| The contents of delegated powers to regulators are provided in relevant legal instruments, statutory rules, concession/contract agreements, and other applicable documents. Laws, rules and agreements may delegate to regulators the management of those service, cost, price and other parameters that directly affect returns to investments or the cost of capital, affect public interest, and ensure technical and economic efficiency in utilization of the finite natural resources (such as land, water or the radio frequency spectrum). One common matter is the management of tariff setting and tariff readjustment, even though such management should be done according to guidelines provided by the policy framework of the government, sector laws or concession contracts. The management of technical standards and quality norms also may be delegated because they normally affect operational costs and consumer interest. | Sources of regulatory power/authority |
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Other matters that may also be delegated include, compliance with service and other obligations, market entry of new operators, competition between service providers, control of monopolistic behaviour, disclosure of information, and settlement of certain type of disputes with other service providers (for example, access to/from other networks and fees for such access), consumers and third parties.
The regulatory actions have impact on the regulated industry/project in terms of:
| • Price of infrastructure service • Quantity and quality of service (physical attributes of service, safety and security, environmental standard) | Regulatory action impact |
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| • Level of investment, choice of technology and innovation • Performance of the operator (service coverage by population segment and geographical area) • Public service obligation • Entry to and exit from the market |
Regulators apply a variety of tools to discharge their empowered functions. Some of the potential tools that the regulators may have at their disposal include:
| • Sector PPP policy framework (many aspects of which can be turned into regulatory instruments) | Regulatory tools |
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| • Legal instruments (sector and regulatory laws) as applicable • Concession period and its linkage to rate of return • Financial modelling of regulatory policy • Tariff rate level, structure, formula, revision and adjustment mechanisms • Accounting standards on regulated firms (vital for tariff revision and adjustment) • Fiscal instruments (government subsidy or other incentives or services in kind) • Payments to government/regulator • Penalties and fines for non-compliance with regulatory decisions • Investment level and its timing • Technical efficiency and quality standards of service including those related to effective management and operation of the facility over time (for example, response time to user complaints, accuracy of billing and timely mobilization of funds for investments) • Depreciation and amortization rules (tax and accounting policy issues), to the extent within the control of the regulator. • Rules related to transfer of assets at the end of contract tenure for which investments have not been fully amortized (otherwise, investment in the later years of concession period would be discouraged) |
| The PPP programme performance in terms of size of investment, innovation, and price and quality of service largely depend on the effectiveness of regulatory governance. As such, the regulatory process is an important element for the success of an effective PPP programme in a country. Figure 11 shows the elements of regulatory governance within the regulatory process and how regulatory governance is related to the broader institutional structure and to the regulatory tools. | PPP performance and regulation |
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