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Enhancing Effective Regulation of Water and Energy Infrastructure and Utility Services


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Enhancing Effective Regulation of Water and Energy Infrastructure and Utility Services

  1. 1. Enhancing Effective Regulation of Water and Energy Infrastructure and Utility Services INTRODUCTION WORKSHOP Funded by the Asian Development Bank 25 th March 2009 Leaders in the design, implementation and operation of markets for electricity, gas and water.
  2. 2. Agenda <ul><li>1. Project Introduction & Overview </li></ul><ul><li>2. Conceptual Framework </li></ul><ul><li>3. Case Study Structure </li></ul><ul><li>4. Regulation Status Report (Initial Findings) </li></ul><ul><li>5. Next Steps </li></ul>
  3. 3. About IPA <ul><li>Independent specialist consultancy established in 1989 </li></ul><ul><li>Offices in the UK, UAE, China and Australia </li></ul><ul><li>Member of the Dar Al-Handasah group (12,000+ employees) </li></ul><ul><li>Electricity, gas and water sector specialists </li></ul><ul><li>Multi disciplinary practice combining skills in </li></ul><ul><ul><li>Economics </li></ul></ul><ul><ul><li>Law </li></ul></ul><ul><ul><li>Regulation </li></ul></ul><ul><ul><li>Finance and accounting </li></ul></ul><ul><ul><li>Industrial mathematics and OR </li></ul></ul><ul><ul><li>Engineering </li></ul></ul><ul><ul><li>Utility management </li></ul></ul><ul><li>Focused on business strategy, market reform and regulation </li></ul>
  4. 4. Personal Introduction <ul><li>International Team </li></ul><ul><li>Nicholas Morris </li></ul><ul><ul><li>Managing Director, IPA Asia </li></ul></ul><ul><ul><li>30 years economic research and consulting experience </li></ul></ul><ul><li>Sue Jaffer </li></ul><ul><ul><li>Senior Economist, IPA Asia </li></ul></ul><ul><ul><li>25 years water regulation experience </li></ul></ul><ul><li>David Parker </li></ul><ul><ul><li>Dean of Cranfield School of Management </li></ul></ul><ul><ul><li>Regulation Policy specialist </li></ul></ul><ul><li>Stuart King </li></ul><ul><ul><li>Head of IPA’s International Water Practice </li></ul></ul><ul><ul><li>22 years experience as a strategy and economics consultant </li></ul></ul>
  5. 5. About Green Field <ul><li>Research-based consulting company in Vietnam and South-East Asia, offering solutions for development projects </li></ul><ul><li>Business areas </li></ul><ul><ul><li>Agriculture and rural development </li></ul></ul><ul><ul><li>Natural resource management </li></ul></ul><ul><ul><li>GIS and remote sensing </li></ul></ul><ul><ul><li>Clean environment </li></ul></ul><ul><ul><li>Water resource management </li></ul></ul><ul><ul><li>Clean and renewable energy </li></ul></ul><ul><li>Services </li></ul><ul><ul><li>Project feasibility study preparation </li></ul></ul><ul><ul><li>Project monitoring and evaluation </li></ul></ul><ul><ul><li>Social research and baseline study </li></ul></ul>
  6. 6. Personal Introduction <ul><li>Vietnam Team </li></ul><ul><li>Nguyen Ngoc Hung </li></ul><ul><ul><li>Energy Economist, Green Field Vietnam </li></ul></ul><ul><ul><li>10 years of experience in energy and electricity sector </li></ul></ul><ul><li>Ngo Van Dzuong </li></ul><ul><ul><li>Water Sector Specialist, Green Field Vietnam </li></ul></ul><ul><ul><li>30 years of experience in water resource management </li></ul></ul><ul><li>Do Hong Anh </li></ul><ul><ul><li>Project Coordinator, Green Field Vietnam </li></ul></ul><ul><ul><li>Specializes in project management </li></ul></ul>
  7. 7. Project Introduction & Overview Project Introduction & Overview
  8. 8. Project Introduction & Overview <ul><li>The Regional Technical Assistance (RETA) programme is concerned with enhancing regulatory efficiency and effectiveness and regulatory governance in South East Asia </li></ul><ul><li>Focus on the energy and water sectors in four case study countries – Vietnam, the Philippines, Malaysia and Thailand </li></ul><ul><li>Central belief that well-regulated markets can both deliver economic growth and protect the interests of the poor </li></ul><ul><li>Wish to understand what kind of institutional structures and regulatory instruments are appropriate to the conditions and capacities that characterise different developing countries </li></ul>
