  
 Changes in the utility itself need to be accompanied by changes in the institutional framework in which it functions. A sound institutional framework includes clear division of responsibilities and lines of accountability among sector and central institutions. Well-functioning utilities have considerable autonomy, including substantial control to generate and retain revenue, and in the use of these revenues in day-to-day operations.
Coherent reform strategies are built into the broader institutional change processes in a country. Sound sectoral policies are not enough, when a country is plagued by deeply dysfunctional institutions and corruption. The social organization and political culture of a society have major effects on the way in which policies are implemented and on how that institution functions. Over the past decade, water supply and sanitation responsibilities have been devolved to local governments. Increasing decentralization of governmental responsibilities and budgets renders government more closely accountable to communities. However, it presents a major challenge in capacity-building at local level. Communities need to be able to call operators and public officials for accountability, requiring to be responsible for their policies, actions, and use of funds. Community empowerment includes increasing timely access to objective and understandable information. Inclusion of poor people and other traditionally excluded groups in priority setting and decision making is critical to ensure that limited public resources build on local knowledge and priorities, and to build commitment to change. As WSS services are natural monopolies and have significant externalities, some form of regulation is necessary regardless of the institutional structure of provision. Regulation and monitoring of performance can lead to increased transparency and pressure for further reform of both public and private service providers. Experience shows that developing robust regulatory frameworks and strong regulatory institutions is complex and time-consuming. It is crucially important to put in place institutional incentives that include performance evaluation systems to enforce a more effective use of investments. Governments are often reluctant to transfer real independence in decision-making to regulatory authorities, given the political nature of water supply services. In many countries it will therefore be necessary to accept the limited capacity and independence of regulators, and rely in addition on other approaches to provide stability and predictability in the regulatory regime. These will include limiting the amount of discretion that regulatory bodies have in setting prices and key parameters. Robust and workable dispute resolution mechanisms that allow for credible and immediate scrutiny of regulatory determinations can contribute to accountability of regulators. Regulatory frameworks have to be consistent with the operator institutional arrangements. Regulation of the public sector will require a different approach to regulating private sector concessions. In situations where service provision is decentralized, the role of national regulatory bodies should be carefully evaluated. The World Bank supports the definition and implementation of reform strategies. This may encompass many elements, including decentralization, institutional reforms at the utility level, pricing and subsidy design, community empowerment, regulatory frameworks, and financing frameworks for local bodies. The strengthening of local governments and development of regulatory capacity is a central feature of most World Bank WSS projects. World Bank experience shows that bringing in diverse views improves and sustains the outcome of reform. Community advocates, labor unions, small service providers and other interest groups all have views on how reform should be implemented. The World Bank encourages countries to give these stakeholders a say in the design and implementation of reforms. Given the wider implications of reforms, World Bank WSS sector professionals increasingly work within programs to strengthen municipal finance and intergovernmental fiscal systems, develop local capital markets, and promote decentralization and local government reforms. |
