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

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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.

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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

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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).

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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