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1
Brazil: Strengthening Governance for Growth
Presentation of the results of the OECD Review on Regulatory ReformBrasilia, May 28, 2008
Mr. Stéphane JacobzonePrincipal AdministratorRegulatory Policy DivisionDirectorate for Public Governance and Territorial Development
2
Outline
Why Regulatory Reform ? Government capacity for quality regulation Trends in selected sectors Regulatory governance challenges
– Independence and accountability– Horizontal design– Powers for quality regulation– Performance assessment
Conclusions and recommendations
3
Why Regulatory Reform ?Strengthening long-term growth
Efficient markets & Good governance Synergistic effects amplify gains in individual sectors
(Telecommunications, Transport, Energy) Benefits to consumers quality, choice, cost and price Reducing market access restrictions and lowering administrative
burdens; Establishing markets for the private sector to provide services
previously supplied directly by the state; Strengthening product market competition, and easing the
adoption of innovative technologies;
4
Regulatory policies improve the functioning of markets
Boosts consumer benefits reducing prices for services and products such as electricity, transport, and health care, and by increasing choice and service quality.
Supports sustainable, non-inflationary growth
Improves competitiveness Reducing the cost structure of exporting and upstream sectors in regional and global markets.
Fosters flexibility and innovation
Increases job creation by creating new job opportunities, and by doing so reducing fiscal demands on social security, particularly important in ageing populations.
Reduces risk of crisis due to external shocks
5
Governance Benefits of Regulatory Policy
Reinforces the rule of law Improves transparency and accountability Maintains and increases regulatory protections
Better serve consumer interests by introducing more flexible and efficient regulatory and non-regulatory instruments, such as market approaches.
Increases efficiency of the public administration Raises trust in government Improve relationship between levels of
government
6
Regulatory Policy and Governance Coherence
Role of ParliamentMain producers of laws and keepers of the “stock”
Role of JudiciaryJudicial review and appeal mechanisms
Role Subnational LevelResults are reduced if they don’t reach to citizens and
businesses
Role of Independent RegulatorsEfficient, transparent, accountable and sustainable rules at
arms’ length from politicians and producers for consumer gains.
7
OECD Regulatory Guiding Principles
1995 Recommendation for quality regulation 1997 Recommendations 2005 Guiding Principles for Regulatory Quality and
Performance :Deregulation where markets work better than
governmentsRe-regulation and new regulatory institutions where
markets cannot work without governments More efficient government and social regulations to
achieve high standards of health, safety and environmental protection at lower economic cost
8
The Brazil Review in the context of the OECD Country Reviews of Regulatory Reform
Independent assessment Multidisciplinary approach :
Competition Chapter already performed
High Quality Regulation Regulatory Authorities in four core sectors: Supplemental Health Insurance Telecommunications Electricity
Land Transport Extensive consultation
– government officials (including elected officials) – business and trade union representatives, consumer groups,
and academic experts Standardised report
(Mexico, Switzerland, Norway)
9
GOVERNMENT CAPACITY FOR HIGH QUALITY REGULATION
Main issues for discussion: 1. Setting up a framework for regulatory
reform2. Drivers of regulatory reform: national
policies and institutions3. Administrative capacities for making new
regulations4. Keeping regulations up-to-date
10
1. Setting up a framework for regulatory reform
Context of regulatory reform:
Privatisation and need to establish sectoral agencies for key economic sectors
Administrative structures: direct vs indirect administration
Evolution of the public administration
Administrative and legal environment: important role of the Executive
Complex legal system: 3.5 million norms
11
Growth Acceleration Programme (PAC)
Promote competitiveness
Removing barriers to competition and entrepreneurship
Significant administrative burdens and permits at the local level
Significant efforts are still being made at federal level.
