Presentation on theme: "1 Brazil: Strengthening Governance for Growth Presentation of the results of the OECD Review on Regulatory Reform Brasilia, May 28, 2008 Mr. Stéphane Jacobzone."— Presentation transcript:
1 Brazil: Strengthening Governance for Growth Presentation of the results of the OECD Review on Regulatory Reform Brasilia, May 28, 2008 Mr. Stéphane Jacobzone Principal Administrator Regulatory Policy Division Directorate for Public Governance and Territorial Development
2 Outline Why Regulatory Reform ? Government capacity for quality regulation Trends in selected sectors Regulatory governance challenges –Independence and accountability –Horizontal design –Powers for quality regulation –Performance assessment Conclusions and recommendations
3 Why Regulatory Reform ? Strengthening long-term growth Efficient markets & Good governance Synergistic effects amplify gains in individual sectors (Telecommunications, Transport, Energy) Benefits to consumers quality, choice, cost and price Reducing market access restrictions and lowering administrative burdens; Establishing markets for the private sector to provide services previously supplied directly by the state; Strengthening product market competition, and easing the adoption of innovative technologies;
4 Regulatory policies improve the functioning of markets Boosts consumer benefits reducing prices for services and products such as electricity, transport, and health care, and by increasing choice and service quality. Supports sustainable, non-inflationary growth Improves competitiveness Reducing the cost structure of exporting and upstream sectors in regional and global markets. Fosters flexibility and innovation Increases job creation by creating new job opportunities, and by doing so reducing fiscal demands on social security, particularly important in ageing populations. Reduces risk of crisis due to external shocks
5 Governance Benefits of Regulatory Policy Reinforces the rule of law Improves transparency and accountability Maintains and increases regulatory protections Better serve consumer interests by introducing more flexible and efficient regulatory and non-regulatory instruments, such as market approaches. Increases efficiency of the public administration Raises trust in government Improve relationship between levels of government
6 Regulatory Policy and Governance Coherence l Role of Parliament Main producers of laws and keepers of the stock l Role of Judiciary Judicial review and appeal mechanisms l Role Subnational Level Results are reduced if they dont reach to citizens and businesses l Role of Independent Regulators Efficient, transparent, accountable and sustainable rules at arms length from politicians and producers for consumer gains.
7 OECD Regulatory Guiding Principles l1995 Recommendation for quality regulation l1997 Recommendations l2005 Guiding Principles for Regulatory Quality and Performance : Deregulation where markets work better than governments Re-regulation and new regulatory institutions where markets cannot work without governments More efficient government and social regulations to achieve high standards of health, safety and environmental protection at lower economic cost
8 The Brazil Review in the context of the OECD Country Reviews of Regulatory Reform l Independent assessment l Multidisciplinary approach : Competition Chapter already performed High Quality Regulation Regulatory Authorities in four core sectors: Supplemental Health Insurance Telecommunications Electricity Land Transport l Extensive consultation –government officials (including elected officials) –business and trade union representatives, consumer groups, and academic experts l Standardised report (Mexico, Switzerland, Norway)
9 GOVERNMENT CAPACITY FOR HIGH QUALITY REGULATION Main issues for discussion: 1.Setting up a framework for regulatory reform 2.Drivers of regulatory reform: national policies and institutions 3.Administrative capacities for making new regulations 4.Keeping regulations up-to-date
10 1. Setting up a framework for regulatory reform Context of regulatory reform: Privatisation and need to establish sectoral agencies for key economic sectors Administrative structures: direct vs indirect administration Evolution of the public administration Administrative and legal environment: important role of the Executive Complex legal system: 3.5 million norms
11 Growth Acceleration Programme (PAC) Promote competitiveness Removing barriers to competition and entrepreneurship Significant administrative burdens and permits at the local level Significant efforts are still being made at federal level.
13 The PRO-REG Programme (Programa de Fortalecimento da Capacidade Institucional para Gestão em Regulação) Developed with the support of IADB. Strengthening the regulatory system Consolidate capacities to formulate and analyse public policies Improve co-ordination and strategic views Strengthen transparency, accountability and performance of agencies Mechanisms for accountability and transparency Management Committee (CGP) and Consultative Committee (CCP).
