The Regulation Framework of the German Water Sector from an Economic Point of View – Taking Stock and Perspectives

Abstract

In the light of the market opening of other European network sectors, the German water sector has been dominated for over 20 years by an intense debate on its economic efficiency and possible instruments to guarantee this efficiency. The “modernisation strategy for the German water sector” demanded in 2002 by the German Bundestag and specified with measures by the Federal Government in 2006 can be seen as the German answer to the years-long controversial European debate on liberalisation, as well as privatisation, and on the persistent efficiency criticism of the water sector with respect to regulation. While the discussion on cost efficiency of the water supply sector temporarily gathered new momentum by the increasing antitrust examination of water prices, it has not been heard much of the modernisation strategy except for the benchmarking approach. New attempts of the monopoly commission, that inter alia provide for a sector specific regulation, and the reform efforts of the European Commission in the field of public procurement law have instead far exceeded the approach of a mere “modernisation”. The aim of this article is to take stock and to look at the perspectives of efficiency in a sustainable water supply from an economic point of view. Thus, it becomes clear that the modernisation strategy cannot at all meet the respective requirements. However, also a one-sided efficiency- oriented water infrastructure policy has its limits. Approaches to improve the sector’s economic efficiency have to be integrated into a coherent sustainability policy framework. This is particularly the case for the so far higly fragmented German law of water prices.