Reducing regulatory barriers to
            private - sector participation in Latin America's water
            and sanitation services
The lack of an appropriate regulatory
            environment is a principal factor behind inadequate water
            and sanitation services in many parts of Latin America.
            Many governments recognize the need to improve cost recovery
            and accountability in services - and increasingly see
            private sector participation as a tool for improving
            efficiency and attracting commercial sources of investment
            finance.  Consultants interviewed representatives of private
            companies that recently contended for contracts to provide
            water and sanitation services in four Latin American cities
            (Buenos Aires, Caracas, Mexico City, and Santiago).  These
            private operators identify the regulatory conditions they
            look for deciding whether to participate in a bid.  On the
            basis of the interviews, the authors identified nine
            conditions.   (1) Specify key terms and conditions of
            regulation in the contract, leaving little discretionary
            power to the regulating authority.  In particular, specify
            the key aspects of regulation (such as price, quantity, and
            quality) in the contract.  (2) Spell out credible procedures
            for the fair resolution of disagreements about contractual
            or regulatory matters.  (3) Carefully specify credible
            technical objectives which the contractor will be expected
            to achieve under the contract.  (4) See that government
            tariff policies support the principle of cost recovery for
            water services - and that tariff adjustment formulas
            adequately reflect changes in costs, inflation, and the
            exchange rate.  (5) If historical collection rates do not
            indicate consumers' willingness to pay for services
            such as tariffs that reflect the cost of service, allow an
            adequate period of time to phase in higher tariffs - and
            give the operator adequate protection from nonpayers (either
            the right to cut off service or recourse to another source
            of payment).  (6) Review public works law, contract law, and
            accounting practices and, if necessary, amend them in
            advance to ensure that they accommodate and protect any
            long-term investments foreseen under build-own-transfer or
            concession-type arrangements. (7) Eliminate unnecessary and
            bureaucratic administrative requirements that make bidding
            expensive.  (8) Make a contract and expected profits big
            enough to warrant the high fixed cost of bidding.  (9)
            Provide the education and outreach needed to inform
            consumers and secure the support of labor interests.  In
            addition, the firms interviewed said that host countries
            would be better able to attract private-sector providers if
            they: (a) used reputable outside technical, legal, and
            financial advisors; (b) allowed local and foreign banks that
            finance investments to review and comment on proposed
            contracts and participate in negotiations; and  (c) reduced
            the cost of bidding for small contracts.