14 2. Drivers of regulatory reform: national policies and institutions Regulatory policy requires: Broader perspective to consolidate regulatory functions of the Brazilian state More evidence-based analysis for decision making A whole-of-government approach Co-ordination between levels of government
15 Regulatory Oversight Units Need a whole of government approach Need to be independent from sectoral regulators (not tied to specific regulatory mission) Clear regulatory policy endorsed at political level Horizontal operaton Staffed with expertise Linked to centers of government and/or finance ministries. Ex: OIRA, BRE, Australia, Netherlands, Mexico.
16 Institutional challenges Constitution and Law 9 784 on administrative procedures within Federal Administration Supplementary law 95 from 1998 for preparing and amending laws Strengthening regulatory agencies for economic sectors (Laws 9 986 and 10 871). But at the moment in Brazil, there is no oversight body for regulatory quality to: Co-ordinate and advise Challenge regulatory decisions Advocate and support regulators
17 3. Administrative capacities for making new regulations Challenges for the transparency in the Brazilian system: Existing guidelines to elaborate, consolidate and prepare new primary laws, but not for infra-legislation and administrative acts Used of public consultation, but not compulsory (average from an OECD perspective see next slide). Communication techniques well advanced, but no forward planning and better use of plain language, no specific access to public documents unlike Mexico
18 Quality of the consultation process
19 Transparency and easy access to regulations
20 3. Administrative capacities for making new regulations Compliance and enforcement in Brazil: No ex-ante assessment of possibility of compliance Misuse of the judicial review and appeal process Shortcomings in the judicial branch to deal with quality control of regulations, in particular on economic sectors Need to improve the use of alternatives to regulation
21 3. Administrative capacities for making new regulations Regulatory Impact Analysis – Challenges Good RIA practices identified in OECD countries Clear allocation of responsibilities Training for regulators Targeting RIA efforts Applying RIA to new and existing regulations Use of a flexible analytical method and develop data collection Integrating RIA in the decision making-process, as early as possible Communicating the results Involving the public extensively
22 Roadmap for RIA implementation Maximise political commitment Allocate responsibilities carefully Train the regulators Target RIA efforts Develop data collection strategies Integrate RIA early in the policy-making process Communicate the results and involve the public
23 4. Keeping regulations up-to-date Revision of the regulatory stock through: Debureaucratisation process Consolidation of normative acts Federal level State level (E.g. State of São Paulo) But measurement of regulatory burdens did not exist at time of the review. Linking consolidation with simplification ?
24 REGULATORY AUTHORITIES Main issues for discussion: 1.Introduction and general aspects 2.Trends and regulatory frameworks in the selected sectors 3.Regulatory governance Independence and accountability Horizontal aspects Powers for quality regulation Performance Assessment 4.Conclusions and recommendations
25 Setting up Independent Regulatory Authorities (IRAs) Policy Objectives –Improve economic efficiency in a market framework shielded from short-term political and administrative risks –Avoid the risk of capture by specific interests Context –Privatising former state-owned enterprises –Necessity of a sound regulatory framework –Ensuring market efficiency and protecting consumers' interest in cases of imperfect competition/monopolistic markets
26 A Political Challenge The choice –Self-regulation and competition framework –Direct Ministerial Oversight –Independent Regulators The rationale –Delegating power to a regulator at arms' length from the political system –Improving the protection of consumer interest in case of market failures or other failures –Improving transparency and stability –High quality staff and technical expertise
27 Towards the "Regulatory State" Clarifying the functions of the State –Public Ownership General rule making (general rules) –Enforcing regulation (applying the rules) –Consumer protection (quality/market) A challenge to the executive and parliamentary powers –A regulator entrusted with regulatory powers, including sanctions, licences, and even some rule making –A Government in Miniature? –Establishing the legitimacy of a "non majoritarian" institution
28 The international context Trend towards participation of the private sector for the delivery of core services/network industries The European dimension The impact of the GATS OECD Work
Independent Regulatory Authorities in the proposed 2005 OECD Recommendations on Regulatory Quality Broad regulatory perspective –Establish regulatory arrangements that ensure that the public interest is not subordinated to those of regulated entities and stakeholders –Ensure that regulatory institutions are accountable and transparent Competition dimension –Ensure that regulatory restrictions of competition and market openness are limited and proportionate to the public interests they serve –Periodically review the need for universal service obligations, their effectiveness and the need to maintain restrictions on entry and prices –Promote efficiency and the transition to effective competition where economic regulations continue to be needed (abuse of market power): separate competitive activities from regulated utility networks, promote non discriminatory access to essential network facilities, promote interconnection of networks, use price caps and other mechanisms to encourage efficiency gains. Assessment –Use performance-based assessment of regulatory tools and institutions, to assess how effective they are in contributing to good regulation and economic performance
Recent Trends Independent Regulatory Authorities in OECD Countries
31 SECTORAL TRENDS AND REGULATORY FRAMEWORKS THE POWER SECTOR Mixed System: 80 % generation public (Eletrobras, Petrobras), Two thirds of distribution private. Hydropower (75.7%) One of the largest interconnected systems (effective third party access, and efficient pricing by ANEEL) Some interconnection with neighbours: imports mainly from Paraguay, Argentina, Challenges for investment compared with other major middle income countries, particularly generation capacity, in context of 4.5 to 5% economic growth.
