Developing and Implementing a Strategy for Reform

Reform is often pursued by governments that lack a clear understanding of the models, their requirements, and the implications for the necessary and proper role of government.  Not surprisingly, the attempts mostly failed.” (Resenzweig, et. al.)

Evaluation is an essential part of the policy cycle. Review effectiveness of the regulator in carrying out assigned functions in legislation and through other directives. Also review fitness for purpose of the regulatory structures that have been put in place. Evaluations should distinguish where changes are required to the way the regulator carries out its responses, and where more fundamental change may be needed to improve the governance arrangements.

The Evaluation Process

  • Internal Performance evaluations to determine how well its internal function are enabling it to meet its objectives
  • External evaluations to assess whether the strategic goals of the regulator are being met (e.g. by Auditor General, Panel of Independent Experts, or a Parliamentary Body)

Key characteristics of a good performance evaluation include:

  • Pre-scheduling them
  • Having a review body
  • Developing a good review process and methodology
  • Engaging Key Stakeholders

Performance of a regulator should be evaluated against a set of indicators directly linked to the regulator’s objectives and functions.

Key leaders in civil society and government recognize that there is a problem. Weak performance cannot be hidden, even if data on trends and current KPIs are not widely available. Nevertheless, “no matter how poorly a system is performing, someone is benefiting from current institutional arrangements.”

Stages and Schedules for Reform: Key Lessons

  • Recognize the complexity of reform: “Reform … is a highly complex technical activity in a sector of very high political interest and in the midst of strong public antagonisms, and involves the transformation of bureaucratic agencies with long histories of political interference.” Basically there are no unique recipes for success.
  • Target early beneficiaries: “Reform has often been directed by parties that are not technicians or specialists and that have agendas that go well beyond reform of the sector and only limited interest in economic efficiency or improving sector performance”. For example, some nations chose privatization as a technique for maximizing revenue for the Treasury; however that can slow network expansion, since it takes funds that might otherwise have gone directly into water sector infrastructure. Thus, there is less investment in improving service quality or increasing connections which would have provided political support for reform. In other cases, the need to attract private investment was given priority over other considerations, especially the subsequent regulation of the markets involved, with a result of weak regulatory frameworks, incapable of generating strong incentives for efficiency.
  • Understand government strengths and limitations: “Reform is often pursued by governments that lack a clear understanding of the models, their requirements, and the implications for the necessary and proper role of government. Not surprisingly, the attempts mostly failed”. Just as market failures can justify government intervention, potential government failures should be recognized when developing the reform package. For example, government failures arise if agencies lack human capital, if the judicial system cannot handle appeals promptly, or if the legislature (or executive) is unwilling to delegate authority to those implementing reforms.
  • Appreciate the roles of funding agencies and governments: There is evidence that funding agencies tend to pressure for reform (supply-push) even when national and local governments (or citizens) do not support it (absence of demand-pull). Institutional arrangements that are imposed from the outside are bound to lack strong support. It is useful to ask whether particular governments are truly interested in meeting agreed-upon commitments. Investors and other stakeholders will look at the government track record to determine whether there is a genuine interest in (and support for) reform. Similarly, international financial institutions often have multiple objectives associated with country water infrastructure programs: “Funding agencies must rely on technical experts rather than agency imperatives or preconceptions in setting their prescriptions for reform.” Neither ideological nor imposed policies are likely to be implemented in a serious way.
  • Base reform on reality and create a transition plan: “Ground realities must be incorporated into the selection and implementation of a reform model.” A related issue is whether managers of current operators should be retained or bought off. Poor performance can often be attributed to poor management and weak incentives. Some analysts argue that people who have continued to mess things up should not be asked to clean up the mess. The current situation represents equilibrium: some citizens, some politicians, some managers, and some employees are content with present arrangements—even if the system is performing poorly for the nation. If this reality is not recognized, reform cannot succeed. Another issue is how the success of a reform is to be monitored: what are the indicators of success? “A transition plan must be developed that will allow the sector to move from its current state to the reformed end-state without alienating customers or undermining the reform.”

Steps in Developing a Reform Plan

  • Environmental Scan: Relating Principles to Elements Characterizing a Nation in the Reform Process
    • Economic Environment
    • Political Environment
    • Social Cohesion
    • Laws and Governance
    • Institutions for Security and Justice
    • Current Infrastructure Performance
  • Selecting and Training the Implementation Team
  • Drafting and Implementing the Detailed Plan
  • Assigning authority and responsibilities
  • Monitoring and Evaluating Progress against Key Milestones
  • Modifying Strategies through Adaptive Leadership

Additional Resources

Rosenzweig, Michael; Sarah Voll and Carlos Pabon-Agudelo (2004), “Power Sector Reform: Experiences from the Road”, The Electricity Journal, Volume 17, Issue 9

Berg, Sanford (2013), Best Practices in Regulating State-owned and Municipal Water Utilities,” CEPAL

Frequently Asked Questions

What are the ways to incentivize service expansion, performance and cost containment when a utility’s assets have not been maintained, cash flows are weak, and management is unresponsive to “traditional” penalties?