  9. 9. Project Introduction & Overview <ul><li>Effective regulation has the potential to provide a large number of benefits to the water / energy sector and the economy more generally: </li></ul><ul><ul><li>Enhance utility operational efficiency </li></ul></ul><ul><ul><li>Encourage utility financial self-sufficiency </li></ul></ul><ul><ul><li>Facilitate PSP </li></ul></ul><ul><ul><li>Oversee (surrogate) competition </li></ul></ul><ul><ul><li>Protect customer interests (including disadvantaged consumers) </li></ul></ul><ul><ul><li>Extend service provision </li></ul></ul><ul><li>Most of these benefits can be obtained whether utilities are in public or private ownership </li></ul>
  10. 10. Project Introduction & Overview <ul><li>The study comprises several elements and stages: </li></ul><ul><ul><li>Inception Report </li></ul></ul><ul><ul><li>Regulation Status Report </li></ul></ul><ul><ul><li>Case Studies </li></ul></ul><ul><ul><li>Dissemination of Findings (national and regional workshops) </li></ul></ul><ul><li>Inception Report (delivered in February) included: </li></ul><ul><ul><li>Literature review </li></ul></ul><ul><ul><li>Conceptual framework for the study </li></ul></ul><ul><ul><li>Case study structure </li></ul></ul><ul><ul><li>Work plan </li></ul></ul><ul><li>Regulation Status Report (delivered in March) included: </li></ul><ul><ul><li>Summary of the nature and state of regulation in the energy & water sectors for the four case study countries </li></ul></ul>
  11. 11. Project Introduction & Overview
  12. 12. Conceptual Framework Conceptual Framework
  13. 13. Conceptual Framework <ul><li>International evidence shows that the attributes of good regulation include accountability, transparency, consistency, proportionality and targeting </li></ul><ul><li>  </li></ul><ul><li>The achievement of good regulation depends upon a set of factors which we are studying in our case studies. They are: </li></ul><ul><ul><li>Institutional context – including political and legal systems and norms of </li></ul></ul><ul><ul><li>behaviour </li></ul></ul><ul><ul><li>Efficient and effective regulatory processes – including regulatory capacity within countries </li></ul></ul><ul><ul><li>Roles and objectives – including attention to the reduction of poverty and non-discrimination </li></ul></ul><ul><ul><li>Regulatory outputs - achievements and impediments </li></ul></ul>
  14. 14. Conceptual Framework
  15. 15. Case Study Structure Case Study Structure
  16. 16. Case Study Structure # Section Name Content 1. Introduction <ul><li>Purpose / Context of Case Study </li></ul><ul><li>Case Study Layout </li></ul>2. Sector Overview <ul><li>Stated (Government) Goals / Policy for the Sector </li></ul><ul><li>Institutional Framework </li></ul><ul><li>Nature and Status of Resource / Infrastructure </li></ul>3. Sector Challenges <ul><li>Principal Issues / Challenges Facing the Sector </li></ul><ul><li>Role of Regulation in Confronting / Overcoming Challenges </li></ul>4. Regulation Summary <ul><li>Aims and objectives </li></ul><ul><li>Institutional context </li></ul><ul><li>Process </li></ul><ul><li>Outputs </li></ul>5. Conclusions <ul><li>Conclusion: what lessons may be learned (and may be transferable) from the adoption of regulation in the case study countries </li></ul>