Electricity investment as a proportion of GDP Source: World Energy Investment outlook
33 INVESTMENT IN POWER GENERATION 90 plants under construction, 524 plants planned Environmental licensing an issue Riskier than in transmission : supply of natural gas for thermal plants, clarity in future mix of power technologies Essential conditions (IEA): Clear and stable policy framework Effective licensing process Competition with cost reflective prices Improving outlook Improvement in regulatory framework since 2004 Positive re rating of the sector helped by macro and regulatory aspects Future mix of power generation : issue with Bolivian gas, role for nuclear
Efficiency and electricity consumption peer capita Source: IEA, 2006, data refer to 2004
35 The new regulatory framework Adopted in 2004 following 2001 crisis (impact 1% GDP) Following flawed efforts to introduce market-oriented reforms Hybrid competition an regulated transactions (whole sale power pool with long term contracts) Auction process for generation and transmission Reestablish a strong planning function with EPE Regulatory function with ANEEL (plus ONS, CCEE) Social programmes: Luz para todos, 6.6 million, MME with specific funding. Developments broadly in line with other countries (See Annex on market and policy context)
36 PRIVATE HEALTH INSURANCE OECD Work on PHI: need for regulation in imperfect markets SUS plus PHI duplicate cover (similar to other OECD countries) : 30 % in SE, below 10% N/NE Covers services by private providers and reimburses SUS for public services in some cases Half of total health expenditure private, and a third covered by PHI: very significant social impact, per capita expense similar to Australia Ireland, above Portugal or Spain in PPP Relatively high health expenditure in GDP Various organisational forms, high administrative expenses (higher than in OECD countries, US)
Health expenditures by source of funding Source: OECD Health Data, Brazil
Health expenditure in GDP and GDP per capita Source: OECD Health Data, Brazil
Share of PHIs expenses in THE and share of population covered by PHI Source: OECD Health Data, Brazil
40 The regulatory framework Move from Social insurance to universal insurance in 1988 with constrained funding Regulation introduced in 1998, and ANS created by law in 2000 New and old plans, prohibition of age or illness discrimination Institutional set up similar to Australia, Ireland the Netherlands (specific PHI agencies), in Mexico and Canada insurance oversight agencies (similar to SUSEP). In US state level regulation: insurance commissioners. Highly concentrated markets (Over ¾ for two operators).
41 The regulatory framework Regulation of contracts (reference, minimum and amplified plan), restriction on rate settings Tighter controls for individual contracts Supervision of insurers: Financial supervision Relationships with providers Procedure for information sharing (TISS) Policy for Quality in Supplemental Health: monitoring performance. Relations with public budgets Compensation to SUS Fiscal expenditures Issues similar to those faced by OECD countries (relatively high cost system).
