Modern water regulation in the Middle East: a key to prosperity, security and sustainability

A high-quality water regulatory environment is an essential foundation to ensure that countries in the Middle East are an enjoyable and prosperous place to live, work and do business while also protecting the environment and all parts of society.

The many challenges we face, such as water scarcity and greater population demand, are varied and complex, and stand in the way of these goals; if we are to address them, modern regulation in the 21^st century needs to adapt and evolve every bit as fast as the utilities it regulates.

It is timely to consider whether the current approach really delivers what customers and wider society need, want and are willing to pay for in the best and most proportionate way. Do we want a prescriptive outputs based approach which is focused on specific things like the number of meter installations or a reduction in sewer flooding levels? Or do we want our utility leaders to aspire in their delivery using an outcome focused plan devoted to the higher level objectives that customers and society value?

A recent PwC report found that half of London's FTSE100 companies are now linking executive pay packages to at least one of their environmental, social and governance (ESG) targets; net-zero targets and changing regulation in markets like the UK are higher level drivers behind the changes we are seeing at boardroom level. Clearly, ethical based regulation is a wind that is likely to blow elsewhere if this example is followed which is quite likely given it is not only in the UK that ESG is climbing up the agenda.

If those regulating the utilities in the Middle East and elsewhere are to become more forward looking and achieve goals like becoming more environmentally sustainable, economic regulation must focus on incentivising the utilities to deliver efficiently the outcomes that customers and society value. To hold the utilities to account for delivering outputs rather than outcomes is to some extent holding them back from allowing them scope to find alternative approaches.

In modernising regulation, companies would be incentivised to find the best way to deliver outcomes, with the freedom to choose between different outputs to achieve those goals. Regulation would be more than just about setting rules and enforcing past or current performance. The key to driving modern regulation is to manage the risks and rewards for doing things differently and requires a shift by setting incentives for the future and enable utilities to innovate and promote greater efficiencies.  

However, it is not possible to regulate innovation; on the contrary, you need to create the right environment to liberate and encourage innovation in the use of smart technologies, data analytics and automation as well as promote best practice principles, which when combined, will go on to deliver the desired outcomes for consumers and corporate entities alike.

When it comes to regulation and attaining a more secure water future, the utility mindset must embrace a shift in focus from risk to resilience planning and embed resilience into long-term business planning and processes. A shift to a more systems based approach to resilience will increase customer engagement and confidence, allow utilities to understand system pressure points and identify or bridge potential vulnerabilities earlier and, ultimately, deliver better value options for long term resilience planning.

If we look at the wider picture, it is not just water but a wider multi-utility approach to regulation is needed given desalination is a key technology and dependent on oil and gas or electricity companies.

Such approaches can help utilities better manage uncertainty in this more complex and less predictable world and plan as well as invest for the long term.