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| Infrastructure Regulation |
| June 22nd, 2006 |
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| Note: You can discuss this article at the bottom of the article |
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Infrastructure sectors, namely communications, energy, power, gas, transport, water and waste are important for survival and enhancement of living standards of consumers, as well as for the promotion of industrial and economic growth.
Hitherto, many segments of infrastructure provision were naturally monopolistic (some still are), that is, a single firm most ‘efficiently’ served a particular service market. Traditionally, government owned enterprises have provided infrastructure services. In Africa, developing countries like Zimbabwe followed this tradition
after independence in 1980, and nationalised the management and running of all infrastructure services. With time, government ownership of vertically – integrated monopolies, proved disappointing, as quality of services remained
deficient, and costs for consumers remained very high, compared with the quality of services provided. Led by the International Monetary Fund and the World Bank, government restructured and unbundled infrastructure services, wherein, state companies were broken down to facilitate competition.
Private sector participation was envisaged as promoting competition. The privatisation of infrastructure services or regulatory reforms, created regulatory agencies to guide the new development. But, while privatisation has its own benefits e.g. improved efficiency, promoting competition, improved access, and fiscal benefits, negative perceptions surround privatisation wherever it takes place. From a consumer standpoint, the process lacks transparency, as
firms are accused of making excess profits at the expense of the poor, sometimes conditions do not improve as widely touted and the poor complain of being overlooked in the process.
In response to the collapse of the public-monopoly idea and recognising infrastructure’s importance for development and growth, Zimbabwe government similarly transformed its infrastructure services to run them like services rather bureaucracies and introduced competition in infrastructure provision. This process saw the emergence of new players in the telecommunications, media, transport, broadcasting, and most recently, in the electricity industry, which saw the birth of the Zimbabwe Electricity Regulatory Commission (ZECRC). Other
regulatory agencies include the: The Media and Information Commission (MIC), the Postal and Telecommunication Regulatory Authority (POTRAZ), the Broadcast Authority of Zimbabwe (BAZ), the Zimbabwe Water Authority (ZINWA), and the Tariff and Competition Commission. The formation of the ZECRC is a welcome development from both a consumer and investors’ perspective. Unfortunately, the arrival of the body has been viewed with a lot of suspicion, and in bad light. One weekly newspaper referred to the formation as
‘government has already established the Zimbabwe Regulatory Commission to control power tariffs.’ There is so much negativity about the role of regulatory bodies in Zimbabwe, partly because consumers do not understand the important role these institutions play and how consumers themselves can influence what
regulators do. Their functions are shrouded in secrecy and remain a mystery to many, whilst they also lack transparency or public trust in what they do. It is crucial that regulatory bodies hold periodic public workshops/dialogue in which
they explain themselves, how they calculate tariffs and how this will benefit the poor, the economy and generally future expansion programs. Unfortunately, this has been lacking with the current regulatory, and the Consumer Council of Zimbabwe, urges regulatory bodies to incorporate public hearings and workshop
into their plans.
Why is Regulation Necessary?
A regulatory framework means, choice of regulatory regime (e.g. rate of return versus price cap), tariff structure, adjustment of tariffs procedures, tariffs reviews, valuation of assets, cost allocation, quality of service standards, regulatory accounting, penalties and fees, services to be regulated, and the consumer
rights. History has proven that even in a non-monopolistic environment, there is inherent conflict of interest between users and investors. Investors expect high prices, while on the one hand; users and the government expect low prices. In such situations, regulation becomes very crucial. Regulation must therefore provide a credible commitment to safeguarding the interests of both investors consumers in order to attract the long term private capital needed to secure adequate, reliable infrastructure services, and to get social support for reforms.
• Infrastructure regulation must protect consumers from monopolistic abuse by restricting anti-competitive behaviour in order to control high prices. On the other, regulations must also protect investor’s infrastructure from arbitrary actions such as expropriation of assets or profits, by government. Sometimes, government take such actions to protect consumers, but such
actions can undermine investor confidence and discourage investment. Thus, the role of regulation is to provide a stable environment with clear rules, which will encourage efficient infrastructure investment. The challenge of regulatory authorities is to balance the apparent interests of each party to the mutual benefit of both and most of it has to do with efficiency and fairness.
Below are some the functions and responsibilities of regulatory authorities:
• Accounting for users interests, by checking that operators minimise costs - cost efficiency
• Ensuring that there are no unwanted cross subsidies between outputs (allocative efficiency),
• Ensuring fair allocation of common costs in relation to affordability (fairness)
• Ensuring that operators make right investment choices for future users (technological efficiency)
• Checking that prices cover expected efficient levels of operating expenditures, depreciation, and a return on past and expected investment
needs – dynamic efficiency.
Regulatory responsibilities
• Regulate and adjust infrastructure prices
• Monitor service quality and standards
• Monitor competition and access to networks
• Facilitate settlement of disputes.
Regulatory regimes must be simple, justifiable, transparent, non conflictive – they must enjoy wide acceptance by the majority of players, fair in the allocation of total costs and avoid unjustified price discrimination as well as excessively
fluctuating price levels. Regulatory agencies must rise above being monolithic institutions by becoming people receptive. Regulators should also collect information that can be useful to consumer’s associations so that they can monitor the operators and the control the regulator. In order to perform these functions, information (good quality data in understandable format must be supplied to consumer associations).
The beauty of the Acts, through which all these agencies were created, is that there are provisions for consumer protection, and performance standards and codes for licensees to make sure providers of services perform the function for
which they were licensed. |
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| Contributed by Tendai Mazai on June 25th, 2006 |
| I agree with Chengetai Mfecane...we need to free the system! |
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