The role of institutions in state-private sector interaction: the case of the management contract for water and wastewater services in the Amman Governorate, Jordan
This research investigates the performance of private sector participation (PSP) in the water sector from a governance perspective. It is concerned with the role that institutions play in the interaction between the state and the private sector, which occurs with respect to the regulation and implementation of such PSP arrangements. The research takes place within the context of a development debate and practice, which identifies water as a key poverty issue in a substantial part of the developing countries, which advocates private sector participation as a remedy to inadequate water management and which acknowledges good governance as a crucial requirement for development. Nevertheless, few studies have scrutinized the impact of governance and institutions on the outcome of PSP arrangements in the water sector. Most research on the performance of PSP arrangements has examined exogenous and endogenous determinants, such as the price mechanism and the property rights allocation, but these factors proved unsatisfactory as explaining variables in the context of natural resource management. To contribute to filling a gap in research this study aims at evaluating the impact of institutional frameworks on the outcome of private sector participation in water supply and sanitation through a case study of the Management Contract for Water and Wastewater Service in the Amman Governorate, Jordan. At the end of the 1990s the quality of water supply and sanitation in the Jordanian capital Amman was unsatisfactory, as supply was insufficient and entailed high costs. Therefore, in 1999, the government of the Hashemite Kingdom of Jordan contracted a private joint venture to improve water service provision in the Amman Governorate. The research takes into account the specific institutional framework for the mentioned arrangement in Amman, which is comprised of the national judicial and political institutions, the specific regulatory institutions as well as relevant international institutions. These institutions are not limited to laws and regulations only, but also include informal institutions such as traditions. The specific objective of this study is to show how the institutional framework of a transaction affects regulatory processes by abating and amplifying the potential for opportunistic behavior of the contracting parties, and thereby affecting the performance of a privately operated water utility. The examination of the institutional framework of the Amman Management Contract revealed that mainly judicial and international institutions and specific contract rules were constraining the discretion of the contracting parties. Political checks and balances were insufficiently established and the regulatory institutions of the water sector were set up in an improper way. The field study discovered that the resulting discretionary power of certain actor was used opportunistically, which had a detrimental effect on the outcome of the PSP arrangement. Nevertheless the overall performance of the arrangement was good from which the general insight was drawn that regulatory credibility may be developed even in unpropitious environments. However, to be able to judge upon the effect of governance and institutions on a planned or existing PSP arrangement each time a complex assessment of the respective institutional environment is necessary. This is because institutions may not be seen as independent building blocks but rather form a network which is likely to be unique for each country and situation. The mini-thesis is organized as follows. In Chapter 1 an outline of the study and its problem background is provided. Chapter 2 provides a detailed literature review and sets out the theoretical framework and research hypotheses of the study. Chapter 3 outlines the research design and methodology that was used for the study. Chapter 4 provides background detail on the Jordanian political, economic and social situation, on the issues pertaining to the water sector, andon the Amman water contract. Chapter 5 provides a description and analysis of the main research findings. Chapter 6 provides a summary as well as final conclusions and considerations.