality
 Consensus
 Efficacy and quality
 Efficiency
 Profit
 Market share
 Efficiency
 Profit
 Market share
 Efficiency
 Profit
10
Consumer
organiz.
institutions) (IFI)
Consumer
Organizations (CO) or
Residents associations
Consumers (C)
None
None
None
None
 Equity / redistr./
access.
 Efficacy and quality
 Efficiency
Final users
 Equity / redistr./
access.
 Efficacy and quality
 Consensus
 Equity / redistr./
access.
 Efficacy and quality
 Consensus
 Efficiency
 Efficacy and quality
 Equity / redistr./
access.
 Efficiency
 Efficacy and quality
 Equity / redistr./
access.
As described in section 2.2, correspondents have been asked to select incentives that lead players’
decisions from a menu list (Table 1) and to rank them according to their relevance.
Provided the “subjectivity bias” at this stage of the research, some interesting elements emerge. We
concentrate on two of them:
 “equity, redistribution and accessibility” has been quoted as first incentive of the Bulgarian
national regulatory agency and as second incentive of the Egyptian regulatory agency. This aspect
recalls the stream of research on poverty and regulation, debated by, amongst the others,
Kirkpatrick and Parker [22] and by Trillas and Staffiero [23], and the well-known trade-offs
between allocative and technical efficiency and accessibility/affordability issues, with distributive
concerns especially in lower income countries that miss a pervasive welfare state [22,23];
 “profit” is quoted as the sole incentive of international financial institutions in Sofia: this is
explained by the fact that the European Bank for Reconstruction and Development was an equity
owner in the PPP in Sofiyska Voda, the major concession water project in the capital of Bulgaria:
extracting profit from shareholding seems a plausible goal for development of EBRD’s PPP in
Bulgaria.
To estimate the relative relevance of each incentive in the three cities analyzed we derive a
weighted sum of incentives according to their position in the correspondents’ ranking (Figure 1).
Fig.1 WWS sector: weighted frequency of players’ incentives in the cities analyzed
WWS Sector - Players' Incentives
Weighted Total summing the results in the 3 Cities analyzed
90
80
70
60
50
40
30
Sofia
20
Belgrade
10
Bangalore
0
In Bangalore the first three incentives in the ranking are: equity, political control and efficacy and
quality. Bureaucracy (maintaining own budget) follows at the 4th place. In Belgrade efficacy and
quality and equity are both at the first place in the ranking, followed by consensus and efficiency in
provision of the service. In Sofia the three most frequent incentives are respectively profit, efficiency
11
in provision of the service and political control. Summing the results of all the cities analyzed equity,
efficacy and quality and efficiency in provision of the service are the most frequent incentives
identified. This is mainly due to the particular nature of water services as essential ones.
To outline the relationships amongst the different players correspondents were asked to fill-in a
matrix specifying if a certain relation (from a menu list – see Table 1) exists between two players and
if this is an outbound or inbound relation (if the player analyzed is the agent or the target of the action).
Figure 2 offers a graphic representation of three sample relationships (lobby pressure, corruption,
regulation). Each player is colored according to its category (blue for politicians and public officials;
orange for market actors; red for international financial institutions and donors, green for consumers
and consumer organizations). Each player is identified by an acronym (see Table 3). The direction of
the arrows indicates if we are describing an “outbound” or an “inbound” relationship.
Outbound/inbound features try to proxy possible dominant directions in the game: form the very plain
case of lobby pressure, in which lobbyists direct effort toward politicians and other to get something,
to more complicated situations (market relationship, political arena).
Fig.2 WWS sector: graphic representation of some relationships amongst players in Bangalore (a), Belgrade (b)
and Sofia (c)
(a)
(b)
(c)
Not available
12
With reference to lobby pressure, in Belgrade and Sofia we can underline lobby pressure made by
international financial institutions toward the Central government and the local government, and the
service operator in the case of Sofia. Another peculiarity is the intense lobbying activity by consumers
and consumer organizations in all three cities, that could be interpreted as a high level of activism by
these groups.
