A/HRC/15/31 must include adequate incentives, serious penalties for non-compliance, such as fines, and the possibility of revocation of the contract. 4. Particular challenges of informal small-scale providers 53. Compared to the regulation of utilities, far less attention has been paid to the regulation of informal small-scale providers. Operating unregulated, they often provide poor quality services at exorbitant prices. Yet, many people would be far worse off without their services. Any attempt to regulate the activities of such providers first requires an overview of the sector and the political will to acknowledge their activities. Human rights law does not prescribe the choice of policy and approach to small-scale providers, which is rather left to the State. It can decide to aim for regulation, or to use incentives for the provision of quality services at affordable prices, or to phase out small-scale providers in the long term and replace them by formal provision. The best policy option will depend on the circumstances and cannot be determined in the abstract. Any measures taken must comply with human rights obligations. There has to be a clear strategy with the end goal of providing universal access to services in line with human rights standards. At the same time, States must ensure that the measures taken - for instance strict licensing requirements - do not worsen the situation and leave people without access to services. In particular when granting exclusivity to formal providers extending into areas that have previously been served by small-scale providers, States have to ensure that the network actually constitutes an affordable alternative for poor people and that they are not lacking service provision until the formal provider is ready to fill the gap. 54. Given the decentralized and often on-site nature of small-scale services provision, distinct regulatory instruments are needed. For instance, many on-site sanitation solutions require the emptying of septic tanks. To ensure that sludge is actually brought to treatment plants and not dumped into the environment, payment for the service could be made only upon arrival at the plants. It is unlikely that a central agency can adequately oversee the activities by small-scale providers, but rather a different institutional set-up may be required, for instance involving local governments. 5. Significance of social policies 55. There is an inherent tension between commercial viability and direct full cost recovery on the one hand and providing affordable services to the poor on the other hand. When utilities are not adequately and sustainably resourced, they cannot ensure operation and maintenance, let alone invest in the network. Yet, direct full cost recovery would render services unaffordable for many people. Regulatory oversight alone may not be sufficient to achieve the rights to sanitation and water for all, and special safeguards and supplementary social policies to ensure inclusiveness, such as safety nets and subsidies, may be necessary.44 These may take various forms, whether providing support to people’s income or adjusting tariffs to render services affordable. Moreover, while people will often be able to pay recurring charges for services, a high one-off payment for the initial connection is often beyond their capacity. Connection subsidies and public spending will often be necessary to expand the network to low-income areas. Whatever measures are taken, they must not disproportionately benefit the upper and middle classes already connected to the network, but, crucially, have to be targeted to reach the unserved and underserved most in need. Affordability studies carried out by the regulatory body or other States authorities can be an important tool for taking decisions on how to target measures. 44 18 For a detailed overview of possible sanitation subsidies, see Water Supply and Sanitation Collaborative Council, Public Funding for Sanitation: The Many Faces of Sanitation Subsidies (Geneva, 2009).