Reform of Italian Water Services Tariff Calculations
8 January 2009
By Dr. Francesco Lo Passo and Maria Gerarda Mocella with former NERA Senior Consultant Giordano Colarullo
Fourteen years after the Italian Water Sector Reform Law (Legge Galli) was enforced in 1994, the majority of monopoly franchises have been awarded to companies entirely owned by local authorities (in-house procedure) or to publicly/privately owned companies, whereas a minority of franchises have been awarded through competitive tender procedures and to listed companies. The Italian water network is for the most part inadequate, with average leakage levels estimated to be around 30 percent. The reform is consolidated and establishes a clearly defined organizational framework, and the territorial domains and the management plans are also laid out. There is, however, still a severe delay in the award of concessions contracts and in infrastructure investments. In the Italian water services, a key issue is the calculation of tariffs, which at the moment does not allow companies to earn an adequate return on capital. Consequently, actual investments are systematically lower than what is forecast. In this paper, NERA Director Dr. Francesco Lo Passo, Research Officer Maria Gerarda Mocella, and former Senior Consultant Giordano Colarullo propose reforming various aspects of the current tariffs system, which can be easily implemented by updating the "normalized method" tariff calculation model.