12
Facilitating licences, permits & administrative requirements
0
1.5
3
4.5
6
7.5
9
10.5
12
13.5
AUS EUUSA
ICE
FIN IRL
JPN
NZLSVK
SWE
DNKDEU
HUNCHE
LUX
CANTUR UK
AUTNLD
NORPOL
CZEBEL
ITA
BRAPRT
ESPFRA
GREKOR
MEX
Sco
re
Is a “silence is consent” rule used at all (i.e. that licences are issued automatically if the competent licensing office has not reacted by the end of the statutory response period)?Are administrations obliged to provide the name of the person responsible for handling the application in any formal correspondence?Are there single contact points ("one-stop shops") for getting information on licences and notifications?Are there single contact points for accepting notifications and issuing licences (one-stop shops)?Is there a programme underway to co-ordinate the review and reform of permits and licences at sub-national levels of government?Has there been a clear decline in the aggregate number of licences and permits?Is there a complete count of the number of permits and licenses required by the national government (all ministries and agencies)?Is there a program underway to review and reduce the number of licenses and permits required by the national government?
Weights:if yes, weight=2
if yes, weight=0.5
if yes, weight=3if yes, weight=3if yes, weight=1
if yes, weight=2if yes, weight=1
if yes, weight=1
13
The PRO-REG Programme(Programa de Fortalecimento da Capacidade
Institucional para Gestão em Regulação) Developed with the support of IADB.
Strengthening the regulatory system
Consolidate capacities to formulate and analyse public policies
Improve co-ordination and strategic views
Strengthen transparency, accountability and performance of agencies
Mechanisms for accountability and transparency
Management Committee (CGP) and Consultative Committee (CCP).
14
2. Drivers of regulatory reform: national policies and institutions
Regulatory policy requires: Broader perspective to consolidate regulatory functions
of the Brazilian state
More evidence-based analysis for decision making
A “whole-of-government” approach
Co-ordination between levels of government
15
Regulatory Oversight Units
Need a “whole of government approach” Need to be independent from sectoral regulators (not tied
to specific regulatory mission) Clear regulatory policy endorsed at political level Horizontal operaton Staffed with expertise Linked to centers of government and/or finance ministries. Ex: OIRA, BRE, Australia, Netherlands, Mexico.
16
Institutional challenges
Constitution and Law 9 784 on administrative procedures within Federal Administration
Supplementary law 95 from 1998 for preparing and amending laws
Strengthening regulatory agencies for economic sectors (Laws 9 986 and 10 871).
But at the moment in Brazil, there is no oversight body for regulatory quality to:
Co-ordinate and advise Challenge regulatory decisions Advocate and support regulators
17
3. Administrative capacities for making new regulations
Challenges for the transparency in the Brazilian system: Existing guidelines to elaborate, consolidate and
prepare new primary laws, but not for infra-legislation and administrative acts
Used of public consultation, but not compulsory (average from an OECD perspective see next slide).
