What should regulators do to meet social objectives set by policy-makers?

[Response by Sophie Trémolet and Diane Binder, June 2009]

An important success factor for regulation lies in the clear division of responsibilities between regulators and policy makers. The boundaries between policy and regulatory decisions are sometimes difficult to establish. If the regulatory agency is subject to political pressure, then it may favour short-term political gains over long-term infrastructure development goals by setting low prices that would discourage further investments by private operators1.

Whereas policy makers are in charge of defining social objectives and establishing regulatory frameworks, regulators should be responsible for translating these overall policy goals into practical rules, and verifying that those goals are effectively implemented. It is their responsibility to take into account poor consumers and to adapt the way in which the regulatory framework is implemented to improve services to them. Regulators would need to identify constraints2 related to service expansion to the poor and establish alternative rules to serve the interests of those customers specifically, in cooperation with policy makers.

Areas of responsibilities for regulators to meet social objectives previously set by policy makers include:

  • Translating social goals into measurable targets: regulators need to specify coverage targets for providers and apply incentives and penalties to make sure those targets are met.
  • Set out tariff level and structure3: regulators need to strike a balance between three fundamental and often contradictory principles, cost recovery, equity and efficiency4. On the one hand, regulators are responsible to make sure that service providers are financially sustainable and that they deliver services efficiently. Tariff below costs result in poor service, asset deterioration and an inability to invest to meet growing demand. Tariffs should therefore be set at a “reasonable price56. On the other hand, regulators need to take into account the specific needs of poor consumers and their affordability constraints, which may result in the design of “lifeline” tariffs or other subsidised tariffs for poor customers in the way they set tariff level and payment schemes7, and may tend to set the lowest tariffs possible for poor consumers.
  • Design alternative payment methods for the poor: regulators can allow flexible billing methods (through allowing the introduction of pre-paid meters or monthly instalments by service providers for instance) and allow for different service level in order to increase payment to providers8.
  • Advise policy makers on setting quality standards: regulators can play a significant role in recommending adjustments to quality standards set by policy makers in order to better reflect poor consumers’ preferences. They should be willing to let operators experiment with alternative standards in order to meet the needs of customers in poor areas.
  • Resolve disputes and handle poor customers’ complaints: Service providers should be first and foremost responsible for dealing with customer complaints. Regulators can address customer complaints which have not been resolved successfully by service providers. In order to reach poor customers, it might be necessary to establish specific mechanisms to deal with their complaints, as they may not be able to access existing mechanisms (which require a certain level of literacy and awareness of the existence of such mechanism).


Taking Account of the Poor in Water Sector Regulation
World Bank: Water Supply and Sanitation Sector Board Working Note, Paper No. 11, August 2006.
World Bank

Explanatory Notes on Key Topics in the Regulation of Water and Sanitation Services
Water Supply and Sanitation Sector Board Discussion Paper Series, Paper No. 6, June, 2006.
Groom, Eric, Jonathan Halpern, and David Ehrhardt

Impact of Market Structure on Service Options for the Poor
Presented at Infrastructure for Development: Private Solutions and the Poor, 31 May – 2 June 2000, London, UK.
Ehrhardt, David

Designing Direct Subsidies for the Poor – A Water and Sanitation Case Study
Note no. 211 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, June 2000.
Vivien Foster, Andres Gómez-Lobo, and Jonathan Halpern


  1. See Regulatory Process and Institutional Design for further information.
  2. Constraints for the poor to be granted access to utilities services include: land tenure (need of political intervention to modify this rule) or billing system (responsibility of the regulator). See What do regulators need to do differently to tackle the needs of poor consumers? for more details.
  3. Tariff structure is the number of customer classes or consumption block and the level of tariffs for each of these classes or blocks (Trémolet & Hunt 2006)
  4. Readers should refer to How can a regulator promote investment while keeping service prices affordable? and What procedures should the regulator adopt in order to balance economic and social objectives (like efficiency vs. fairness)?
  5. «Tariffs that cover the reasonable cost of providing the service, including a reasonable return on capital used, but no more.» Groom , Halpern & Ehrhardt 2006.
  6. What procedures should the regulator adopt in order to balance economic and social objectives (like efficiency vs. fairness)? will elaborate on how these tariff-setting principles can actually be met.
  7. Readers should refer to Pricing for the Poor and What are the strength and limitations of lifeline rates? on lifeline tariffs for more details.
  8. See To what extent does service quality need to be the same for high and low cost areas?