Information on corruption in Sofia is not available at this stage. In Belgrade justification to the
presence of corruption relations may be that the Law on PPPs and Concessions failed to establish a
control structure providing a legal certainty and due control process, leaving space for corruption to
emerge at local level, as municipalities have significant powers regarding their own public utility
enterprises. Corruption may also be visible at the central level. In Bangalore the web of corruption /
bribery relationships appears to be quite tangled. The information collected on existing corruption
relations can be compared with an international index, the Corruption Perceptions Index developed by
Transparency International, that ranks countries and territories based on how corrupt their public sector
is perceived to be (0 means that a country is perceived as highly corrupt and 100 means it is perceived
as very clean). In 2012 Bulgaria scored 41 (77th position in the Country-ranking), Serbia 42 (72th
position), India 36 (94th position) [24].
Concerning regulation, the situation in the three countries analyzed is very different. Sofia seems to
be the city where the regulatory framework is more linear, with the National Regulatory Agency in
charge of all regulatory tasks. In Belgrade the Central government is in charge of setting the reference
price, but municipalities still have some power in determining the span of the price. Quality and
quantity are not directly monitored by the Government, but by the Directorate for Water, through the
Ministry of Agriculture, Forestry and Water Management. It has also powers in regulating accessibility
through a general policy and may influence municipalities and the Autonomous Province of
Vojvodina. In Bangalore, there is a lot of interplay and overlapping over regulatory functions, with
political functionaries involved in partisan politics being quite active in influencing the definition of
price, and individual Board (utility) employees exerting strong influence on the Board decisions.
In a second stage of the analysis, the overall amount of “outbound” and “inbound” relations
registered for each player in the three cities was calculated, according to who is the agent of the
relation and who is the passive target. Types of relations have been given a different weight: the 5
different categories of Regulation (price, quantity, quality, accessibility, distributional aspects) are
given a weight of 0.2 each; Command and Control are given a weight of 0.5 each; all the other types of
relations are given a weight of 1.
Figures 3-5 represent the total of outbound and inbound relations registered for each player in the
cities analyzed.
Instead of using the overall amounts an index was created assess the “influence” of each player in
the context analyzed, based on the number of outbound relations that the player exerts. The index has
been calculated dividing the sum of outbound relations registered for a single player by the total sum
of outbound relations registered in that city (Outbound relations ratio). The same procedure has been
adopted for inbound relations (Inbound relations ratio). This in order to make data more comparable
amongst the cities themselves. Indeed, big differences (possibly linked to personal views on the local
13
situation) in the overall amount of inbound and outbound relations have been noticed between different
countries (ranging from 55 in Sofia to 85 in Bangalore).
Fig.3 WWS sector: outbound (a) and inbound (b) Relation Ratio Index registered for each player in Bangalore
WWS sector in Bangalore
WWS sector in Bangalore
Outbound relations registered for each player
Inbound relations registered for each player
0,350
0,300
0,300
0,250
0,250
0,200
0,200
0,150
0,150
0,100
0,100
0,050
0,050
0,000
0,000
(a)
(b)
Fig.4 WWS sector: outbound (a) and inbound (b) Relation Ratio Index registered for each player in Belgrade
WWS sector - Belgrade
Outbound relations registered for each Player
0,30
0,25
0,20
0,15
0,10
0,05
0,00
(a)
(b)
Fig.5 WWS sector: outbound (a) and inbound (b) Relation Ratio Index registered for each player in Sofia
WWS sector - Sofia
WWS sector - Sofia
Outbound relations registered for each Player
Inbound relations registered for each Player
0,25
0,25
0,20
0,20
0,15
0,15
0,10
0,10
0,05
0,05
0,00
0,00
(a)
(b)
Concentrating on the outbound relations, some observations are presented here:
 in Sofia consumers register a quite high index of outbound relations (0.16), much higher than in
Bangalore and Belgrade. This data may suggest more activism by Bulgarian consumers and
consumers organizations (scoring 0.11);
 the National Regulatory Authority in Sofia is positioned in the top list of players (and the same
happens when analyzing inbound relations), while the local government has a quite low score
14



(0.06). This situation can be explained first by the presence of a National regulatory agency in the
Country, and second by the minority shares held by the Municipality in the water utility in Sofia.