  17. 17. Case Study Structure <ul><li>Aims & Objectives: </li></ul><ul><ul><li>How do the aims and objectives of regulatory bodies fit with objectives set by government? </li></ul></ul><ul><ul><li>What are the regulator’s priorities in relation to promoting economic efficiency as well as social, environmental and sustainability goals? </li></ul></ul><ul><ul><li>Are regulators mandated to pursue poverty reduction and other initiatives for assisting low income customers and ensuring that “affordability” is achieved? </li></ul></ul><ul><ul><li>How do regulators interface with other government departments in achieving their objectives? </li></ul></ul><ul><ul><li>To what extent do regulators attempt to obtain information from customers to ensure that regulatory policies do not ignore their needs? </li></ul></ul>Stakeholders will be questioned in relation to all elements of the Conceptual Framework:
  18. 18. Case Study Structure <ul><li>Institutional Context: </li></ul><ul><ul><li>Is there a clear regime of accountability for the regulatory offices? </li></ul></ul><ul><ul><li>Do the regulators operate in the context of certain or arbitrary political and legal interventions? </li></ul></ul><ul><ul><li>Are the behavioural norms in the country consistent with efficient and effective regulation? </li></ul></ul><ul><ul><li>Are there any institutional weaknesses that inhibit efficient and effective regulation? </li></ul></ul><ul><ul><li>Is there a regulatory body separate from the government department? </li></ul></ul><ul><ul><li>How are regulators appointed and are they protected from arbitrary dismissal? </li></ul></ul><ul><ul><li>Are the regulators adequately resourced in terms of finance and skills base? </li></ul></ul>
  19. 19. Case Study Structure <ul><li>Regulatory Process: </li></ul><ul><ul><li>How and where are charges and service levels determined? </li></ul></ul><ul><ul><li>What processes of consumer and stakeholder consultation are used? </li></ul></ul><ul><ul><li>Are the reasons underpinning regulatory decisions transparent? </li></ul></ul><ul><ul><li>Are tariffs rational in the sense of being related to marginal costs? </li></ul></ul><ul><ul><li>Is service quantity and quality appropriately monitored and enforced? </li></ul></ul><ul><ul><li>To what extent are price caps or rate of return regulatory models used and what are the difficulties of applying these international practices? </li></ul></ul>
  20. 20. Case Study Structure <ul><li>Regulatory Outputs: </li></ul><ul><ul><li>What kind of regulatory activity and outputs have been delivered to date? </li></ul></ul><ul><ul><li>What methods of consumer consultation are used and are they effective? </li></ul></ul><ul><ul><li>To what extent is the regulator involved in making ‘tough’ regulatory decisions e.g. in relation to tariff policy, setting (and enforcing) standards in relation to service delivery? </li></ul></ul><ul><ul><li>Does the regulator have a published plan for future regulatory activity? </li></ul></ul>
  21. 21. Initial Findings Initial Findings – Vietnam Energy
  22. 22. Initial Findings – Vietnam Energy Sector <ul><li>Introduction </li></ul><ul><li>Ministry of Industry and Trade carries out most day-to-day management </li></ul><ul><ul><li>Involvement by many other Ministries </li></ul></ul><ul><ul><li>Electricity Regulatory Authority of Vietnam (ERAV) established in October 2005 </li></ul></ul><ul><li>Mix of public and private ownership, with IPPs partly owned by state-owned companies (including oil and gas companies) </li></ul><ul><li>Road Map for Electricity Sector Reform authorised by Prime Ministerial Decree ( 26/2006 QD TTg) in 2006. The Road Map includes: </li></ul><ul><ul><li>Vertical disaggregation </li></ul></ul><ul><ul><li>Wholesale market by 2014 </li></ul></ul><ul><ul><li>Tariff Reform </li></ul></ul><ul><li>Focus on rural electrification, poverty reduction and diversifying fuel supplies </li></ul><ul><ul><li>Comprehensive Poverty Reduction and Growth Strategy (CPRGS) </li></ul></ul><ul><ul><li>Socio-Economic Development Plan 2006-2010 </li></ul></ul>
