Pathways for redistribution: privatisation, regulation and incentives for pro-poor investment in the Argentine water sector

Recent studies of the effectiveness of privatisation programmes in the water and sanitation sector have highlighted the diversity of experiences, especially with respect to the distributional consequences of reforms. This study of water and sanitation privatisation programmes in the city and province of Buenos Aires suggests that the main institutional change achieved by privatisation – the insertion of an agent with a profit motive – can yield pressures for more progressive pricing and expansion policies. Firms, after all, have a strong interest in collecting revenues as efficiently as possible and in avoiding negative publicity, which can lead them to push for policies that shift the burden of payment away from the poor. The potentially progressive effects of these policies, however, are likely to be weakened if host governments or firms shorten their time horizons. Politicians concerned with their short-term political survival can block the implementation of revenue-enhancing policies and measures designed to shift the burden of system financing from the poor to the middle class or business. Firms, on the other hand, invest at lower rates once they lose their long-term commitment to the market.