|
|
INDEPENDENT REGULATORS IN UTILITY SECTORS:
IMPROVING PERFORMANCE AND CREDIBILITY |
|
Clients: |
|
- OECD
- World Bank
- APEC
- Korean Economic Research Institute
- Research Institute for Economics, Trade, and Industry (RIETE), Japan
|
|
One of the most important tasks in the post-privatization phase is the construction of credible and effective regulatory regimes and institutions.
Transforming the structure of a network-based industry, such as electricity and communications, from monopoly to competitive markets requires a sophisticated and evolving regulatory structure. Timing and sequencing of policy changes can be crucial, as can flexibility in meeting changing technologies and competition. The competition authority and the regulator will need to prevent anti-competitive behavior through a carefully designed mix of incentives and regulations.
Jacobs and Associates assists in designing, and tailoring to the country context and development needs, regulatory policies, instruments and institutions for specific sectors, including telecommunications, energy, transport, and water.
|
|
- Regulatory policy advice. Regulatory policy in liberalizing utility networks is a continually moving target. Regulators must put into place the proper incentives for market actors to improve efficiency and serve consumer needs. Regulators must balance consumer interests with those of investors, and short-term welfare against longer-term innovation and dynamism. In telecommunications and energy fields, regulators must work in increasingly open regional and global markets, requiring convergence of domestic regulations with international norms. Pricing policies must reward producers for good service, while keeping prices as low as possible for consumers. Competition policy has an important role to play in leveling the playing field. Jacobs and Associates provides expert, technical advice on the design of regulatory regimes in developed and transitional economies.
- Advice on the design and operation of independent regulators, based on international standards of performance in competitive investment environments. A highly regarded institution of modern regulatory governance is the independent regulatory body, often used in network sectors such as energy and communications, and in other sectors where sector-specific oversight is needed such as financial services. Independent regulators are intended to shield market interventions from political interference, and to improve transparency, stability, and expertise. They must ensure non-discriminatory access and economically rational pricing for services. But experience in many countries shows that independent regulators have not always resolved serious regulatory failures, and have not always succeeded in establishing independence and credibility. Jacobs and Associates helps to improve design and performance of these critical institutions in initial and later stages to meet market needs.
- Assistance in drafting major regulatory decisions. Independent regulators must draft complex decisions that are clear, persuasive, and meet market expectations. The quality of decisions is important in influencing credibility and market confidence. Jacobs and Associates offers an advisory service to independent regulators to assist in bringing individual decisions up to international standards in reasoning, content, and presentation.
|
|
Jacobs and Associates and its Directors have provided a wide range of assistance in developing efficient regulatory regimes as part of market liberalization. We advise on regulatory policies and the design and actions of independent utility regulators:
|
|
TELECOMMUNICATIONS AND ENERGY |
|
- Jacobs and Associates is studying the design of independent sectoral regulatory commissions in Korea for the Korean Economic Research Institute (KERI) in 2003. We are examining the evolving regulatory governance of the privatized utilities industries in Korea. Since Korean line ministries have been historically active in managing the utility industries to implement industrial policy, the establishment of independent regulators to administer the traditional regulatory tasks, such as pricing and quality control, is a dramatic reform. Based on transaction cost economics, international benchmarks, and public management, we will recommend the design of regulatory institutions best suited to Korea.
- In our reviews of regulatory practices in Senegal and Mauritania for the World Bank in 2002, Jacobs and Associates reviewed aspects of the telecommunications and electricity regimes in those countries, and we recommended numerous reforms to speed up innovation and investment in those sectors.
- The OECD national regulatory reviews led by Scott Jacobs to 2001 include the most detailed examination to date of the design and performance of independent regulators in the telecommunications and electricity sectors. The OECD reports recommend many improvements to independent regulators, including their degree and type of policy and financial independence, their governance and accountability, their transparency and procedures, their staffing, and their relations with competition authorities. The country reviews can be purchased from the OECD.
- Director Jong Seok Kim has worked with the new energy regulators in Korea as privatization and liberalization have proceeded. Dr. Kim has participated as a member in the Electricity Industry Restructuring Committee of the Ministry of Commerce, Industry and Energy. The Committee has played a key role in reviewing and designing the restructuring plan for the Korean government. Korean electricity industry was a national monopoly until 2002, but now the electricity generation function of the national monopoly, KEPCO (Korean Electric Power Corporation) has been separated from KEPCO and divided into 6 subsidiary companies, one of which will be sold to private investors in early 2003. Eventually, 5 among the 6 generation companies will be privatized, except the nuclear and hydrolic power generation company.