Communication techniques well advanced, but no forward planning and better use of plain language, no specific access to public documents unlike Mexico
18
Quality of the consultation process
0
2
4
6
8
10
12
14
Sco
re
a) Is public consultation with parties affected by regulations a routine part of developing draft primary laws?b) Is public consultation with parties affected by regulations a routine part of developing draft subordinate regulations?If the answer is “always” or “in some cases” to a) or b): Primary laws b(i) Is consultation mandatory?If the answer is “always” or “in some cases” to a) or b): Subordinate regulation b(i) Is consultation mandatory?b(ii) What forms of public consultation are routinely used: Primary laws & Subordinate regulation- Informal consultation with selected groups? - Broad circulation of proposals for comment? - Public notice and comment?- Public meeting? - Internet? - Advisory group? - Preparatory public commission/committee? - Other?b(iii) Can any member of the public choose to participate in the consultation? Primary laws & Subordinate regulationc(i) What is the minimum period for allowing consultation comments inside government?c(ii) What is the minimum period for allowing consultation comments by the public, including citizens and business?d(i) Are the views of participants in the consultation process made public? Primary laws & Subordinate regulationd(ii) Are regulators required to respond in writing to the authors of consultation comments? Primary laws & Subordinate regulationd(iii) Are the views expressed in the consultation process included in the regulatory impact analysis? Primary laws & Subordinate regulationd(iv) Is there a process to monitor the quality of the consultation process? (e.g. surveys or other methods, please specify in comments) Primary laws & Subordinate regulation
Weights:if no=0, in some cases=0.5, always=1if no=0, in some cases=0.5, always=1if yes, weight=0.5if yes, weight=0.5if ticked, weight=0, 0.25, 0.5, 0.25, 0.25, 0.25, 0.25, 0.125
if yes, weight=0.5
c(i) if 1 week=0.125, 2 weeks=0.25, 3 weeks=0.375, 4 weeks=0.5c(ii) if 2 weeks=0.125, 3 weeks=0.25, 4 weeks=0.375, 6 weeks=0.5, 8 weeks=0.375, 12 weeks=0.25
until end, if yes, weight=0.5 except d(ii)
19
Transparency and easy access to regulations
0
1
2
3
4
5
6
7
8
9
JPN LUX ESP BRA SVK ICE NLD PRT UK BEL CZE IRL AUS FRA DEU ITA MEX EU DNK FIN HUN NZL NOR TUR AUT CAN GRE KOR POL SWE CHE USA
Country
Sc
ore
Are there systematic procedures for making regulations known and accessible to affected parties?If the answer is “yes”, which of the following measures are employed: Codification of primary laws?If “yes”: Is there a mechanism for regular updating of the codes? (at least yearly basis)If the answer is “yes”, which of the following measures are employed: Publication of a consolidated register of all subordinate regulations currently in force? If “yes”: Is there a provision that only subordinate regulations in the registry are enforceable?If the answer is “yes”, which of the following measures are employed: Public access via the Internet to the text of all or most primary laws?If the answer is “yes”, which of the following measures are employed: Public access via the Internet to the text of all or most subordinate regulation?If the answer is “yes”, which of the following measures are employed: A general policy requiring “plain language” drafting of regulation?If “yes”: Is guidance on plain language drafting issued?
Weights:if yes, weight=2if yes, weight=1if yes, weight=1if yes, weight=1
if yes, weight=1if yes, weight=1
if yes, weight=1
if yes, weight=0.5if yes, weight=0.5
20
3. Administrative capacities for making new regulations
Compliance and enforcement in Brazil: No ex-ante assessment of possibility of compliance
Misuse of the judicial review and appeal process
Shortcomings in the judicial branch to deal with quality control of regulations, in particular on economic sectors
Need to improve the use of alternatives to regulation
21
3. Administrative capacities for making new regulations
Regulatory Impact Analysis – Challenges Good RIA practices identified in OECD countries
Clear allocation of responsibilities
Training for regulators
Targeting RIA efforts
Applying RIA to new and existing regulations
Use of a flexible analytical method and develop data collection
Integrating RIA in the decision making-process, as early as possible
Communicating the results
Involving the public extensively
22
Roadmap for RIA implementation
Maximise political commitment Allocate responsibilities carefully Train the regulators Target RIA efforts Develop data collection strategies Integrate RIA early in the policy-making process Communicate the results and involve the public
23
4. Keeping regulations up-to-date
Revision of the regulatory stock through:
Debureaucratisation process
Consolidation of normative acts
Federal level
State level (E.g. State of São Paulo)
But measurement of regulatory burdens did not exist at time of the review.
Linking consolidation with simplification ?
