Theory and experience show that service delivery in most infrastructure markets can be improved by private participation in service provision. The challenge becomes how to design effective regulatory and institutional arrangements, including credible regulatory agencies, that can facilitate efficient private as well as state provision while addressing concerns about the possible abuse of dominant market positions, a particular issue in many infrastructure markets given the lumpiness of investments. In response to a growing concern about regulatory uncertainty, new means, such as ‘low-discretion’ regulatory rules and greater use of enforceable contracts, incorporating long term tariff design and cost recovery rules were developed to reduce the level of uncertainty. A major challenge is to establish balanced independent regulatory systems so that regulators can be incentivised to best deliver their statutory objectives.
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