Capacity for the Reform of Regulatory Governance


As with all public governance, regulatory agencies must demonstrate high standards of integrity. They must hold all personnel to high standards of conduct and avoid any suggestion that impropriety or illegal behavior is tolerated.  Regulatory integrity is essential to achieve decision making which is objective, impartial, consistent, and avoids bias and improper influence. Safeguarding integrity is an ongoing challenge with the growing interconnectedness of government and the private sector, public-private partnerships, increasingly large public expenditures, and the opportunities for corruption provided by the major procurement contracts and processes that are a feature of infrastructure sectors.

A regulator that performs duties with integrity does so honestly and in the public interest. To protect integrity, a system of rules and code of behavior is needed, i.g. regulatory staff should abide by a code of conduct, which includes at a minimum: prohibition against bribes, all forms of conflict of interest, any form of preferential treatment, and use of insider information for personal gain. The code of conduct would also include reasonable disclosure of personal financial interests, and clear specification of policy on outside and post-separation employment.

Regulators can develop their own code of conduct or abide by a government-wide code which is clearly states in regulatory policy. Establishing rules and codes of conduct need to exist alongside a “culture of integrity,” where the manager and supervisors set the tone and employees have mechanisms to seek advice or report concerns. Integrity is affected by several other principles important for regulatory governance, including mandate clarity, independence, accountability and transparency, and funding.


Individual decisions made by regulators should, to a substantial degree, be able to be predicted by regulated entities. Predictability is achieves by ensuring that the principles and rules that the regulator will follow when making decisions are explicit, publicly available and well understood. Decisions that are evidence-driven will be supported by data and associated analyses.  So the technical capacity (professionalism) of the regulator is essential.  Similarly, the priorities (objectives) of the regulatory should be consistent and coherent over time, otherwise those affected by regulatory decisions cannot be confident that decisions are based on evidence and clearly defined objectives.

Accountability and Transparency

Counterweights to independence: regulators with a high degree of independence must be subjected to stricter accountability and transparency requirements, to ensure that they are carrying out their functions appropriately. Regulators are accountable to the government (i.e. the Minister and the parliament), to regulated entities and to consumers and the public. A clear appeals process promotes accountability, although the procedures should not drag on: “Time is not a neutral factor for those affected by regulatory decisions.  In addition, the process by which decisions are reached should be clearly established, with schedules, input from all affected parties, and published explanation of the decision.

Accountability implies that objectives, functions and powers or regulator are clearly established and procedures for carrying them out specified. Transparency implies that the regulator is open about the way in which it operates. Regulators are accountable to multiple groups; different accountability mechanisms are required for each:

  • supervision ministry or legislature requires annual reports or statement of expectations
  • regulated entities require that the regulator conduct internal and external accountability reviews
  • public requires that the regulator publish major decisions, policies and procedures so that they can hold the regulator accountable

Creating Four Committees and Their Roles

  1. Ministerial Coordination Committee (MCC): The MCC helps ensure continuing political authority for the reforms and effective coordination. The MCC should be chaired by the Prime Minister or President, or by the Treasurer/Minister of Finance.The appropriate functions for an MCC include:
    – vetting and approving the infrastructure/sector reform project, thus providing a powerful focal point to drive assessment, strategy design and implementation
    – resolving major differences between ministers and ministries
    – reviewing progress reports and approving major changes to the reform project
  2. Infrastructure Reform Steering Committee (IRSC): The IRSC is chaired by a very senior official, with a representative from each relevant ministry and agency. The representatives also will be responsible for liaison with their ministry or agency.The functions for the IRSC include:
    – approving the budgetary strategy
    – defining and documenting outcomes
    – monitoring risks, quality and timelines
    – making policy and resourcing decisions
    – assessing requests for changes to the scope of the project

3. Project Advisory Committee (PAC): The PAC consists of expert members drawn from peak business associations, consumer associations, universities and, where relevant, project donors.

The functions for the PAC include:
– reporting to the RSC
– acting as a conduit for expert advice
– providing feedback on outcomes and issues
– helping the project meet objectives

4. Reform Unit (RU): The RU should be led by an experienced manager, with administrative support staff. The RU needs the authority and resources to access records and work with officials responsible for developing and implementing infrastructure policy, as well as managers from operating companies.  When technical capacity is limited, consultants should be brought into the process.

Designing a Strategy for Reform

Capacity requirements dependent on

  • SWOT analysis (Strengths, Weaknesses, Opportunities, Threats)
  • Extent of expected resistance to reform (based on Stakeholder Analysis)

Individual skills needed to address key issues and gaps in current institutional architecture

  • Policy advocate skills
  • Conflict Resolution skills
  • Skills for producing a detailed implementation plan

Implementing the Strategy for Reform

The Implementation Phase includes three major challenges:

  • coordinating the range of actors and activities involved;
  • ensuring the necessary cooperation between different ministries and agencies, especially where substantial change is involved;
  • obtaining feedback on implementation progress from ministries and regulatory agencies in a timely fashion.

Monitoring and Assessing Regulatory Performance

Retain the PAC in order to provide:

  • Continuing advice as to the ongoing impact of infrastructure regulation.
  • A continuing source of external pressure to ensure transparency and accountability
  • Disband MCC and IRSC, but retain a Policy Analysis Unit (or RU) to monitor outcomes

Regulatory Capacity Initiatives

  • Technical Skills for analysis of business incentives and competitive forces promoting high performance
  • Staff Recruitment and Retention
  • Conferences, Workshops, and other forms of Networking—Communities of Practice
  • Outreach Activities for Staff Development (local universities and international programs)

Additional Resources (FAQ) 

What are the ways to incentivize service expansion, performance and cost containment when a utility’s assets have not been maintained, cash flows are weak, and management is unresponsive to “traditional” penalties?