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
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.