24
REGULATORY AUTHORITIES
Main issues for discussion: 1. Introduction and general aspects 2. Trends and regulatory frameworks in the selected
sectors3. Regulatory governance
Independence and accountability Horizontal aspects Powers for quality regulation Performance Assessment
4. Conclusions and recommendations
25
Setting up Independent Regulatory Authorities (IRAs)
Policy Objectives– Improve economic efficiency in a market framework
shielded from short-term political and administrative risks
– Avoid the risk of capture by specific interests Context
– Privatising former state-owned enterprises– Necessity of a sound regulatory framework– Ensuring market efficiency and protecting consumers'
interest in cases of imperfect competition/monopolistic markets
26
A Political Challenge
The choice
– Self-regulation and competition framework
– Direct Ministerial Oversight
– Independent Regulators The rationale
– Delegating power to a regulator at arms' length from the political system
– Improving the protection of consumer interest in case of market failures or other failures
– Improving transparency and stability
– High quality staff and technical expertise
27
Towards the "Regulatory State"
Clarifying the functions of the State– Public Ownership General rule making (general
rules)– Enforcing regulation (applying the rules)– Consumer protection (quality/market)
A challenge to the executive and parliamentary powers– A regulator entrusted with regulatory powers,
including sanctions, licences, and even some rule making
– A Government in Miniature?– Establishing the legitimacy of a "non majoritarian"
institution
28
The international context
Trend towards participation of the private sector for the delivery of core services/network industries
The European dimension The impact of the GATS OECD Work
Independent Regulatory Authorities in the proposed 2005 OECD Recommendations on Regulatory Quality
Broad regulatory perspective– Establish regulatory arrangements that ensure that the public interest is not
subordinated to those of regulated entities and stakeholders
– Ensure that regulatory institutions are accountable and transparent
Competition dimension – Ensure that regulatory restrictions of competition and market openness are
limited and proportionate to the public interests they serve
– Periodically review the need for universal service obligations, their effectiveness and the need to maintain restrictions on entry and prices
– Promote efficiency and the transition to effective competition where economic regulations continue to be needed (abuse of market power): separate competitive activities from regulated utility networks, promote non discriminatory access to essential network facilities, promote interconnection of networks, use price caps and other mechanisms to encourage efficiency gains.
Assessment– Use performance-based assessment of regulatory tools and institutions, to
assess how effective they are in contributing to good regulation and economic performance
Recent Trends Independent Regulatory Authorities in OECD Countries
0
5
10
15
20
25
30
35
40
Financial Regulators
Telecommunication Regulators
Energy Regulators
31
SECTORAL TRENDS AND REGULATORY FRAMEWORKS
THE POWER SECTORMixed System: 80 % generation public (Eletrobras,
Petrobras), Two thirds of distribution private. Hydropower (75.7%)One of the largest interconnected systems (effective third
party access, and efficient pricing by ANEEL)Some interconnection with neighbours: imports mainly
from Paraguay, Argentina, Challenges for investment compared with other major
middle income countries, particularly generation capacity, in context of 4.5 to 5% economic growth.
Electricity investment as a proportion of GDP
0
0.5
1
1.5
2
2.5
3
OECD China India Indonesia Russia Brazil Africa
1991-2000
Source: World Energy Investment outlook
33
INVESTMENT IN POWER GENERATION90 plants under construction, 524 plants planned Environmental licensing an issue Riskier than in transmission :
supply of natural gas for thermal plants, clarity in future mix of power technologies
Essential conditions (IEA): • Clear and stable policy framework• Effective licensing process• Competition with cost reflective prices
