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 27 2010
INFRASTRUCTURE DEVELOPMENT CONSULTANTS
Format of Reports
• 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
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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?
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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 SubSaharan 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 anticompetitive practices
• Industries selected: electricity ,petroleum and gas
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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
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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
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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
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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
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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
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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
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Comparison Between the Two
Industries
Proxies
Independence
Electricity Oil and Gas
Financial Indep
Accountability
Consistency
Coordination
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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
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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
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Accountability
• Effective appeals process from agency decisionexistence 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
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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
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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
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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
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Quantitative Assessment
RIA Analysis
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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
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