42 TELECOMMUNICATIONS International technological and market trends WTO requirements (GATS reference paper) Big Bang transition in Brazil at the start High growth: revenue equivalent to 3% GDP. Number of lines per employee has risen 5 times. Recovery from the crisis Challenges for investment Leapfrogging : mobile phone penetration Recent explosion of broadband
Telecommunication revenue as a percentage of GDP
Fixed line penetration in relation to GDP per capita
Mobile subscription rate in relation to GDP per capita Source: OECD Health Data, Brazil 80 % prepaid
Broadband access as a percentage of households in relation to GDP per capita
47 The regulatory framework Established in 1996/1997 following international best practice Broadcasting separate Institutional distinction between public regime (concession contracts) and private regime (authorisation by ANATEL) The issue of public service Universal service at reasonable price not matching public regime definition Social and regional disparities Universal service obligations The issue of FUST Integrating broadband: avoid social digital divide Broadband and broadcast convergence
48 LAND TRANSPORT Investment in transport infrastructure and economic growth Fall between 1980 and 2002 : fiscal consolidation and reduction of public expenditure Improving opportunities for investment Heavy reliance on road transport Multimodal transport vs institutional fragmentation (ANTAQ, access to ports)
49 Modal distribution of freight transport across major economies
50 RAIL Different systems: US Mexico Australia closer to Brazil and differ from European railways Long decline in Brazil (choices of the 1950s) Privatisation and regulatory reform in early 1990s Vertically integrated private companies Light regulatory framework until 2001 when TPA 37% increase between 2001 and 2005 Major improvements, increased private investments in rolling stocks Increased export activity of raw materials
51 Roads One of the largest networks in the world (1.6 mi.km) Involvement of private capital in road construction: concessions (comparisons with selected OECD and latin american countries) Full deregulation of road freight: drop in prices but issues of safety with smaller companies Quality of the roads: case fatalities Two waves of concessions: Mid 1990s : 1500 km federal plus 9200 state level 2007 at federal level 2600 km under favorable terms Improvements on private roads 2003-2006 Bus services: stagnating activity
Fatalities on roads per 1000 kms
Intensity of use of the road network for freight purposes
54 The regulatory framework Remodelled with ANTT in 2001 after major deregulation and privatisation/concessions Loss of analytical capacity (GEIPOT, PNLT) Third party access to rail (Does not exist in Mexico, or in many European countries for example) Safety targets for rail Partnership with state agencies and the policy Cleaner situation for bus transport and licences Limited regulation for road freight: price competition but implications for quality and safety New concessions: lack of agreement on the internal rate of return: close scrutiny of TCU, role of BNDES, impact of future renegotiations? More significant regulation for passenger transport (but bid for tender)
55 REGULATORY GOVERNANCE Institutional aspects Special autarchies under the indirect administration Level of autonomy specified in specific laws Consensus on the role of the state apparatus Less policy attention at the start The new law proposal as a way to solve a problematic situation Diversified situation across sectors but this is also the case in OECD countries
A heterogeneous institutional status
57 Independence the formal dimension The executive structure of the regulator: Single head / board Duration, nomination, renewal (link with Parliamentary terms?) Rules for the staff vs. the sector (hiring, firing) The possibility of overturning the decision: appeals The Brazilian case: Structures comparable to other OECD countries Different administrative and cultural background
58 Independence Independence in practice The role of experience, respecting the terms The leadership of the first head Relations with elected politicians The ability to manage crises (e.g. peak in energy prices, energy rationing, currency fluctuations or telecommunication prices) Quality of the staff The issue of Brazil –Nominations to the board –Need to have complete boards –Role of the public debate in a multi centric democracy
Possibility of Instructions
Appointment of Heads
Terms of Appointment
64 Financial resources and staffing Financial resources –Use of central public funds: binding constraints –Implicit pressure of budgeting ministries –Control of audit offices –Fees/Levies on the regulated industry: setting an independent formula ? –Recent Brazil examples Human resources –A difficult challenge for small countries (multisector regulation) –Rules for conflicts of interest, cooling off period (OECD Recommendations) –Need for a specific framework for regulatory authorities?
