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Once Arab governments have established robust and transparent regulatory strategies, they should be massive investment that is first required to expand water services and upgrade water and sewage systems. Over the next two decades, population in this region will exceed 600 million based on present population growth rates of Arab countries (World Bank Development Indicators Report-2014). This will require hundreds of billions of dollars of investment in the water and sanitation sector. Private sector participation (PSP) or funding for water utilities will help relieve pressure on the public budget. Governments with limited spending or borrowing capacity will be able to utilize such capacity for investments that the private sector might be reluctant to make. However, a pre-requisite for PSP is a well-designed and impartial regulatory environment. Typically, private sector concessions for water utilities and infrastructure services are awarded on a transparent and competitive basis and, if properly regulated, without political interference, often result in a better quality of service at lower costs and expanded access for the poor.

The world-wide trend towards private sector involvement in utility services is largely due to four categories of perceived benefits:

• Economic benefits: The main macro-economic principles supporting the use of the private sector for operational activities are: the injection of private sector efficiency and productivity into sectors traditionally operated by the public sector, leading to improvements in cost effectiveness; a reduction in the size and influence of the public sector in the national economy; and the introduction of competition as a motivator for improved quality and service.

• Technological improvements: In order to stay competitive in the commercial world, private sector operating companies are obliged to dedicate considerable effort to research and development. In consequence, they are able to expand access to state of the art technology for their public sector partners, and transfer technology to the municipal locations where they are engaged. For example, many private group spends $100 million each year on research and development for improving water and wastewater technology and delivery systems.

• People-related productivity: In the same way that private industry must innovate to stay competitive, it must also have effective human resources policies. The motivation, skill level and degree of training of the people employed needs to be maintained at the highest possible levels. In general, the private sector is good at achieving this. Within the water sector, the private sector invests as much as 6% of payroll costs on training its staff. It is clearly understood by the private sector that contracts will only be successful (and therefore profitable) if they continue to develop and increase the skills of their staff. In almost all water and/or wastewater projects, staffs are recruited from local institutions already in charge of water treatment and distribution operations. Where it is important to do so, private sector investors also establish local training centers to maintain and improve the skills of staff involved in particular water projects.

• Management efficiency: The fourth major aspect is the introduction of modern industrial management methods, including efficient monitoring and control procedures for: budgeting and accounting; planning; reporting; asset management; operations and maintenance; quality control; and environmental performance.

While there are arguments both for and against each of the four types of perceived benefits discussed above, the fact remains that there is a strong trend towards increased private sector participation in utility activities worldwide.  This is particularly pressing for Arab governments as water shortages are already on their doorsteps.

Shibu B. Dhar provides consulting services to multilateral banks (The World Bank, Inter-American Bank, Asian Development Bank and European Development Bank), bilateral development agency, USAID and private infrastructure clients. He has extensive experience in the reform of water companies in the developing countries, including the management of regulation, the development of commercial targets, and performance management systems. His experience includes design of institutional frameworks, design and review of appropriate regulatory bodies in the water sector, which has been gained through assignments in Cape Verde, Zambia, Latvia, Vanuatu, Mongolia, India and USA.