On the other side, the Central government is the Player registering the highest scores in outbound
relations both in Belgrade (0.24) as it is for the State government in Bangalore (0.29) lagging
behind at the fifth place in Sofia (0.08);
market operators, especially private operators and foreign investors, tend to exert a high number of
outbound relations in Belgrade, while standing in the middle of the ranking in Sofia and Bangalore;
international financial institutions are always below 0.10, standing in the lower part of the graphs.
Concerning inbound relations, we can observe in addition that service providers, in particular
publicly-owned or mixed private-public operators registered quite high scores in all the three cities
analyzed (positioning first in Bangalore).
Focus on information transfer trajectories: a sample
One of the most relevant domains in local public service regulation is about information flows and
information asymmetries, affecting both the regulator-incumbent and the consumer-incumbent
relationships.
That is the reason why in the process of improving FIELD matrix some specific questions about
information ownership and transfer have been added, along with some preliminary investigation on the
nature of the transfer (mandatory by law, mandatory by contract, for control purposes, on a voluntary
basis, based on uses), on the truth-revealing incentive compatibility of such transfer and on the
existence on any truth-revealing mechanism.
This type of data have been collected for the most recent case study in Bangalore. As a sample,
registered mandatory (by law) transfers and transfers for control purposes are illustrated in Fig. 10.
Fig.10 Mandatory by law (red arrows) and controlled-based (blue arrows) information transfers
in Bangalore
In Bangalore, providing information to citizens by public authorities is now a legal obligation (red
arrows) under the Right to Information Act [25]. However, the legal obligation is only for providing
information as available in raw form in the Board. Therefore, the quality of that information may be
15
questioned. As for control activities, the State government plays a central role, but such transfer is
generally non-incentive compatible. There is nonetheless an informal system of information transfer
by Board employees, who collect information though their personal networks and may issue it upon
obtaining some benefits. As for the existence of truth-revealing mechanisms, at the time being this
topic still needs further investigation.
4. Conclusions and research outlook
The methodology designed and the matrix developed, once tested in the first three pilot capital
cities in the water sector proved to be a useful and usable tool to describe the framework of local
players, their incentives and relationships. The first results collected allow to enrich the debate on local
constraints, instruments and goals of regulation and to provide some elements that, in future analysis,
might support the design of institutional mechanisms and individual incentive schemes.
Though being in preliminary stage of the research, the work done so far suggests some trajectories for
future development. First, the number of Countries analyzed and their limited representativeness in
terms of geographical distribution does not allow to provide a relevant comparative analysis at this
stage. Enlarging the geographical scope of the survey is therefore the first step of the next phase of the
research. Second, in order to overcome the high degree of subjectivity in information provided and to
turn the methodology into a practical tool to be used in policy and regulatory reform processes
contexts a method for more structured data collection will be built. A pilot test was made in Turin in
the district heating sector, involving a group of institutional and non-institutional actors, operating at
different levels of governance, seems to be a promising pathway, especially for application of the
methodology to real-life decision-making processes. In any case the ideal profile of experts /
correspondents involved should have the following characteristics: be informed; be independent; able
to provide supporting documentation whenever possible; be incentivized to tell the truth. The
contributors that are most likely to match this description, have been identified as follows: academics;
representatives of NGOs; think-tanks; journalists and specialized journals; regulatory authority
personnel; legal consultants; consultants specialized on the regulation and financing of local public
services; local public officials who are not politically elected.
Investigation is still necessary on the potential applications of the Outbound / Inbound Relations
Ratio Index, at this stage proposed as a purely descriptive. What the research group expects is to have
a tool for the identification of the key players to be involved in any reform process and in the design of
specific incentive mechanisms.
