To effectively and efficiently manage the contract, the public overseeing body needs the proper amount of resources, organizational structure and autonomy . In the case of regulatory agencies, they must present certain organizational autonomy conditions in connection with their structure, human resources and financial resources. Quintanilla Acosta (2004) provides a clear and extensive review of such characteristics.84
Such characteristics can be grouped into those that have to do with the agency's independence and those that have to do with the aptitude of its officials. The following characteristics have to do with the agency's independence.
1. Clear and independent mandate: a clear mandate to know who performs the rule-making function and who is in charge of enforcing those rules. An independent mandate in order that the agency will act independently of the political sector and its stakeholders. It is also necessary to have the regulator's powers set by law, rather than being powers delegated from a minister or political power.
2. Stability in the Board of Directors: in order to achieve the agency's goals. The members of the Board of Directors are usually appointed by the Executive and Legislative Branches to guarantee that all political parties are represented. Fixed, staggered terms of office that do not match electoral cycles, as well as irrevocable appointments, are recommended to avoid political discretion without due cause. For instance, the act creating the Energy Regulatory Commission in Mexico provides that commissioners shall be appointed by the Head of the Federal Executive Branch, on proposal by the Secretary of Energy, to hold their office for staggered, renewable terms of five years.
3. Autonomous budget: the regulatory agency should have a stable and, most importantly, guaranteed budget to adequately perform its functions without compromising its autonomy. For instance, the regulations of Spain's Telecom Market Commission provide that the Commission shall have its own budget to be made up of revenue from the payment of telecom rates accrued on account of service provision activities.
The following characteristics have to do with the aptitude of the agency officials; however, these also strengthen the agency's independence of its stakeholders.
4. Appointment criteria: the agency should have professionals boasting the best technical qualifications, experience and management ability. In order to establish a clear merit-based selection procedure, it is fundamental to preserve the mechanism's transparency and to maximize the diffusion of vacancies. Professional appointment criteria usually go hand in hand with certain prohibitions and ineligibility requirements; codes of conduct and ethics are usually implemented in connection with confidentiality rules, acceptance of gifts and conflicts of interest. For instance, the Internet site of Spain's National Energy Commission reads: our staff is selected by a public call, through procedures based on equality, merits and ability principles. Such staff is subject to the general ineligibility requirements set for the staff of the Public Administration entities.
5. Qualified, adequate staff: the staff must have full knowledge of the sector, so as to be able to make the best possible decisions free of the party that is the most familiar with that sector: the firm. This reduces information asymmetry, information gathering costs and the risk of failure of the regulatory process.85 The staff must be adequately compensated, in line with market levels, in order to feel motivated, to remain in the regulatory agency's employ and, more importantly, to avoid cooption and capture by interested actors. For instance, Peru's Regulatory Agencies Framework Act provides that the staff of Regulatory Agencies shall be subject to the private sector's labor regulations.
Accordingly, organizational autonomy is reached when the agency has full control of its resources, both human and financial. As far as human resources are concerned, this means that the agency has broad discretion to hire its staff, assign positions, apply promotion policies and fire staff, if necessary. For instance, ANEEL, Brazil's National Electric Power Agency, is authorized to hire higher- and middle-level technical staff on a temporary basis. It may also create compensation criteria, for which purpose it shall observe the caps and thresholds defined in the public service schedules, positions and salaries. Regarding financial resources, this means the permanent inflow of the funds required for the agency's operation and the power to freely use such funds.
However, the regulator is also required to have a clear mandate and be able to perform its functions without political interference or discretion. Nevertheless, rules of conduct and codes of ethics need to be established to govern the conduct of agency officials in order to avoid discretionary action within the agency itself.
A common requirement is that agency officials hold no personal interest in the relevant industry. In some cases there are formal rules prohibiting informal meetings between regulators and stakeholders. There are also rules prohibiting the hiring of officials before, during and after their terms in office. Rules that prohibit gifts by stakeholders or any other party involved in the regulatory process from being accepted by the agency's officials. And rules keeping officials from taking part in certain decisions that involve a party with which the official has a pending issue.86
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84 Quintanilla Acosta, "Autonomía Institucional de los Organismos Reguladores: Revisión de literatura." Working Paper N 14, November 2004.
85 In some sectors and countries, in Latin America for the most part, the foreign subsidiary's presence in the management of the local concession is commonly required over the first years of implementation of a PPP contract, in order to guarantee the transfer of know-how to the local company and to organize the infrastructure sectors, which, at the time of the restructuring processes undertaken in such countries, were in a state of emergency.
86 Anders Larsena, Lene Holm Pedersenb, Eva Moll Sørensena and Ole Jess Olsen, "Independent Regulatory Authorities in Europe." Amternes og Kommunernes Forskningsinstitut (AKF), 2006.