Improving outlook• Improvement in regulatory framework since 2004• Positive re rating of the sector helped by macro and regulatory
aspects• Future mix of power generation : issue with Bolivian gas, role for
nuclear
Efficiency and electricity consumption peer capita
Source: IEA, 2006, data refer to 2004
ARG
AUS
BRA
CAN
CHI
NZE
NOR
ESP UK
USA
0
5000
10000
15000
20000
25000
30000
0 5000 10000 15000 20000 25000 30000 35000 40000 45000
Ele
ctri
c co
nsu
mp
tio
n p
er c
apit
a
GDP per capita
Chart 4. Electric consumption per capita in relation to the GDP per capita in 2004
35
The new regulatory framework
Adopted in 2004 following 2001 crisis (impact 1% GDP) Following flawed efforts to introduce market-oriented
reformsHybrid competition an regulated transactions (whole sale
power pool with long term contracts)Auction process for generation and transmissionReestablish a strong planning function with EPE Regulatory function with ANEEL (plus ONS, CCEE) Social programmes: Luz para todos, 6.6 million, MME with
specific funding. Developments broadly in line with other countries (See Annex on market and policy context)
36
PRIVATE HEALTH INSURANCE
OECD Work on PHI: need for regulation in imperfect marketsSUS plus PHI duplicate cover (similar to other OECD countries)
: 30 % in SE, below 10% N/NECovers services by private providers and reimburses SUS for
public services in some casesHalf of total health expenditure private, and a third covered
by PHI: very significant social impact, per capita expense similar to Australia Ireland, above Portugal or Spain in PPP
Relatively high health expenditure in GDP
Various organisational forms, high administrative expenses (higher than in OECD countries, US)
Health expenditures by source of funding
Source: OECD Health Data, Brazil
Health expenditure in GDP and GDP per capita
Source: OECD Health Data, Brazil
BRAMEX
POR
KOR
SPA
ITA
GER
JAP
FRA
UK
CAN
AUS NETH
SWI
IRE
US
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000
Share of PHI’s expenses in THE and share of population covered by PHI
Source: OECD Health Data, Brazil
MEX
SPA
PORT
BRA
GER SWI
AUS IRE
CAN
US
FRA
0%
5%
10%
15%
20%
25%
30%
35%
40%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
40
The regulatory framework
Move from Social insurance to universal insurance in 1988 with constrained funding
Regulation introduced in 1998, and ANS created by law in 2000
New and old plans, prohibition of age or illness discrimination
Institutional set up similar to Australia, Ireland the Netherlands (specific PHI agencies), in Mexico and Canada insurance oversight agencies (similar to SUSEP). In US state level regulation: insurance commissioners.
Highly concentrated markets (Over ¾ for two operators).
41
The regulatory framework
Regulation of contracts (reference, minimum and amplified plan), restriction on rate settings
Tighter controls for individual contractsSupervision of insurers:
Financial supervisionRelationships with providers
Procedure for information sharing (TISS)Policy for Quality in Supplemental Health: monitoring
performance. Relations with public budgets
Compensation to SUSFiscal expenditures
Issues similar to those faced by OECD countries (relatively high cost system).
42
TELECOMMUNICATIONS
International technological and market trendsWTO requirements (GATS reference paper)Big Bang transition in Brazil at the startHigh growth: revenue equivalent to 3% GDP.
Number of lines per employee has risen 5 times. Recovery from the crisisChallenges for investmentLeapfrogging : mobile phone penetrationRecent explosion of broadband
Telecommunication revenue as a percentage of GDP
0.00
1.00
2.00
3.00
4.00
5.00
6.00
United Kingdom
France Canada Italy Mexico United States
OECD Brazil Germany Turkey Poland Spain Portugal
2002 2003 2004 2005
Fixed line penetration in relation to GDP per capita
BRA
CAN
FRA DEUITA
MEX
POL PRT
ESP
TUR
UK
USA
0
10
20
30
40
50
60
70
0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000
Fix
ed
tele
ph
on
e a
ccess p
ath
s a
s %
of
po
pu
lati
on
GDP per capita in USD PPP
2004 Linear (2004)
Mobile subscription rate in relation to GDP per capita
Source: OECD Health Data, Brazil
BRA CAN
FRA
DEU
ITA
MEX
POL
PRT
ESP
TUR
UK
USA
0
20
40
