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Benefits and Challenges of the Regulatory Reforms in Georgia

Zaal Lomtadze, Deputy Minister of Environment

11 October 2007, Belgrade

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Reform and Development Program of the Government for 2004-2009Among the government’s reform priorities:

Improving the business environment Cutting state intervention to a minimum (deregulation) Establishment of “compact, competent and properly

motivated public service” Cutting bureaucracy in both numbers and influence Promotion of public input in decision making Enforcement of high standards for the protection and

sustainable use of natural resources

Georgia has achieved significant progress in cutting red tape and increasing economic freedom.

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MEPNR Medium-term Priorities Institutional reform (2005–2007)

procedural development

budget increase

obligatory medium-term expenditure framework planning

staff training

better targeted technical assistance programs of donors & IFIs

Reform of instruments of natural resources use

(2005–2008)

Reform of instruments of environmental protection

(2005–2010)

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Situation before the Reform (2003-2004) Low authority of the environment ministry within the

government Shortage of resources: budget for little more than salaries Weak environmental planning and implementation High turnover of professionals: private sector demand,

low wages, low motivation Management and decision-making processes isolated

from other stakeholders Inefficient monitoring systems Weak law enforcement Performance measured by output indicators only: number

of new legislative acts adopted, of inspections carried out

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MEPNR Staff Optimization

0

500

1000

1500

2000

2500

3000

2003 2005 2007Employees, total

Employees, central apparatus

0

1000

2000

3000

4000

5000

6000

7000

8000

2003 2005 2007

Annual average salary, total

Annual average salary, c.app.

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2005 - Established based on the Law “On State Control

of Environment Protection”

Main responsibilities:

Identification of the regulated community

Compliance monitoring

Registration, enforcement, and analysis of violations

of environmental and natural resource regulations

Preparation of proposals for mechanisms to

encourage compliance

Creation of Environmental Inspectorate

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Is There a Deterrent Against Violations?Deterrence condition – complete removal of illegal benefit; true if:

D × P × F > BD – probability of detection of a violationP – probability of prosecution of a detected violation F – the amount of fine imposed (and actually paid)B – benefit from an illegal activity

In Georgia: • D increased sharply, but only in the natural resource sector• P also improved radically • F – some progress, not across the board

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Reform Progress as of 2007 The MEPNR authority has increased, mainly due to the

importance attached to natural resources management (government priority)

Much better budget funding: salaries are competitive with the private sector

Mixed progress in reforming the legislation: as enforcement improves, some serious gaps emerge

Stakeholder cooperation has improved but the priorities are dictated by the government’s economic agenda

The use of integrated approaches in permitting and inspection has widened and procedures of inspection were updated and better documented

Increased transparency and reduced corruption No clear progress in performance measurement

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New Risks to Regulatory Reforms

Better, but selective application of rules due to pressure

to support economic growth

No place for environment protection in the government’s

short-term agenda and no long-term vision

Lowering “barriers to investment” may go too far,

resulting in a kind of anti-environmental protectionism?

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Key Lessons Learned

It helps when environmental regulatory reforms are part of a bigger package providing institutional and financial support.

It is impractical to attack all problems at once: priority planning is necessary.

There have to be smart ways to minimize damage from interest groups’ lobbying.

A long-term commitment to reform is necessary but is hard to institutionalize in a convincing way (MDGs? PRSPs? SD strategies?)

Although international support can be instrumental in recognizing the need for reforms and partially supporting them…

Reforms have a chance ONLY when domestically driven.