Water has historically been hugelyunderpriced in most developing countries.Water systems areoften poorly run.Regulatory frameworks are often lacking,incomplete, or internally inconsistent, and the relevantskills thinly spread.There is little trust that thegovernment will maintain a favorable operating environmentand a tariff yielding a reasonable rate of return.It isnot a setting attractive to the private sector.While muchstands in the way of private provision of water services inthe poorer countries, the following four options,individually or in combination, may speed transformation: 1)taking a stepwise approach; 2) simplifying contracts; 3)contracting out parts of the regulatory function; and 4)increasing predictability in the use of discretion.Thereis often a sharp difference between what private companiessee as a minimal return necessary to go into business in arisky country and what governments view as an acceptablelevel of profit.Governments should be realistic about theprofits that they should allow, recognizing the need oftheir private partners to earn a reasonable return and to berewarded for the risks that they shoulder.