Establishing the Regulatory Framework for Competition

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Establishing the Regulatory Framework for
Competition

• DAVID PARKER

OHR/OECD Conference on Regulatory Governance and
Network Industries, Sarajevo 19 April 2002
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Main Messages

• OBJECTIVES OF NETWORK INDUSTRY REFORM
• Efficiency and Private Participation
• REGULATORY GOVERNANCE CHALLENGES
• Sequencing of Reforms
• Institutions
• Restructuring for Competition and Privatisation
• The Balance of Regulation and Competition

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Sequencing of Reforms

• Surrounding legal/social system
• New legal framework and institutions - the
  starting point
• Detailed Operational Rules - have to build
  network markets
• Restructure Companies - get this right at
  the start
• Commence new markets - with transitional
  arrangements
• Privatise - what balance of objectives?

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Institutional Issues - Independence and Governance

• Independence from industry
• Independent from day-to day political
  intervention, but accountable
• Clear mandate and legal status
• Powers balanced with appeal or review rights
• All reforms need to be adjusted to address
  unforeseen problems
• Flexibility vs certainty and powers of regulator
• Take care with self-regulatory models and
  inflexible governance.

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Institutional Issues - Good Practice

• Communication and Consultation - Regulatory plans
  and RIA
• Consistency and Predictability - Articulated
  rules and decisions
• Accountability - to Parliament, Executive and
  appeal structure
• Transparency - open documentation
• Effectiveness and Efficiency - internal structure

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Restructuring for Competition and Privatisation

• Allowing competition isnt enough - it has to be
  promoted
• Vertical and Horizontal Dimensions
• Competition where feasible regulation where not
• Generation / transmission / distribution / retail
• Privatisation
• What objectives (revenue or competition)
• Why not privatise monopolies?
• Regulatory Load
• Some irreducible regulation necessary in these
  sectors but it is difficult

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Natural Monopoly Regulation

• Access to infrastructure
• Pricing of final supply
• Investment
• System Operation - the core natural monopoly
• Incentivation of efficiency

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Things to watch out for - the balance of
regulation and competition

• Market power in competitive sectors in network
  industries can be a big problem - structure and
  market design is the key .
• Investment and Market Signals -planning and
  prices
• Regulation does not go away unless it is made to
  - interface with competition law vital

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Key Messages - a summary

• SEQUENCING
• Start with a vision that includes
  implementation and transition -
  incremental reform will run into problems
• INSTITUTIONS
• Independence doesnt mean unaccountable.
  Good practice is essential
• Some flexibility is needed to respond to
  problems
• INDUSTRY STRUCTURE vs REGULATION
• Get structure right at the start gt privatise
  for competition
• Regulation is hard but regulators dont
  give up easily
• Watch out for market power in competitive
  segments
• gt Avoid Regulatory or Market Failures