  23. 23. Initial Findings – Vietnam Energy Sector <ul><li>Electricity Regulatory Authority of Vietnam (ERAV) </li></ul><ul><li>Department within Ministry of Industry and Trade, with responsibilities: </li></ul><ul><ul><li>Establishing the Master Plan for Power Sector development </li></ul></ul><ul><ul><li>Advising Minister of Industry on power market structure and industry restructuring </li></ul></ul><ul><ul><li>Designing the power market & regulating competition </li></ul></ul><ul><ul><li>Issuing and enforcing licenses to power sector entities. </li></ul></ul><ul><ul><li>Tariff setting. </li></ul></ul><ul><ul><li>Elaborating the PPA of the single buyer. </li></ul></ul><ul><ul><li>Ensuring adequate new generation and transmission capacity. </li></ul></ul><ul><ul><li>Monitoring functions. </li></ul></ul><ul><li>Role is still largely advisory. Major decisions taken by Minister or Prime Minister (for example on tariffs). </li></ul><ul><li>World Bank report identifies need for ERAV to establish recognition and technical competence </li></ul><ul><li>Identify how ERAV’s capability and role may be further enhanced </li></ul>
  24. 24. Initial Findings – Vietnam Energy Sector <ul><li>Stated Policy Goals for the Energy Sector </li></ul><ul><li>Deputy Minister Do Huu Hao’s February 21st interview: </li></ul><ul><ul><li>plan for an “impeccable electricity industry by 2020-22” </li></ul></ul><ul><ul><li>“ Reform process has to be taken slowly, step-by-step” </li></ul></ul><ul><li>2006-2010 plan states the goals of the sector up to 2010 as to: </li></ul><ul><ul><li>“ (i) push up development of energy production industries. </li></ul></ul><ul><ul><li>(ii) ensure supply-demand balance of the economy in terms of essential industrial products including electricity, coal, gasoline, and oil satisfying domestic demands. </li></ul></ul><ul><ul><li>(iii) increase the production value of the electricity-water- gas industry by 3.8%. </li></ul></ul><ul><ul><li>(iv) expand exploitation of the electricity-water-gas industry by 5.1%.” </li></ul></ul><ul><li>Now preparing for next 5-year plan, a process which started this year and is involving the Ministry, ERAV and EVN. </li></ul>
  25. 25. Initial Findings – Vietnam Energy Sector <ul><li>(Regulatory) Challenges Facing the Energy Sector </li></ul><ul><li>Tariff reform </li></ul><ul><li>Effective implementation of the Road Map </li></ul><ul><li>Developing ERAV’s staffing and capability </li></ul><ul><li>Encouraging Investment in proposed IPP plants </li></ul><ul><li>Interaction of energy sector development with new law on environmental protection </li></ul><ul><li>Increasing availability of data for independent research </li></ul>
  26. 26. Key Questions/Issues for Stakeholders in the Energy Sector <ul><li>Tariff issues </li></ul><ul><ul><li>Was the tariff rise enacted in March 2009 appropriate/sufficient? </li></ul></ul><ul><ul><li>Policy to gradually raise tariffs to match long-run marginal cost. </li></ul></ul><ul><ul><li>Removal of cross-subsidies? </li></ul></ul><ul><li>Private Network arrangements </li></ul><ul><ul><li>Implementation of new tariff arrangements in 2009 </li></ul></ul><ul><ul><li>May cause private networks to be returned to EVN </li></ul></ul><ul><ul><li>Will this adequately protect the urban and rural poor? </li></ul></ul><ul><li>Power Sector Reform </li></ul><ul><ul><li>Separation of National Transmission Company and Load Dispatch Centre </li></ul></ul><ul><ul><li>Wholesale market from 2014 </li></ul></ul><ul><ul><li>Is the timetable, including pilot schemes, realistic/appropriate? </li></ul></ul><ul><li>Renewable Energy </li></ul><ul><ul><li>New Master Plan to be approved during 2009 </li></ul></ul><ul><ul><li>Rural electrification </li></ul></ul><ul><li>Regulation of LPG suppliers </li></ul>
  27. 27. Initial Findings Initial Findings – Vietnam Water
