There is a vast literature on best practice principles in governance (see annotated bibliography) and a good picture of the subject can be summarized in the nine principles defined during the Australia's Utility Regulators Forum (1999).88
These nine principles can be divided into two groups: formal principles, on the one hand, which can be observed and materialize in the activities developed by the regulatory agency, and substantial principles, on the other hand, which although they cannot be observed, they relate to the manner in which such activities develop. Table 3 below summarizes the formal principles together with their definition and an example of an international good practice.
Table 3 : Best Practice Principles I
Principle | Definition | Example |
FORMAL PRINCIPLES -OBSERVABLE | ||
Communication | It implies that all stakeholders are informed of the regulatory decisions and, basically, of the reasons underlying them. Communication fosters the commitment and trust in the process. | BRAZIL: the State Regulatory Agency of Energy, Transport, Communications Public Utilities from Bahia (AGERBA), in partnership with the Brazilian Electric Energy Agency (ANEEL) and the municipalities of Bahia have implemented since 2001 the project called "Proyecto Creciendo: regulación y ciudadanía activa", which was created for the purpose of disseminating, through schools, the rights and duties of electricity and intermunicipal transport users. The aim is to train teachers and students, and through the latter, make the training available to the families. |
Consultation | It is essential so all the parties interested in the regulatory process can actively participate in the decisions to be taken by the regulatory agency. In this way, future disputes between the parties are prevented, trust in the process is fostered and support to the stakeholders is encouraged. | AUSTRALIA. The Australian Energy Regulator (AER) carries out a permanent consultation process with stakeholders. The process starts with the publication in AER's web page of a document for discussion on a certain topic (issues paper) and the "call for submissions". Other documents related to the original paper and providing further information on the topic are also published in the web page. Then, the documents received from stakeholders in response to the consultation are published (Discussion paper - submissions documents). Finally, a pre-decision document is published (Draft decision document), and after the stakeholders have agreed to the decision by consensus, the final decision document is published. |
Transparency | It implies that the regulator's objectives, functions, processes and decisions are known by all the participants. In addition, it requires that the data on the basis of which said decisions are taken, should be available to any of the parties, provided that the confidentiality criteria that were previously agreed are observed. Transparency fosters stakeholders' trust in the regulator's function. | COLOMBIA. The Superintendence of Public Utilities, in partnership with Colombian regulatory agencies, has been making great efforts since 2002 to fight corruption and encourage the access of all public utility sectors to information. The SUI (Unique Information System) is one of the tools applied with the aim to develop mechanisms to guarantee users' right to get complete, accurate and timely information. The Superintendence is responsible for the management, maintenance and operation of the SUI, where all the firms of each sector participate and to which any interested party can have access. It has also established the information and accounting systems to be applied by public utility providers, in order to harmonize the information and make it more transparent. |
Independence | The independence is considered in relation to the political influences (and its potential interference in the short run), stakeholders (and the potential risk of capture and manipulation of the information) and to the degree of independence granted to the regulatory agency to take decisions (defined at the moment of its creation). In the first two cases, independence implies the possibility of regulator to take its own decisions without the interference of said parties. In the third case, independence means to have the power to act and decide about certain issues (tariff setting, licenses, dispute resolution). To accomplish this principle, the regulator needs to have enough experience, skills and expertise, so as to be able to take its own decisions and avoid manipulation by third parties. This principle encourages the trust in the process and allows the regulator to follow long term criteria in the decision making process. | SPAIN. The National Commission of Energy (CNE) is a good example of independence. Actually, independence is formally stated in the statute of the regulatory authority: The CNE is a public body with its own legal personality and patrimony and full capacity to act. Moreover, its by-laws evidence several characteristics of the agency's institutional organization that contribute to the success of the independence principle. For example: ■ The members of the Board of Directors are appointed for a six-year term, their offices are fixed and they can only be removed by other than political reasons. ■ The Commission decides about its internal organization, procedures, allocation of responsibilities and duties and has the power to employ its own staff and implement its own promotion and salary policies. ■ The staff is recruited following professional criteria and in accordance with the rules in force on conflicts of interest. ■ The officers work under the rules set forth in the Good Governance Code. |
Accountability | The regulatory agency must provide information and report on the activities carried out and the decisions taken to the controlling authority so it can supervise its performance. This implies to publish the Agency's annual report, to issue periodic reports on the activities carried out and the sector's evolution, to inform on the decisions taken in due time, to have clear procedural codes and handbooks, available to all parties. The appeal mechanisms and the independent audits are also part of the Accountability. | UNITED KINGDOM. Annual Report is one expression of OFWAT accountability. Reports comprise the activities carried out by OFWAT and its results, in issues like Price setting, Protecting customers, WaterVoice, Complaints and disputes, Safeguarding quality and service, Publications, Role of advisory bodies, etc. The rules of procedure represent another important expression of OFWAT Accountability. These rules define the manner in which the agency will operate. It consists of a principal document and six annexes for specific issues ■ Rules of procedure ■ Annex A: Procedure for conflicts of interest ■ Annex B: Register of Board Members' disclosable interests ■ Annex C: Matters reserved to the Board ■ Annex D: Audit committee terms of reference ■ Annex E: Remuneration committee terms of reference ■ Annex F: Code of conduct http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/Content/Ofwat_RoP |
In addition to these principles, there is another set of principles which relate to the acts or behavior of regulators and, therefore, they cannot be observed directly. Table 4 summarizes these four principles.
