www.gsb.uct.ac.za/mir assessing regulatory performance in sub-sahran africa perspectives from the...
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ASSESSING REGULATORY PERFORMANCE IN SUB-SAHRAN AFRICAPerspectives from the African Electricity Regulator Peer Review and Learning Network
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Joseph KapikaManagement Program in Infrastructure Reform and RegulationUniversity of Cape Town
South African Economic Regulators ConferenceJohannesburg, 21 – 22August 2012
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Presentation Outline
1. Context
2. African Electricity Regulator Peer Review and Learning Network
(Peer Learning Network)
3. Insights from the Peer Learning Network
4. Conclusion
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1. Sub-Saharan Africa Power Crisis
Technical• Blackouts• High tx and dx losses
Financial• Low debt cover• Low ROR• Low creditworthiness• Low self-financing ratios• High employee to customer
ratios• Under investment
Low access rates
• Below cost tariffs• Low collections• Lack of investment• Poor governance arrangements
• Growing state budget deficits• Poverty/affordability• Politicisation• Exogenous factors: oil prices, restricted
access to foreign capital, high interest rates, high inflation
A result of…….
Adapted from Gratwick & Eberhard, 2008
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1. Standard Model for Reform
• Corporatisation / commercialisation• Enabling legislation• Independent regulator• Restructuring (unbundling)• Divestiture (distribution / transmission)• Competition (wholesale / retail)
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1. Context - Hybrid Power Markets
OwnGx IPPIPP
SINGLE BUYER
DISTRIBUTION
Cust Cust
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1. Significant Challenges Remain
Challenges• Power sector under
developed• Electricity supply is often
unreliable• Power costs are high• Access to electricity is
low and unequal
(approx. 30% on average)
Daunting figures!• 7,000MW/annum
additional generation capacity required– Suppressed demand,
economic growth, increasing access
• Investment needs– $15Billion/annum (new
GX)– $5Billion/annum (rehab.)– $6Billion/annum (new DX)
Source: Eberhard, Rosnes et. al, 2011
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Objectives• Immediate
– To enhance leadership and management capability among African electricity regulators
(Leading to increased credibility, transparency and robustness of regulatory decisions)
• Medium term– To enhance overall investment and development
outcomes through improved performance of continent’s electricity infrastructure industry
2. African electricity regulator peer review & learning network
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2. Peer Learning Network - Approach
Learning from peers in a collegial environment through the review of each others regulatory systems– Not a benchmarking or scorecard process. Emphasis is
on learning what works, what can be improved and what can be adapted
“…one way flow of information …replaced with fluid conversations amongst the members of the network. Questions refined issues reframed, solutions drawn and new directions charted from the advice of all the members of the network.”
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2. Peer Learning Network – Experiential Learning
Testing implications of concepts in new
situations
Formation of abstract concepts
and generalisations
Observations and reflections
Concrete experience
Adapted from Kolb and Kolb (2005)
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2. Peer Learning Network – Participants(Phase I)
Ghana
KenyaUganda
TanzaniaZambia
Namibia
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2. Typical review process• 5 CEOs visit 6th institution with support from MIR• One week review• In-depth discussions with
– Minister– Regulator Commissioners– Regulator management & staff– Utilities– Private producers / investors– Consumer groups– Media practitioners
• Initial findings & recommendations presented to Commissioners, CEO and regulator management & staff
• Opportunity for subsequent institutional response & agreement on areas that could be improved
• Forthcoming book (January 2013)• Follow-up actions from MIR (research, training, etc)
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2. Evaluating Regulatory Systems
REGULATORY GOVERNANCE
Clarity of roles and functionsLegislative / legal design and institutional arrangements of regulatory system and processes of decision making
REGULATORY SUBSTANCE
Content of regulation-tariff setting methodologies and practices-technical and commercial quality of service standards-Pro-poor and increasing access issues
Credibility, legitimacy and transparency of regulatory
decisions
Quality and robustness of regulatory decisions
Cost-effective, reliable infrastructure services, financial viability of utilities, attraction of new investments
REGULATORY IMPACT
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3. Independence
• Decision making independence– Enshrined in the legislation for all the six
regulators– However, incidents of dismissals of
commissioners before their terms end• Determined govts. can find legal means• Law should be backed by commitment
• Financial and management independence– Levy on sales– Terms and conditions for staff
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3. Transparency and Participation
• The Tanzanian example– Government Consultative Council– Consumer Consultative Council
• Sustained engagement with the public on key regulatory matters
• Publication of decisions• Open board meetings? Publication of
minutes?
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3. Accountability
• Who regulates the regulator?• Annual reporting• Performance reviews by parliamentary
committee• Regulatory impact assessments• Appeals
– Specialised courts in East Africa
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3. Planning and Procurement
• Has “fallen through the cracks”• Who is in charge of
– Planning, allocation of new build between SOEs and IPPs
– Timely procurement, negotiation, contracting• Useful examples of legislating some of
these responsibilities – Kenya, Tanzania
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3. Power Purchase Agreements
• At which stage should there be regulatory involvement?
• Does project size matter?• Regulator as observer at PPA
negotiations?• Whatever the case regulatory role should
be meaningful in the approval process
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3. Tariffs
• Most challenging (important) of all regulatory matters
• Widespread use of rate-of-return• Yet
– Utilities argue that awarded rates of return insufficient
– Post award calculations even lower in some cases• Asset values and depreciation
– Historical costs, replacement costs, modern equivalent assets
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3. Quality of Service and Reliability
• Generally remains unsatisfactory• Technical standards developed and
publishsed – But oversight and enforcement lacklustre
• Pointless to publish standards that cannot be adhered to by utilities nor monitored and enforced by regulators
• Most regulators unaware of extent to which quality is poor or whether improving or deteriorating
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3. Pro-poor Regulation
• Regulators can do more– Universal service obligations on utilities– Connection targets– Encourage provision of credit for new
connections– Allow for new connections to be subsidised– Incentivise utilities to use fit-for-purpose
technologies
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4. Has Regulation Made a Difference?
• A cursory viewpoint– Quality and reliability remains poor– Prices uncompetitive and not cost related– Financial viability of sector questionable– Countries failing to attract IPPs
• But encouraging signs of progress– Bold tariff decisions– IPP developments in some countries (should be
emulated elsewhere)– Impact of non-OECD countries on investment
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4. Conclusion
• Power sector regulation in Sub-Saharan Africa still in its formative stages
• Regulation has to be adapted to the reality of the African context
• Peer Learning Network(s) provides one avenue for achieving this
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Research, training courses, consultancyUniversity of Cape Town
The Management Programme in Infrastructure Reform & Regulation (MIR) is an emerging centre of excellence and expertise in Africa. It is committed to enhancing knowledge and capacity to manage the reform and regulation of the electricity, gas, telecommunications, water and transport industries in support of sustainable development.
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