66 Functions and powers of regulatory authorities n Economic functions Enforcing market rules Licensing (entry, exit) Fixing prices of access to the Grid or the Network n Managing risks Inspection, Control Prudential ratios for financial institution Avoiding rupture of service Assuring Universal Service Provision
67 The rule making power Normally power of the ministers/cabinet (political trade offs) but views may differ In practice some rule making power given to independent regulators technical standards vs. laws: A tension between delegating rule making and respecting independence But jurisprudential approach: set of precedent decisions rule Solutions Possibility of suggesting official amendments of the existing rules (annual report to Parliament) Possibility of proposing rules to Government
68 The issue of strategic planning and law making Not a regulators attribute Need to separate enforcement from law making Need for capacity in the ministries: Example of EPE in Brazil The case of transport (GEIPOT) The role of national councils to develop a strategy Building consensus in a diverse democracy
69 The power of sanction An independent regulator government in miniature Executive power, preparing rules and judging? (settling disputes) Problem vs. the traditional setting of democracies In practice Respect of certain judicial forms for applying sanctions: separating investigation from deciding on the sanction Adapt the level of sanctions: Inapplicability of penal law: Efficient sanction: to deter from inappropriate behaviour and make it "ex ante" worthless
70 Link with the judiciary The regulators' effectiveness depends on the quality of the judicial environment Issue in middle income countries Often crucial aspect Need to ensure: –Consistency –Technical expertise for decisions –Speed Need for a common system of appeal for competition authorities and regulators Avoid creating a "regulator of the regulator"
71 Horizontal Design Coordination with Competition Authorities SDBC in Brazil Coordination among regulatory authorities Common doctrine and consistent time frame Minimising the burden of compliance w Regular meetings and public hearings Request mandatory opinion (competition, environment) Examples: IBAMA /ANEEL, ANTAQ / ANTT, ANATEL /CADE
72 Horizontal Design and sectoral specialisation Single goal, single sector agency: clarity, efficiency But "Silo Effect": Risk of non coordination and of regulatory burden stemming from multiple specialised agencies Multi-sectoral agency: Minimises the risk of capture, Softens human resource constraints, Core issues in Brazil Approach to combined rail/road transport ANTAQ ANTT Convergence TV/Telecommunications/)
73 Balancing Independence with Accountability n A condition of success "non majoritarian" institutions (Majone) Political credibility of the regulator No explicit mechanism for reporting and establishing legitimacy Procedural and political aspects Often demanded by the independent regulators themselves (cf dialogue with Parliament)
74 Ensuring Accountability: How ? without undermining independence Systems of checks and balances Transparency and procedural requirements Administrative procedure laws n Dialogue with citizens and Parliament Annual report, dialogue with Parliament (expertise) Links with consumers' associations: role of IDEC Substantial judicial/legal review:
75 Link with the judiciary The regulators' effectiveness depends on the quality of the judicial environment Issue in some countries transition, middle income Often crucial aspect, need to ensure: –Consistency –Technical expertise for decisions –Speed Avoid creating a "regulator of the regulator"
76 Ensuring Accountability and High quality regulation n High quality regulation: Subject the regulators' decisions to requirements for high quality regulation : Regulatory Impact Assessment Transparency Predictability n Key for industry and for credibility n Cf PRO-REG project in Brazil
77 Assessing quality Performance evaluation Several dimension – legal, judicial review –accounting/auditing –overall economic assessment –Recent UK example on capability assessment, Treasury reviews, National Audit Office
Mandatory Release of Periodic Assessment Reports on Achievement of Objectives
79 Performance Assessment of regulators in Brazil Self assessment by regulators Role for TCU / CGU Role for consumers: IDEC/IADB Role for foreign investors: AMCHAM reviews National academic studies Evaluations by WB/IADB (PPIAF Study)
80 Conclusion Designing independent and effective regulators The need for high quality regulation No "pre cooked recipe" Respect national institutional settings while adopting international standards Significant policy turmoil in Brazil, in a moving regulatory environment: Regulatory authorities have stood the test of time but may need some fine tuning and adaptation
81 Policy recommendations Broaden efforts to integrate a whole-of-government approach for regulatory quality supported at the highest political level. Set up institutional capacities for regulatory quality. Improve co-ordination mechanisms and clarify responsibilities for regulatory quality. Implement Regulatory Impact Analysis as an effective tool for regulatory quality. Improve the quality of the regulatory stock to ensure the efficient attainment of economic and social objectives. Improve transparency and increase social participation in regulatory processes.
82 Policy recommendations Consolidate the autonomy and statute of Brazilian regulatory authorities Strengthen the strategic framework for planning and decision making in regulated sectors Strengthen social accountability mechanisms without undermining the authorities autonomy Systematise cooperation with competition authorities Improve co-ordination mechanisms in specific sectors Further strengthen multi-level coordination mechanisms to strengthen safety and performance Strengthen the powers of the Brazilian regulators Consider institutional and legal changes to streamline appeals processes