Table 4 : Best Practice Principles II
SUBSTANTIAL PRINCIPLES - NOT OBSERVABLE | |
Consistency | It is important so all stakeholders receive an equal treatment and can submit to the same game rules, particularly when the agency has to settle certain controversies. It promotes an impartial treatment. |
Predictability | To secure the game rules. The regulatory process becomes predictable if it conforms to the provisions of the law. Furthermore, the permanent interaction and the development of the regulatory process also provide predictability, improve the confidence and reduce conflicts. |
Flexibility | To adjust the game rules to the changes in the environment and to reformulate rules which were wrongly defined. |
Effectiveness and efficiency | The regulator's objective shall be to implement the best alternative, the most effective but, at the same time, the most efficient. Efficiency relates to the management of the process; i.e., to minimize implementation costs, to avoid duplicity of activities and to avoid the recollection of unnecessary information. |
Except for the independence principle - which is clearly privative of the independent regulator approach - the rest of the principles apply with different degrees of relevance to all forms of institutions in charge of supervising a PPP contract in the operative phases.
These same principles are needed in the relationship between private and public parties even when there is no formal regulator in place. This is clearly reflected in Partnerhsip Victoria Contract Management Guide (see BOX 4 and BOX 5)
BOX 4 : Partnership Victoria - Contract Management Guide
Principle | |
FORMAL PRINCIPLES -OBSERVABLE | |
Communication | "There are a number of key factors in establishing a good relationship between the government party and the private party and other project stakeholders: … Open communication: Open communication is a key to maintaining a good relationship. It fosters a spirit of cooperation and the alignment of common interests between the parties. Open communication does not mean the parties must share all information relating to the project. However, a party should share an item of information if there is no good public interest, commercial, or legal reason to not share it, and sharing the information will enhance the relationship." |
Consultation | "Appropriate consultation and communication with stakeholders is an important component of good governance. It also assists the government party to ensure that the project conforms with public interest considerations. Consultation and communications plans should be agreed with stakeholders and documented in the Contract Administration Manual…" |
Transparency | "The private party's willingness to provide information may be conditional on appropriate protection of confidentiality in the project contract. The extent of the confidentiality protection for the private party will have been considered during the procurement process as part of the public interest test… The confidentiality provisions in the project contract will reflect the balance between transparency and confidentiality inherent in the public interest test." "The purpose of the [Whistleblowers Protection Act 2001] is to encourage and facilitate disclosure of improper conduct by public officers and public bodies…. Compliance with the WP Act and the development of procedures to ensure compliance are an essential part of a government party's project compliance program. Compliance has a significant role in ensuring the transparency and accountability of an entity's administrative and management practices by supporting disclosures that reveal corrupt conduct, conduct involving a substantial mismanagement of public resources, or conduct involving a substantial risk to public health and safety or the environment." |
Accountability | "The private party should be obliged by the contract to provide further information as well as information on delivery against outputs…" "Reporting to senior management and the Department of Treasury and Finance: Best practice entails that such regular reports,… are important to maintain ongoing accountability and focus on scanning the contract management environment." "Appropriate standards of accountability in Partnerships Victoria projects must be maintained throughout the project lifecycle. The importance of accountability safeguards is enshrined in the Partnerships Victoria policy and guidance materials." |
BOX 5 : Partnerships Victoria - Contract Management Guide - June 2003.
Principle |
|
SUBSTANTIAL PRINCIPLES - NON OBSERVABLE | |
Consistency | "The principles of probity in government contracting contained in the Probity Policy and Guidelines were originally developed to introduce a consistent public sector set of probity rules. The principles of probity are:… consistency and transparency of process." |
"When determining how to manage knowledge and information effectively and identifying appropriate systems, processes and cultural levers, the government party should consider the following issues:… How will the quality of the information be monitored over the life of the project (for accuracy, consistency and currency) and during the various stages of the project and transitions between stages?" | |
Predictability | "It is vital to build a contract that not only identifies clearly the obligations of the private party and government, but also enables a productive relationship built on long-term perspectives and commitments." |
(or commitment) | "The Government's commitment to openness and transparency in its dealings extends to the public disclosure of tender and contract related information." |
Flexibility | "The KPIs need to be right at the point of contract signing. However, as the project progresses and early in the service delivery stage, there should be sufficient flexibility in the contract to amend and review contract KPIs." |
Effectiveness and efficiency | "Effective and efficient public sector contract administration is essential to the delivery of project and government objectives." "To minimize the risk of default by the government, the hindering of the project by actions of government and inadvertent take-back of risk, Contract Directors need to become familiar with the obligations, both express and implied, which fall or may fall upon government. After identifying these obligations, Contract Directors must ensure that these obligations can be fulfilled and the contract can be managed efficiently and effectively." "The government party must be allocated sufficient and appropriate resources to enable efficient and effective contract administration, including the development and updating of the Contract Administration Manual." |
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88 Utility Regulators Forum discussion paper. "Best practice utility regulation." Autralia, July 1999.