Countries almost always establish regulatory agencies to improve sector performance relative to no regulation.1 This means that the regulators generally focus on controlling market power and/or facilitating competition, although regulators are also often charged with ensuring service availability and system expansion, improving cost efficiency, attracting capital to the sector, improving sector stability, and generating government revenues from licenses and concessions.2
Sector performance can be measured in terms of net consumer surplus, service availability and system expansion, cost efficiency, affordability of prices, range of services offered, quality, and the rate of innovation.3 In fulfilling this purpose, regulators are often called upon to implement policies for attracting capital to the sector and increasing investment, generating government revenues from licenses and concessions, encouraging the development of and effectiveness of competition in the market, increasing government success in issuing licenses, providing incentives for operators to improve efficiency, and facilitating universal access. Regulation has failed when it has not provided the stability and commercially viable tariffs needed by investors.
Regulatory agencies vary in their scope of authority and responsibilities. The three main issues in defining a utility regulator’s role are the sector(s) covered, the regulator’s role in relation to policy makers, and the regulator’s role in relation to other regulatory entities such as the competition agency. Sometimes the regulatory agency is sector specific, but multi-sector regulatory agencies are also popular. Typical duties include standard setting, regulating prices and service quality,4 monitoring performance, licensing, handling consumer complaints, providing policy advice to ministries and parliament, monitoring market competition, managing essential or scarce resources,5 and settling industry disputes, such as inter-operator interconnection or payment disputes.6
Because private and public sector participation in infrastructure can take several forms, ranging from state ownership to service and supply contracts to concession arrangements to full privatization, and because countries have varied legal systems and institutional endowments, regulators vary in the type of regulatory instruments they apply.7 Regulation of state-owned enterprises is reviewed below. Some countries issue licenses that set out the regulatory conditions under which the operator will provide its service. Other countries enter into contracts with operators, such as concession contracts or franchises.8 Service and supply contracts include technical assistance contracts and complete management contracts. The government maintains ownership of the assets. Concession approaches include leasing and build-operate-transfer arrangements in which the private operator owns or is at least responsible for the assets for a set period of time. Privatization includes divestiture by the government and the development of new enterprises, often called build-own-operate, in which the private operator owns the assets until the operator chooses to retire or sell them.
Legislation may be needed to authorize the government to enter into service and supply contracts or to issue licenses or let concessions, however, the terms included in the contracts, licenses, and concession agreements govern the details of the private operators’ and the government’s rights and obligations. With privatization, legislation oftentimes governs the parties’ rights and obligations, but these may be further defined in a license. Regardless of the form of ownership, some countries rely primarily upon statutes and laws that define the roles and responsibilities of all operators.
- Rationale for Regulation covers the rationale for regulation. Regulatory Objectives and Priorities covers regulatory objectives and priorities.
- Common Roles of Regulators covers common roles for regulators. Regulatory Process examines agency responsibilities and other issues in managing the regulatory process.
- The possibility that the government may want to use regulation to favor particular political constituents will be set aside for the moment.
- Pricing is covered in Competition in Infrastructure Markets and Tariff Design. Service quality is covered in Quality of Service.
- Scarce or essential resources might include telephone numbering resources, radio spectrum, and bottleneck facilities, such as monopoly distribution lines.
- The Stakeholder Relation section notes handling consumer complaints, other relationships, and negotiation, and the Institutional Design Issues section covers independence.
- Regulation of Public vs. Private Companies, Existing vs. New Firms identifies special issues related to regulation of state-owned enterprises and Options and Critiques for Private Participation in Infrastructure summarizes regulatory instruments. Reviews and Appeals of Regulatory Decisions also provides information on choices of regulatory instruments.
- Competition for the Market covers techniques for contracting and franchising.