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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 2 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 3 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?

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 4 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 5 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 6 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 7 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 8 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 9 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 10 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 11 Comparison Between the Two Industries Proxies Electricity Oil and Gas Independence Financial Indep Accountability Consistency Coordination

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 12 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 13 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 14 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 15 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 16 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 17 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

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 18 Quantitative Assessment RIA Analysis

INFRASTRUCTURE DEVELOPMENT CONSULTANTS 19 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