Moreover, the next steps of the research could be enriched with some specific analysis on the cited
phenomenon of osmosis among professional roles in local regulation (politics, regulation, business,
consultancy, bureaucracy, and so on) which seems, anecdotally, more frequent in comparison with the
national level, posing a threat to the incentive structure lying behind regulatory work. This stream of
research appears very promising and may offer a further interpretation key to the three aspects
analyzed so far, related to players’ incentives, information endowment and relations.
16
Acknowledgments
This research was conducted by the Turin School of Local Regulation in the framework of
LORENET – Local Regulation Network project, co-funded by the Torino Chamber of commerce and
Fondazione Cassa di Risparmio di Torino. We are grateful to the individual correspondents who gave
their contribution to the survey, namely: Atanas Georgiev (Faculty of Economics and Business
Administration, Sofia University St. Kliment Ohridski), Tatjana Jovanic (Faculty of Law, University
of Belgrade), Arvind Shrivastava (State Government of Karnataka). We also thank the working group
of the Turin School of Local Regulation for the support, in particular Fulvia Nada and Andrea
Sbandati.
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Annex 1 – Matrix used to collect data
STEP 1
STEP 3
STEP 2
STEP 4
One sheet for each Player (P1, P2, P3 …)
Step 1: identifying
the main players
involved
Step 2: listing and
describing each
player’s incentives
Step 3: identifying
the relationships
between the player
described in each
sheet and the other
players identified
Step 4: analyzing the
nature of information
endowment and
exchange between the
players
Annex 2 – Detailed list of players identified in the case studies analyzed
Water and sanitation sector
Bangalore (India)
Actors identified by the correspondent
Karnataka State Government
Bruhat Bangalore Mahanagar Palike (It has both
elected representatives and permanent bureaucracy.
There is no separation of the legislative and
executive function. It does not have legal mandate to
look after water and waste water services)
Bangalore Development Authority (planning
authority for the City of Bangalore)
Members of Legislative Assembly (Though being
the legislative body, they are deeply involved in
much of the executive work. This is noninstitutionalized and in many ways extra-legal role
with little accountability)
Bangalore Water Supply and Sewerage Board
(BWSSB is a statutory board responsible to provide
water supply and waste water services to the city of
Bangalore)
BWSSB Employees (with permanent and secure
employment with pension benefits. They exert large
influence on the operations of the Board)
Japan International Cooperation Agency (JICA is
the funding agency for major investment projects in
water supply)
Residents’ Associations (There are many
fragmented local associations. There are some slumresidents' organizations that influence a larger area)
Naming and grouping (if any) during data
analysis
State Government
Local Government
Local Development Authority
Members of Legislative Assembly
Publicly-owned operator
Publicly-owned operator’s employees
International financial institutions and donors
Residents associations
Belgrade (Serbia)
Actors identified by the correspondent
Central Government
Ministry of Agriculture, Forestry and Water
Management
Directorate of Water of the Ministry of Agriculture,
Forestry and Water Management
Water Council, a consultative body established by
the Directorate of Water of the Ministry of
Agriculture, Forestry and Water Management
National Conference on Water, a consultative body
established by the Government
Naming and grouping (if any) during data
analysis
Central Government
Water Council
National Conference on Water
Local Government
Private entities or potential PPPs
Public enterprises
Foreign investors
International financial institutions and donors
Service end-users / consumers
Local Government
Private entities or potential PPPs
Public enterprises
Foreign investors
International financial institutions and donors
Consumers
Sofia (Bulgaria)
Actors identified by the correspondent
Central Government
State Energy and Water Regulatory Commission
Municipality of Sofia
Political parties
SofiyskaVoda (concessionaire of water and
wastewater activities)
Veolia Water (French company owning the majority
of shares (77.1%) in SofiyskaVoda)
International Financial Institutions
Consumers organizations
Service users / consumers
Naming and grouping (if any) during data
analysis
Central Government
National Regulatory Authority
Local government
Political parties
Mixed publicly-privately owned operators
International / foreign operators
International Financial Institutions
Consumers organizations
Consumers