The urban water and sanitation sub-sector has been undergoing a series of reforms since year 2001 to ensure that services are provided with increased performance and cost effectiveness and the burden on Government to provide these services gradually decreases while maintaining its commitment to equitable and sustainable services.

Significant achievements have been made under the implementation of the reformswhich include the commercialization of water supply and sewerage service operations, promotion of private sector participation in delivery of services, devolution of service delivery to Water and/or Sewerage Authorities, institutional capacity development ( i.e. strengthening of Management Information Systems especially in the areas under the National Water and Sewerage Corporation, formulation of Business Planning Tools etc) and the introduction of Performance and Management Contracts to enable the ministry exercise oversight governance on the Water and/or Sewerage Authorities.

Extensive consultations have been conducted among key stakeholders on the mode of regulation for the urban water and sanitation sub-sector and consensus has emerged that in the short to medium term, the regulatory functions remain the responsibility of the Ministry of Water and Environment as per the Water Act Cap152 and mode of regulation be by contracts. The option of establishing an independent regulatory entity for the sub-sector is under consideration and a decision will be taken after an in-depth cost/benefit analysis has been conducted.

One of the major challenges still facing the urban water and sanitation sub-sector is the inadequate framework for effectively regulating the sub-sector to improve service delivery while protecting the interests of consumers as well as those of the public and private parties. Areas of weakness that have been identified include but are not limited to contract management/compliance, performance monitoring and evaluation, water quality monitoring, penalties, sanctions and rewards systems, dispute resolution mechanism, increasing transparency and accountability in the sector, pro-poor interventions, assets and investments management and tariff setting and adjustments.

In order to address some of the above challenges, a decision has been taken by the ministry to establish a separate Regulation Unit within the Directorate of Water Development to specifically focus on executing regulatory functions in the entire urban water and sanitation sub-sector. This Unit could in the medium to long term be transformed into an established structure within the Ministry, or form the starting point for an Independent Regulatory Body or part of one, depending on the final and long term decisions on the mode of regulation.