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The Italian water sector and the role of economic regulation

Cristina Sossan, 2009 Thesis Abstract:

The 1994 reform of the Italian water and wastewater sector, known as the “Galli Law”,

attempted to rationalize and reorganize the water sector within river basin areas, aiming

also to overcome the high level of fragmentation of service providers.

Many problems had arisen from the low level of investment in the sector, partly due to

that fragmentation, and the reform had the aim of introducing new opportunities for

development and to increase the efficiency and incentives for providers in order to

improve of the quality of the services delivered. However, the resulting process has

extended over many years and remains ongoing as many problems arose at the

managerial and regulatory level. Up to now the institutional framework is recognised to

be insufficiently transparent or efficient enough to enable adequate control over the

service providers or to deliver sufficient incentives for services enhancement.

This research, which took the England & Wales economic regulator Ofwat as a

benchmark of regulatory practice, included questioning service providers, regulators

and civil society organisations in three Regions. It investigated the current situation of

regulation of water services in Italy along with the current level of participation and

customer involvement in this process. The water sector is facing many challenges and

regulation and societal involvement are two of the aspects that have to be addressed in

order to fulfil the objectives of enhancing efficiency and transparency whilst improving

sector performance.

The research found how the current regulatory institutions in the water sector in Italy act

at two levels, with many inconsistencies between the national and local levels, which

has lead to significant inefficiencies in the implementation at local level of national

level guidelines. The research has also uncovered a significant difference between

regions, both in how they have tried to implement the Galli Law and in how they have

applied the new approach to tariff-setting and regulatory issues. Additionally, the issue

of monitoring and controlling service providers remains an unresolved question, in

particular in relation to the stakeholders and regulators that have to control provider

activities and behaviour in terms of efficiency, sustainability and tariff setting.

The main outcome of the study is that although the introduction of economic regulation

is seen as a positive move, the national Commission for the monitoring and control of

the water sector, COVIRI, is not effective enough in its duties, being unable to provide

adequate incentives at regional level for service providers to increase efficiency.

Secondly, in terms of consumers’ rights, protection and involvement, there are many

gaps, both in the definition of standards that would have to be followed by all regions,

regardless of the local regional law implemented in the territory, and in the process of

transparency in decision-making.

The study concludes with the recommendation that more attention has to be paid to

regulatory development at regional level, currently without adequate assistance and a

coherent legal framework, as a precursor to further liberalisation in the sector, that

sector also now facing the challenges of implementing not only the Water Framework

Directive but also legislation in other fields, though related to water.

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