Session 1B - Institution Building for Economic Regulation in Emerging Markets and
Developing Countries
Building Capacity in Economic Regulation and the Promotion of Public Benefits in the
Electricity Sector in the South
Prof. Anton Eberhard
Director, Infrastructure Industries Reform and Regulation Programme, Graduate
School of Business, University of Cape Town, South Africa
Electricity reform in most countries has re-enforced the need for competent and independent
regulation. Regulators have a potentially influential role in improving economic efficiency,
responding to market failures and shaping the quality of power sector reform. Regulators can
also play a major role in protecting and advancing public benefits. However, many
developing countries and emerging economies (“the South”) have had little prior experience
in economic or independent regulation.
Regulation in the South is shifting from traditional political (command-and-control) tariff
setting to more transparent economic regulatory methodologies, chiefly rate-of-return or
price-cap, but also revenue-cap, bench-marking, yardstick or franchise regulation. However,
there is often insufficient capacity to effectively execute rate-of-return regulation, and
incentive-based regulation is hindered by the fact that the current level of pricing is often far
from the economic level. In situations of poor or unpredictable regulatory capacity, it may be
preferable to regulate by contract, particularly where private concessions are involved.
While the core regulatory mandate is economic and technical, regulators can also assist in
advancing public benefit programmes such as widened access to electricity, and investments
in energy efficiency, renewable energy, cleaner technologies and public-interest R&D. Power
sector reform can result in the demise of public benefit programmes. However, our research
indicates that reform can also produce space and occasion for the advancement of public
benefit programmes. Regulation to promote public benefits is effective if backed by
government policy, defined financing mechanisms and institutional means for
implementation.
Countries in the South face huge challenges in growing new regulatory institutions. The
challenge is not simply to develop competent economic regulatory skills – but also robust
and mature institutions. Principled and transparent values and institutional culture have to be
embedded in institutional codes and systems that are given expression in practice.
While there is a need for regulatory independence, the key issue is transparent and
dependable regulatory decision-making. Full political independence is seldom possible, and
is tricky in fragile democracies. Regulators have to develop the right balance between
regulatory independence and meeting governments’ national development goals.
There is thus a huge need for capacity building and professional training. Fly-in regulatory
training courses are becoming common, but they are of limited value. There is a need for
cooperation with, and support for, training institutions in the South. The focus should be on
regional and local problems and challenges, but informed by frontiers in international
experience. Each course should build on the learning from previous courses. Capacity
building can also be sustained through building an alumni and network of regulators. The
need, therefore, is to build sustainable training capacity in developing countries, with the
support of international partners. This paper describes such a partnership at the University of
Cape Town, an emerging centre of excellence in regulatory training in the South.