60
80
100
120
140
0 5000 10000 15000 20000 25000 30000 35000 40000 45000
Mo
bil
e s
ub
scri
bers
as a
% o
f to
tal
po
pu
lati
on
GDP per capita in USD PPP
2005 Linear (2005)80 % prepaid
Broadband access as a percentage of households in relation to GDP per capita
BRA
CAN
FRA
DEU
ITA
MEX
POL
PRTESP
TUR
UK
USA
0
2
4
6
8
10
12
14
16
18
20
0 5000 10000 15000 20000 25000 30000 35000 40000 45000
Bro
adb
and
acc
ess
as %
of
po
pu
lati
on
GDP per capita in USD PPP
2004 Linear (2004)
47
The regulatory framework
Established in 1996/1997 following international best practice
Broadcasting separateInstitutional distinction between public regime (concession
contracts) and private regime (authorisation by ANATEL)The issue of public service
Universal service at reasonable price not matching public regime definition
Social and regional disparitiesUniversal service obligationsThe issue of FUSTIntegrating broadband: avoid social digital divide
Broadband and broadcast convergence
48
LAND TRANSPORT
Investment in transport infrastructure and economic growth
Fall between 1980 and 2002 : fiscal consolidation and reduction of public expenditure
Improving opportunities for investmentHeavy reliance on road transportMultimodal transport vs institutional fragmentation
(ANTAQ, access to ports)
49
Modal distribution of freight transport across major economies
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Brazil Russia India Canada Australia EUA
Waterways
Roads
Railways
50
RAIL
Different systems: US Mexico Australia closer to Brazil and differ from European railways
Long decline in Brazil (choices of the 1950s)Privatisation and regulatory reform in early 1990sVertically integrated private companiesLight regulatory framework until 2001 when TPA 37% increase between 2001 and 2005Major improvements, increased private investments
in rolling stocksIncreased export activity of raw materials
51
RoadsOne of the largest networks in the world (1.6 mi.km)Involvement of private capital in road construction:
concessions (comparisons with selected OECD and latin american countries)
Full deregulation of road freight: drop in prices but issues of safety with smaller companies
Quality of the roads: case fatalitiesTwo waves of concessions:
Mid 1990s : 1500 km federal plus 9200 state level2007 at federal level 2600 km under favorable terms
Improvements on private roads 2003-2006Bus services: stagnating activity
Fatalities on roads per 1000 kms
0
50
100
150
200
250
Canada France Germany Japan UK USA Italy Brazil
Intensity of use of the road network for freight purposes
0
50 000
100 000
150 000
200 000
250 000
300 000
350 000
400 000
450 000
500 000
Canada France Australia US Spain Brazil UK Germany
54
The regulatory framework
Remodelled with ANTT in 2001 after major deregulation and privatisation/concessions
Loss of analytical capacity (GEIPOT, PNLT)Third party access to rail (Does not exist in Mexico, or in many
European countries for example)Safety targets for rail Partnership with state agencies and the policy“Cleaner situation” for bus transport and licencesLimited regulation for road freight: price competition but
implications for quality and safetyNew concessions: lack of agreement on the internal rate of return:
close scrutiny of TCU, role of BNDES, impact of future renegotiations?
More significant regulation for passenger transport (but bid for tender)
55
REGULATORY GOVERNANCE
Institutional aspects
Special autarchies under the indirect administration
Level of autonomy specified in specific laws
Consensus on the role of the state apparatus
Less policy attention at the start
The new law proposal as a way to solve a problematic situation
Diversified situation across sectors but this is also the case in OECD countries
A heterogeneous institutional status
4
13
4
7
1
5
1
23
15
23
0
1
0% 25% 50% 75% 100%
Financialtotal
TotalEnergy
TelecomTotal
Percentage of agencies
MinisterialDepartment
Ministerial Agency
Independentadvisory body
Independentregulatory authority
Ministerial Department Independent Regulatory Authority
57
Independencethe formal dimension
The executive structure of the regulator: Single head / board
Duration, nomination, renewal (link with Parliamentary terms?)
