Risk sharing and capacity investment in the urban water sector in Europe

Environmental standards in the urban water sector have become increasingly stringent in Europe, which consequently increases the cost of water and sanitation services. In conjunction with the crisis of public finance in many regions, these standards are pressing the traditional way of financing through the public budget. Moreover, the infrastructure network is ageing in many countries and thus there is a considerable demand for renewal investments. Efficiency, underinvestment and environmental problems have therefore triggered important reforms in the urban water sector in the past decade. These reforms are creating new sources of uncertainty and vulnerability related to the management and regulation of water utilities. They are a result of the emergence of new actors playing an active role in the sector, as well as the "unbundling" of managerial and regulatory functions. As a matter of fact, the multiplication of the actors in the urban water sector, and new institutional arrangements diffusing responsibilities traditionally concentrated on publicly owned integrated utilities, raises new issues one of the most important being the sustainability of capacity investment. Risk management, including the change of risk sharing patterns, is an essential decision in water management and has considerable influence on investment. This paper thus focuses on the main elements at risk by the reform of the sector, namely capacity investment, and how these risks are shared between different actors for the most representative institutional arrangements in the European urban water sector.