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I. Introduction
Privatisation1 per se has always been a highly controversial issue, but it becomes even more so when envisaging private sector participation in the provision of water services and sanitation. Due to the fact that water services are seen as such a key public utility, proposals for private sector participation often provoke strong opposition. Water is considered a common beneficial good, to be shared among all members of the community. It has to be safeguarded against waste and inefficient use, to preserve this resource for future generations.
Water has the characteristics of a natural monopoly2 which is affected by asymmetric information3 between regulators and regulated entities, more so in the form of moral hazard. Considering its particular nature4, it cannot be governed simply through market rules, since private operators are naturally devoted to profit maximisation. Instead, it requires the public sector either to provide the utility directly or to regulate the private economic agent that provides water services for the common good.
II. A new Italian law for managing local public services
In Italy the debate over water privatization is now more intense than ever, largely due to the recent legal reform which has now come into force. The Italian legal framework for the operation and management of water supply services is the result of the combined provisions set forth in law no 36 of 1994, legislative decree no 152 of 2006 and the recent law-decree no 135 dated September 25th 2009, the so-called Ronchi act. The latter was converted into law, with some modifications, by Law 166, Article 1 paragraph 1 dated 20 November 2009. Article 15 of the Ronchi Act states that public service contracts have to be awarded to private operators whenever the service has economic relevance. According to this provision, local public services are essentially forced into privatisation, which will mean for Italy that the management of water supplies will shift from being mainly operated by publiclyowned bodies to being exclusively operated by privately- owned or mixed-capital companies.
Furthermore, the law establishes that, except for unusual circumstances, public services contracts have to be ordinarily awarded to:
An undertaking
1. An entrepreneur or company, regardless of how established, selected by competitive public procedures in compliance with the Treaty principles and...