Rules for the staff vs. the sector (hiring, firing) The possibility of overturning the decision:
appeals The Brazilian case:
• Structures comparable to other OECD countries• Different administrative and cultural background
58
IndependenceIndependence in practice
The role of experience, respecting the terms The leadership of the first head Relations with elected politicians
The ability to manage crises (e.g. peak in energy prices, energy rationing, currency fluctuations or telecommunication prices)
Quality of the staff The issue of Brazil
– Nominations to the board– Need to have complete boards – Role of the public debate in a multi centric democracy
Governance structures
10 711
27 1720
0%
25%
50%
75%
100%
Financial Energy Telecom
Economic Sector
Per
cen
tag
e o
f ag
enci
es Board
Individual
Possibility of Instructions
0
4
15
7
7
27
11
16
12
2
8
0%
25%
50%
75%
100%
Financial Energy Telecom
Missing
Agencies that cannotbe instructed
Agencies that canreceive specificinstructions
ministerial department
Appeals
0
8
16
1
5
25
11
13
1144
0%
25%
50%
75%
100%
Financial Energy Telecom
Missing
Agencies that cannotbe overruled
Agencies whosedecisions can beoverruled bygovernment
Ministerialdepartment
Appointment of Heads
One or twoministersGovernmentcollectivelyParliament
Parliament andGovernmentMembers of theboard in chargeOther
Missing
Energy
Financial
Telecommunications
Terms of Appointment
3
1
9
10
8
14
10
12
4
1
3
5
7
80
0% 25% 50% 75% 100%
Financial
Energy
Telecom
Percentage of agencies
Over 8 years
6 to 8 years
5 years
4 years
fixed term under 4years or at discretionof the appointer
64
Financial resources and staffing
Financial resources– Use of central public funds: binding constraints– Implicit pressure of budgeting ministries– Control of audit offices – Fees/Levies on the regulated industry: setting an independent
formula ? – Recent Brazil examples
Human resources– A difficult challenge for small countries
(multisector regulation)– Rules for conflicts of interest, cooling off period
(OECD Recommendations)– Need for a specific framework for regulatory authorities?
Financial ResourcesOther (National Bank forspecific financialregulators)
Fees levied on theregulated industry or nonbudgetary ressources
Mix of State budget andfees
State budget only
Incomplete
Energy
Financial
Telecommunications
Note: Number of agencies of each type financed by type of financing
66
Functions and powers of regulatory authorities
Economic functions Enforcing market rules Licensing (entry, exit) Fixing prices of access to the Grid or the Network
Managing risks Inspection, Control Prudential ratios for financial institution Avoiding rupture of service Assuring Universal Service Provision
67
The rule making power Normally power of the ministers/cabinet
(political trade offs) but views may differ In practice some rule making power given to
independent regulators technical standards vs. laws: A tension between delegating rule making and
respecting independence But jurisprudential approach:
set of precedent decisions rule
Solutions Possibility of suggesting official amendments of the existing
rules (annual report to Parliament) Possibility of proposing rules to Government
68
The issue of strategic planning and law making
Not a regulator’s attribute Need to separate enforcement from law
making Need for capacity in the ministries:
Example of EPE in Brazil The case of transport (GEIPOT)
The role of national councils to develop a strategy
Building consensus in a diverse democracy
69
The power of sanction
An independent regulator government in miniature
Executive power, preparing rules and judging? (settling disputes)
Problem vs. the traditional setting of democracies
In practice Respect of certain judicial forms for applying sanctions:
separating investigation from deciding on the sanction Adapt the level of sanctions: Inapplicability of penal law: Efficient sanction: to deter from inappropriate behaviour
and make it "ex ante" worthless
70
Link with the judiciary
The regulators' effectiveness depends on the quality of the judicial environment
Issue in middle income countries Often crucial aspect Need to ensure:
– Consistency
– Technical expertise for decisions
– Speed Need for a common system of appeal for
competition authorities and regulators Avoid creating a "regulator of the regulator"
