Ever since the 1970s, the governments of the region have been transferring public enterprises and other State institutions to the private sector in one manner or another. Privatization has now spread to all sectors of the economy, including drinking water supply and sewerage services. Private sector participation in the supply of these services may bring with it substantial improvements in efficiency, but it does not of itself guarantee a lasting improvement in social welfare, because these services are not provided in a competitive market. Consequently, the results will depend on the system of regulation within which the industries operate, and the effectiveness of this system will be determined by the capacity of governments to seek and create institutional and regulatory conditions which oblige the supplier firms to be efficient and reflect the needs of their clients. This article focuses on the questions to be dealt with in preparing a suitable regulatory framework for the drinking water supply and sewerage sector.