infrastructure development consultants quality of regulation: a comparative study - case analysis of...

INFRASTRUCTURE DEVELOPMENT CONSULTANTS

Quality of Regulation: A Comparative Study - Case Analysis of the Energy, Petroleum and Gas Industries

CUTS International Conference

Delhi, India By

Dr. Cezley Sampson

CPCS Transcom Limited

March 27 2010


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• Need to agree on length – 50 pages or x words

• Spacing and Font -1 ½” spacing and 11 font on Times Roman or Ariel

• References - End notes or Foot notes

Format of Reports


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Objective of Quality Regulation

• The research seeks to provide answers to what is quality regulation

• There is the need to improve the legal and regulatory environment in developing countries

• The objective is to increase investments, widen access and improve consumer welfare for infrastructure services

• The Research assesses the relationship between the quality of regulation and performances in the regulated industries

• Does quality regulation leads to increased access to infrastructure services and improved consumer welfare?


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The Field of Study • The research seeks to understand what is quality regulation • Empirical evidence is drawn from the regulatory environment from three case

countries, Brazil, India and Kenya representing the Asian, Latin American and Sub- Saharan regions.

• Regulation is considered to be necessary where markets fail – market failure rationale: existence of natural monopoly, information asymmetry, externalities, incomplete market or market with significant anti- competitive practices

• Industries selected: electricity ,petroleum and gas

www.cpcstrans.com


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Political Structure

• Federal government and state government in India and Brazil and National Government in Kenya

• Multi-tier structure of regulation Brazil and India - federal and state and Kenya single national

• Independence of the judicial system


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The Macro Economic Background

Comparative data on the three countries:• Gross Domestic Product (US$) • Population and population growth • GDP growth over the last 15 years• Per capita income (US$)• Percentage contribution of Industry,

Agriculture Electricity and Gas and Petroleum

• Access to electricity• Energy intensity


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Macro Economic Reform Agenda

Evolution of economic reform over the last

15 years –• Structural adjustment, privatization,

liberalization and introduction of competitive markets

• Forces shaping the reform • Year when reform commenced • Key features of the reform


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Development of the Regulatory Framework

• The overall regulatory institutional framework in the country

• The regulatory mandate and specific regulatory institutional framework for electricity

• The regulatory mandate and specific regulatory institutional framework for oil and natural gas

• The role of the Competition Authority


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Quality Regulation

• Regulation is addressed as an institutional phenomenon

• Proxies are taken with the assumption that quality regulation will follow

• Quality regulatory environment is said to exist where there is:

1. Good governance structure 2. Operation and financial independence of the

regulatory institution 3. Accountability 4. Transparency/consistency -clear and consistent rules

5. Existence of an appropriate coordinating mechanism


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Theoretical Assumption

Normative Consideration• What an agency providing quality

regulation should look like • Problem of theoretical institutional analysis

is that it is rarely measured on quantitative measures

• Theory focuses on the ideal type • Empirical analysis determines the extent

to which the ideal exist


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Comparison Between the Two Industries

Proxies Electricity Oil and Gas Independence

Financial Indep AccountabilityConsistencyCoordination


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Governance and Personnel • Whether a dedicated agency within a ministry or

an independent legal entity outside a ministry • Involving the executive and legislature branches in

the appointment process • Appointing regulators for fixed teems • Protecting them from arbitrary removal by political

bureaucracy -removal from office by cause stated in law or gross misconduct

• Staggering terms so that they do not coincide with election cycle

• Prescribing professional criteria for appointment of regulators and technical staff


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Operational and Financial Independence

Operational Independence • Insulation from improper influence , conflict of interest• Arms Length relationship from political bureaucracy,

regulated industry and powerful consumer groups• Regulator has discretionary decision making power over

substantive matters: tariff, technical standards and dispute resolution

• Exemption from restrictive civil service salary scale and rules that make it difficult to attract well qualified staff

Financial Independence • Earmarked funding independent of central budget –levy on

consumers or industry • Security of the budget - not subject to ministerial approval

process


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Accountability • Effective appeals process from agency

decision-existence of Appeals Tribunal and Judicial Review by the Courts

• Providing for scrutiny of the Agency's budget by the Auditor General and Parliament

• Subjecting the regulators conduct and efficiency to scrutiny by external auditors or a public watchdog

• Involving the stakeholder in the decision – consultation on matters affecting the stakeholder


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Transparency

• Mandating rigorous transparency, including written, published decisions, giving reasons for decision

• Prohibiting conflicts of interest – full and timely disclosure

• Avoiding revolving door - movement of staff between regulated company and the regulator

• Ensuring procedures are produced and widely distributed.

• Consistency in the application of rules


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Coordination and Interface

• Relationship with Anti-trust, and Environmental regulators

• Roles of each regulator should be clear if more than one agency is involved and roles over lap

• Preferable one agency – one agency law should have primacy

• Provide for cooperative agreements • Representation on respective boards


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Inputs and Outputs

• Assessment of investment levels • Assessment of service quality and

choice within the respective industries• Assessment of real prices • Distribution of efficiency gains:

between profits: producers surplus and economic rent and lower prices and improved services: consumer surplus


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Quantitative Assessment

RIA Analysis


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Lesson learnt and Main Conclusions

• Any indication that quality regulation leads to a more efficient industry, increased investment in infrastructure, wider choice for consumers and improvements to service quality

• Has the reforms led to increased competition

• How has real prices performed

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