OECD Study Highlights Global Push for Smarter Water and Sanitation Regulation

A new report by the Organisation for Economic Co-operation and Development (OECD) and the French Development Agency (AFD) says the future of water and sanitation services will depend not only on building more infrastructure, but also on creating stronger systems to regulate how services are delivered. The study, prepared by OECD researchers Sophie Trémolet and Laura Madeleine Smith, examines reforms in countries across Europe, Africa, Asia and Latin America as governments struggle to expand access to clean water while dealing with rising costs, climate change and growing public frustration.

The report warns that the world is still far from achieving the United Nations goal of universal access to safe drinking water and sanitation by 2030. Billions of people still lack reliable services, especially in poor urban communities and rural areas. According to the OECD, weak oversight, underinvestment and fragmented governance remain major obstacles.

Why Water Services Need Regulation

Water services are considered “natural monopolies” because it is too expensive and impractical to have multiple companies building separate water pipelines in the same city. Without proper regulation, operators may charge high prices, neglect maintenance, or fail to serve poorer communities.

The OECD says regulation is needed to balance three key goals: affordable prices, reliable long-term investment and fair access for all citizens. Regulators are also expected to ensure that water companies meet environmental standards and protect public health.

Many countries have created independent regulatory agencies to oversee tariffs, monitor service quality and collect performance data. Portugal’s regulator ERSAR is highlighted as one of the most successful examples. It regularly compares utilities using detailed performance indicators, encouraging companies to improve efficiency and transparency.

However, the report also shows that regulation can fail if institutions are weak or poorly coordinated.

England’s Water Crisis Raises Questions

England’s privatised water sector is presented as a warning sign for regulators worldwide. After water services were privatised in 1989, companies attracted major private investment and improved some infrastructure. But over time, problems such as rising bills, sewage pollution and heavy corporate debt damaged public trust.

The country’s regulator, Ofwat, faced criticism for failing to prevent environmental abuses and financial instability among major operators like Thames Water. Following a government review in 2025, the UK announced plans to abolish Ofwat and replace it with a new regulator combining economic, environmental and public health responsibilities.

The OECD says this reflects a broader global trend: water regulation can no longer focus only on prices and profits. Regulators are now expected to deal with climate resilience, pollution control and biodiversity protection as well.

Closing the Gap for Poor and Rural Communities

One of the report’s strongest messages is that water regulation must do more to reduce inequality. Utilities often prioritise wealthier urban areas because they are easier and more profitable to serve, leaving poorer districts and rural communities behind.

To address this, countries are experimenting with “pro-poor regulation.” Belgium’s Wallonia region created a Social Water Fund that helps low-income households pay their bills. Morocco uses cross-subsidies from electricity services to reduce water costs. Cambodia introduced targeted subsidies to help poor families connect to water networks.

Benin is highlighted as a major success story in rural reform. The government reorganised rural water services into larger service zones managed by professional operators under state supervision. Supported by international financing, the reforms significantly expanded rural water access and improved service quality.

The report also highlights the growing use of performance-based contracts. In Jamaica, contracts linked payments to reducing water losses, helping improve supply reliability. In Djibouti, operator payments are tied to targets such as leak reduction, maintenance and bill collection.

Climate Change Is Reshaping Water Policy

Climate change is becoming one of the biggest challenges for water utilities worldwide. Droughts, floods and pollution are increasing pressure on already fragile systems. Water utilities are also major energy users and contribute to greenhouse gas emissions through wastewater treatment.

As a result, regulators are beginning to promote greener practices. Italy’s regulator ARERA rewards companies that reduce water leakage and reuse treated wastewater. In France, the public utility Eau de Paris pays farmers upstream to adopt environmentally friendly farming methods that reduce pollution and protect groundwater.

The OECD concludes that there is no single perfect model for regulating water services. But successful systems usually share the same features: transparency, strong monitoring, political commitment and long-term planning. As climate pressures and urban growth intensify, the report argues that effective regulation will become just as important as building new pipes, treatment plants and reservoirs.