Regulatory Agencies

The focus on the independence of regulatory institutions has obscured the more fundamental issue of the level-international, national, subnational, sector, and project-at which regulatory functions are performed. Internationally, treaties and agreements, such as the World Trade Organization and its General Agreement on Trade in Services, provide regulatory tools useful for PPPs, as do bilateral treaties, where dispute settlement provisions can be found in most investment treaties. Adhering to international dispute resolution mechanisms is important for attracting foreign investors to PPPs in infrastructure services. Procurement regulations in the European Union, for example, apply to all member states (Maslyukivska and Sohail 2007).

Regulation promulgated nationally and subnationally can carry out regulatory functions across sectors. PPP units have been set up to do this for certain regulatory functions in several countries in Asia, and PPP laws and regulations are applied universally across different sectors. In the People's Republic of China, for example, more than 40 PPP regulations were issued by the government from 2013 to 2017. Table 10.1 shows some of them.

Table 10.1: Selected PPP Regulations in the People's Republic of China, 2013-2015

MOF = Ministry of Finance, NDRC = National Development and Reform Commission, PPP = public-private partnership.

Source: Hui Jin and Isabel Rial. 2016. Regulating Local Government Financing Vehicles and Public-Private Partnerships in China. Working Paper No. 16/187. Washington, DC: International Monetary Fund.

Because numerous national and subnational government agencies are involved in regulating PPPs, potential inconsistencies between those promulgated by different agencies can arise. Take Indonesia. PPP procurement procedures are set out in Presidential Regulation No. 13 of 2010, Government Regulation No. 6 of 2006, and Government Regulation No. 38 of 2008-and there are contradictions between them. Government Regulation No. 6, for example, stipulates there should be a minimum of five bidders, but the minimum is three in Presidential Regulation No. 13.

Some regulatory functions differ considerably from sector to sector. For example, cross-ownership among power generators and distributors is a regulatory issue in the power sector, and cross-ownership is subject to sector regulation. In the Philippines, the Energy Regulatory Committee is mandated to regulate business entities operating in the energy sector, including PPPs. In the United Kingdom, all water companies are regulated by Ofwat-a sector regulator. Regulation can also be at the project level or incorporated into PPP contracts. Regulation by contract is project regulation by default. In regulating Manila's two water concessions, which is discussed later in the chapter, a regulatory office was established to monitor the enforcement of the concession contracts.

Regulatory functions for PPPs in infrastructure services can be performed by different regulatory institutions and at different levels. While these functions may share similar names across sectors and countries, their regulatory power and the instruments used can differ considerably. For example, some institutions, have the authority and mandate to make final regulatory decisions, while others make only recommendations on regulatory issues.

There are three basic types of regulatory institutions. The first are departments within ministries or local governments. In some cases, these departments focus exclusively on regulatory functions, and they are typically called regulatory agencies, commissions, or authorities. In other cases, they also perform administrative functions. Regulatory agencies independent of government are the second type. These agencies are typically involved in the economic regulation of PPPs, and their decisions are made independently from national or local government to distance them from interference from political or business interests. These agencies can operate nationally and subnationally, and across a sector or sectors.

The third type of regulatory institution is the PPP contract itself. Here, contracts set out the rules, tariffs, and service standards without the need to create a regulatory agency for the project sector. Many Asian governments implement PPPs for infrastructure services this way. Under the regulation- by-contract modality, the discretion of decision makers is constrained by specifying the procedure for adjusting tariffs within the contract document, such as indexing, automatic pass-through, and case-by-case determinations.