The present study analyzes the evolving reform that since the mid 1990s, is radically transforming the organization and provision of water and sewage services in Israel. Consolidated in 2001 by national legislation (the 'Water and Sewage Corporations Law), this reform transfers the responsibility for the services from the local authorities to regulated municipal corporations. Conceived in the context of a neo-liberal economic paradigm, it aims to disconnect the link between local infrastructure investment and public (governmental) funding while encouraging private financing, opening – at the same time, the possibility for partial private ownership at a later stage. Water is now considered as an economic commodity whose production and supply must be expressed in full cost-pricing. A new differential pricing-system based on economic considerations replaces a long-standing unified (nation-wide) system of tariffs, characterized by cross-subsidies between consumers, regions and localities. According to the 2001 law, service levels and corporate performance are to be regulated by semi-independent statutory bodies.

Misinterpreting policy planning with legislation, the government embarked in the implementation of the reform without a clear understanding of the complexity of the task. It refused, as well, to recognize the importance of the services' revenues to local government finance, particularly in a period of severe contraction of central government transfers and funding. Local authorities actively opposed the corporatization process and protracted it till recently. The central government was unable to formulate a coherent policy and tilted the reform on different lines - from voluntary to compulsory, from municipal-based to regional-based and back, from inducement to coercion. By the end of 2009, it seems that the reform has reached the point of no return. By a variety of means the central government has brought an absolute majority of urban local authorities to accept the reform, to set-up the required local corporations and to transfer the responsibility for service provision to these bodies.

And yet this is an unresolved reform. As exposed in the present study serious issues question the viability of this institutional change and its public implications. At least five major issues require due attention. Because of the incoherent, an at times opportunistic, nature of the process, the reform has resulted in an unintended spatial organization. The national space presents now a service system of multiple (over 50) organizations, based on fractured boundaries which hardly follows a logical scheme. Unwilling to confront the complex task of developing a balanced structure, there is at present a clear split between financially- weak corporations serving financially-weak local communities, and well-consolidated corporations serving better-off communities. A forecasted collapse of the first brings closer the need for government intervention – including the possibility of a de facto quasi-nationalization. Lingering in the back of this whole process, the issue of partial or total privatization is in a dormant state – a condition that does not diminish the need for an open public discussion of its potential implications. Government induced changes of the original regulatory system have centered full responsibilities in the recently created national Water Authority, a statutory body responsible for the overall planning and regulation of water in Israel. Its multiple competences pose serious doubts about its actual capability, as a non-independent (governmental) regulator, to assure the interest of the general public as consumer. From this perspective the present study calls for the establishment of an independent statutory body that can advance the interest of the general public, protect it as a consumer, and allow for a 'loud voice' in a highly needed public deliberation.