- As a Fellow in Japan's Research Institute for Economy, Trade, and Industry (RIETI), Scott Jacobs is preparing a report assessing the implications for Japan of international practices in independent electricity regulators in the United States and the United Kingdom. The report will be completed later in 2003.
- Associate Dr. Patrick Xavier, economist and telecommunications expert, has advised on reform in the telecommunications sector in a broad range of developing and developed countries in Asia, Europe, and Africa, including Vietnam, Lao PDR, Thailand, Pakistan, the Pacific Islands, Senegal, Mauritania, Hungary, Mexico, Spain and the Czech Republic, and for international institutions such as the OECD, the International Telecommunications Union (ITU) and the United Nations Development Programme (UNDP). Notably, in 1998 he prepared a report for the OECD on the regulatory implications of technological and commercial convergence between the telecommunications, IT and broadcasting industries. In February 2001, he completed a report for the OECD on the digital divide and in June 2002 a report for the OECD assessing calls for 'Broadband Universal Service Obligations'. In September 2002 he completed a report for the ITU on the licensing and regulatory implications of Third Generation (3G) mobile service, a key manifestation of technological convergence that will pose considerable regulatory challenges. He is now completing a report assessing the benefits and costs of structural separation for dominant vertically integrated incumbent telecommunications operators.
|
|
DESIGN OF INDEPENDENT REGULATORS |
|
- Michael Wise has commented on the appropriate relations between sectoral regulators and competition authorities in many countries as part of the reviews of competition policy within the OECD reviews of regulatory practices. Sectoral rules often overlap with general competition rules, and competition authorities are often the first example of a independent enforcement body, which sectoral regulators follow in some way. Whether conflict and duplication are best avoided by statutory division of responsibility, by formal compacts among regulators, or by consultation between the competition authority and sectoral regulators depends on the political and institutional context. Many of the competition law and policy reports for the countries reviewed by the OECD can be downloaded at http://www.oecd.org/EN/countrylist/0,,EN-countrylist-2-nodirectorate-no-no-1160-2,00,00.html.
- In a 2001 paper prepared for the OECD, "Building credible regulators for liberalized utility sectors," Scott Jacobs noted that the independent sectoral regulator is an important step forward from the traditional approach of regulation of utility sectors by line ministries who are also responsible for policy, industry promotion, and even management of service producers. But, he wrote, new problems a re emerging in the design, implementation and concept of the independent regulator. A wider governance view focusing on "checks and balances" between competing institutions i n the regulatory regime could be a more flexible and effective guiding principle than "independence" in producing a credible regulatory framework. This paper can be downloaded at http://www.oecd.org/doc/M00023000/M00023814.doc.
- In Senegal in 2002, Jacobs and Associates reviewed and commented on the new organic law establishing a governance framework for independent regulators of network industries. The Senegalese law will make the governance of independent regulators more transparent and effective.
|
|
INDEPENDENT REGULATORS IN EMERGING ECONOMIES |
|
- Independent regulators were the focus of a presentation by Scott Jacobs, "Private investment in infrastructure in Asia: Rethinking regulatory governance," at the APEC Privatization Forum Regional Roundtable in Hanoi, 22-24 May 2002. Jacobs noted that independent regulators are attractive because they appear to address many of the underlying reasons for regulatory failures in Asia. But independent regulators are no panacea during the complex transition to market competition. Most independent regulators are very recent even in developed countries. We know little about the performance over time of independent regulators, or how performance is tied to design or to the wider governing environment. Independent regulators pose potential problems with capture, complexity, rigidity, cost, fragmentation of competition policy, and accountability. We already can see that governments tend to rely too much on under-equipped and unsupported independent regulators to carry out tasks that are beyond their capacities. This Powerpoint presentation can be downloaded at http://regulatoryreform.com/word_docs/SpeechAPEC.ppt
- In "Better Regulatory Governance: Can It Stimulate Private Investment in Asia's Infrastructure?," published in The Asian Development Bank Review in September 2002. (http://www.adb.org/Documents/Periodicals/ADB_Review/2002/vol34_5/better_regulatory_governance.asp) Scott Jacobs wrote that Asian governments are not receiving their global share of private investment, and are starting later than many other developing economies in the competition for private infrastructure capital. To catch up, they must improve regulatory governance and speed up policy reforms. The litmus test in attracting private investment is whether the regulatory regime-through sustained commitment to a clear set of rules-is credible to investors, producers, and consumers. Independent regulators are one way to build regulatory credibility, but other means should also be considered.
|
|
|
|
|