71
Horizontal Design
Coordination with Competition Authorities
SDBC in Brazil
Coordination among regulatory authorities
Common doctrine and consistent time frame Minimising the burden of compliance w Regular meetings and public hearings Request mandatory opinion
(competition, environment) Examples: IBAMA /ANEEL, ANTAQ / ANTT,
ANATEL /CADE
72
Horizontal Design and sectoral specialisation
Single goal, single sector agency: clarity, efficiency But "Silo Effect": Risk of non coordination and of
regulatory burden stemming from multiple specialised agencies
Multi-sectoral agency: Minimises the risk of capture, Softens human resource constraints,
Core issues in Brazil Approach to combined rail/road transport ANTAQ ANTT Convergence TV/Telecommunications/)
73
Balancing Independence with Accountability
A condition of success"non majoritarian" institutions (Majone)Political credibility of the regulator
No explicit mechanism for reporting and establishing legitimacy
Procedural and political aspectsOften demanded by the independent regulators
themselves (cf dialogue with Parliament)
74
Ensuring Accountability: How ? without undermining independence
Systems of checks and balances
Transparency and procedural requirementsAdministrative procedure laws
Dialogue with citizens and ParliamentAnnual report, dialogue with Parliament (expertise)
Links with consumers' associations: role of IDEC
Substantial judicial/legal review:
75
Link with the judiciary
The regulators' effectiveness depends on the quality of the judicial environment
Issue in some countries transition, middle income
Often crucial aspect, need to ensure: – Consistency– Technical expertise for decisions– Speed
Avoid creating a "regulator of the regulator"
76
Ensuring Accountability and High quality regulation
High quality regulation: Subject the regulators' decisions to requirements for
high quality regulation :
Regulatory Impact Assessment
Transparency
Predictability Key for industry and for credibility Cf PRO-REG project in Brazil
77
Assessing quality Performance evaluation
Several dimension– legal, judicial review
– accounting/auditing
– overall economic assessment
– Recent UK example on capability assessment, Treasury reviews, National Audit Office
Mandatory Release of Periodic Assessment Reports on Achievement of Objectives
24 14 10 52
52 8 0 40
52 24 3 21
0% 20% 40% 60% 80% 100%
Percentage
Energy
Telecommunications
Financial
Yes, in annualreports only
Yes, other
No
n.a.
79
Performance Assessment of regulators in Brazil
Self assessment by regulators Role for TCU / CGU Role for consumers: IDEC/IADB Role for foreign investors:
AMCHAM reviews National academic studies Evaluations by WB/IADB
(PPIAF Study)
80
Conclusion
Designing independent and effective regulators
The need for high quality regulation No "pre cooked recipe" Respect national institutional settings while
adopting international standards Significant policy turmoil in Brazil, in a
moving regulatory environment: Regulatory authorities have stood the test
of time but may need some fine tuning and adaptation
81
Policy recommendations Broaden efforts to integrate a “whole-of-government”
approach for regulatory quality supported at the highest political level.
Set up institutional capacities for regulatory quality.
Improve co-ordination mechanisms and clarify responsibilities for regulatory quality.
Implement Regulatory Impact Analysis as an effective tool for regulatory quality.
Improve the quality of the regulatory stock to ensure the efficient attainment of economic and social objectives.
Improve transparency and increase social participation in regulatory processes.
82
Policy recommendations Consolidate the autonomy and statute of Brazilian
regulatory authorities
Strengthen the strategic framework for planning and decision making in regulated sectors
Strengthen social accountability mechanisms without undermining the authorities’ autonomy
Systematise cooperation with competition authorities
Improve co-ordination mechanisms in specific sectors
Further strengthen multi-level coordination mechanisms to strengthen safety and performance
Strengthen the powers of the Brazilian regulators
Consider institutional and legal changes to streamline appeals processes
83
Thank you for your attention