1. Cross-Border Infrastructure: A Toolkit Policy Harmonization Session on Regulation & Accountability Max Bradford Castalia The views expressed here are those of the presenter and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they represent.

2. Cross-Border Infrastructure: A Toolkit Key Points Establishing the link between:  Market structure, and  Institutional requirements of regulatory systems, and  Design of regulatory rules Managing the politics of infrastructure regulation  Independence  Integrity  Transparency  Accountability Key factors in designing a regulatory system

3. Cross-Border Infrastructure: A Toolkit Linkage Issues in Regulation Design Market Structure & Transition Paths Describe Market Structure Ownership Structure Regulatory Structure (if any) Establish Desired Market Structure - monopoly/competitive mix - private/public ownership mix - establish degree of regulatory control Now Future Network Monopoly Service Provider Competing Service Providers (through network ) Regulates operations & tariffs Observes behavior, regulates abuses Market Rule Book, Consultation Processes Accountability Regime New Market Access Terms Industry Regulator

4. Cross-Border Infrastructure: A Toolkit Managing the Politics of Regulation Principles for managing political relationships: Arms length relationship from political machinery Transparent rule book, established after open consultation with key stakeholders Transparent processes in using coercive powers Establish legal processes to “regulate” relationships with political processes, with penalties for breach Be accountable, and establish multiple accountabilities e.g. Parliamentary committees as well as ministerial accountability Establish integrity by each action, imbue integrity throughout regulatory body

5. Cross-Border Infrastructure: A Toolkit Managing the Regulatory Process ( 1 ) Independence Transparency Communication Consultation Consistency Predictability Flexibility Effectiveness & Efficiency Remember the “Best Practice” Design Rules

6. Cross-Border Infrastructure: A Toolkit Managing the Regulatory Process ( 2 ) Establish links to service operators  Best by agreement, but if necessary require information  Exchange of staff over time to build confidence  Cooperation rather than coercion gets better results Know what is needed  Use other regulators’ experience  Establish standard measures of performance over time  Publish key information for stakeholders  Protect commercially sensitive information but aggregate Know how to use the information collected  Hire staff with skills and integrity  Use public exposure as a weapon of influence Collecting & Managing Information

7. Cross-Border Infrastructure: A Toolkit Managing the Regulatory Process ( 3 ) The Regulator is Referee, not Jailer  Engaging the trust, or at least respect, of stakeholders  In essence the Regulator substitutes for competitive markets  Key stakeholder, and key confidence, is the consumer of the regulated infrastructure service: they have the weakest power  Referee role is on market players who have money and power: infrastructure providers  Regulator holds the “whistle” and should be the impartial enforcer of the Rules Knowing the Stakeholders

8. Cross-Border Infrastructure: A Toolkit Managing the Regulatory Process ( 4 ) Regulator is subject to legal process  Coercive powers (e.g. setting tariffs) derive from statute law  Successful regulation and use of powers is in the threat of use, not the actual use  Establish internal appeal with different adjudicators  All decisions are - or should be - subject to appeal  “Natural justice” applied in use of powers  Use of powers derives from primary statute or regulation  Interpretation of powers correct  Test of “arbitrary use” manifestly unfair on affected stakeholder  As much as use of coercive powers is the power to influence behavior by agreement: appeal to self interest of stakeholder Statutory Powers & Legal Constraints

9. Cross-Border Infrastructure: A Toolkit Managing the Regulatory Process ( 5 ) Examples:  Personal conflicts of the regulator e.g. shareholder in infrastructure provider  Conflict of ownership between service providers (e.g. monopoly provider has shareholding in competitive provider) How to deal with conflicts  Declare them as a first step  Establish if conflict is materially serious - could result in legal decision to a Regulator’s decision  Step aside from process  Perhaps require devolvement of ownership conflict Managing Conflicts of Interest

10. Cross-Border Infrastructure: A Toolkit Managing the Regulatory Process ( 6 ) “Open door” policy to the media Use available outlets extensively  Press releases  Media interviews of regulator  Internet  Regular newsletters to stakeholders Respond to mail in timely fashion Encourage public hearings when formulating decisions Attend Parliamentary processes of accountability Consider “road show” approach to informing stakeholders Managing Public Communication & Perception