  28. 28. Initial Findings – Vietnam Water Sector <ul><li>Introduction to water and sewerage services </li></ul><ul><li>Responsibility of District or Provincial Peoples Committees (PPCs): </li></ul><ul><ul><li>In some cases services provided by state owned enterprises or env companies </li></ul></ul><ul><ul><li>Decree no 117/2007 allowed water suppliers to equitise into joint stock companies </li></ul></ul><ul><ul><li>Emphasis on extending water services to rural areas, prioritising the poor and areas with major problems of supply (NTPII) </li></ul></ul><ul><li>Sanitation services: </li></ul><ul><ul><li>Limited provision of services: </li></ul></ul><ul><ul><ul><li>Many basins have no wastewater treatment </li></ul></ul></ul><ul><ul><ul><li>Collection rates low, at 40 to 60% </li></ul></ul></ul><ul><ul><ul><li>Lack of planning </li></ul></ul></ul><ul><ul><ul><li>Extensive flooding </li></ul></ul></ul><ul><li>Integrated water resource management </li></ul><ul><ul><li>Considerable stress on water resources </li></ul></ul><ul><ul><ul><li>Declining groundwater levels, stressed rivers, extensive pollution of surface waters </li></ul></ul></ul><ul><ul><li>Major area of focus </li></ul></ul>
  29. 29. Initial Findings – Vietnam Water Sector <ul><li>Regulatory supervision: </li></ul><ul><li>MOC responsible for urban water supply and sanitation, </li></ul><ul><li>MARD responsible for rural water supplies and irrigation </li></ul><ul><ul><li>MARD designated as Standing Office for NTPII </li></ul></ul><ul><li>PPCs responsible for: </li></ul><ul><ul><li>Pricing decisions and financial management, Pricing guidance provided by MOF </li></ul></ul><ul><ul><li>Managing resources and delivering NTPII “on the ground” </li></ul></ul><ul><ul><li>MOF and MPI have to approve significant capital investments </li></ul></ul><ul><li>MOH responsible for setting standards for clean water and sanitation </li></ul><ul><ul><li>MOH responsible for determining standards for discharge consents </li></ul></ul><ul><ul><li>Monitoring the quality of urban and industrial discharges responsibility of DoNRE </li></ul></ul><ul><li>Water Resources Management </li></ul><ul><li>NWRC created to advise govt and co-ordinate WRM activities </li></ul><ul><li>MoNRE to undertake management of water resources </li></ul>
  30. 30. Initial Findings – Vietnam Water Sector <ul><li>Objectives for the water sector : </li></ul><ul><li>To strengthen legal, policy and strategy frameworks </li></ul><ul><ul><li>to increase the contribution of water resources management to poverty reduction and sustainable national developments </li></ul></ul><ul><li>To build more effective institutional and decision-making systems </li></ul><ul><ul><li>so that all people can make informed choices on improvements to their social environment and living conditions </li></ul></ul><ul><li>To ensure that water resources are secured, managed and used at national, river basin, provincial, district and sectoral levels, </li></ul><ul><ul><li>to support sustainable and high quality economic growth </li></ul></ul><ul><li>To improve the quality of water and related environments </li></ul><ul><ul><li>by preventing pollution and protecting environmental assets </li></ul></ul><ul><li>To develop water sector capacity and knowledge at the national, river basin, provincial, district and local community levels </li></ul><ul><ul><li>to implement IWRM approaches in a practical way </li></ul></ul>
  31. 31. Initial Findings – Vietnam Water Sector <ul><li>(Regulatory) Challenges Facing the Water Sector </li></ul><ul><li>Prices very low </li></ul><ul><ul><li>Tariffs below the level needed for recovery of operating costs </li></ul></ul><ul><ul><li>Water tariffs low, often no wastewater tariffs. Irrigation fees to farmers abolished. </li></ul></ul><ul><ul><li>Reflects concerns about affordability </li></ul></ul><ul><ul><li>Despite guidance from MOF and MOC </li></ul></ul><ul><li>Lack of resources and capacity in many PPCs, particularly smaller PPCs </li></ul><ul><ul><li>Low prices constrain investment and scope to improve coverage </li></ul></ul><ul><ul><li>Lack of skilled staff, experience in managing investment budgeting processes </li></ul></ul><ul><ul><li>Continued reliance on government and aid funding for building of wastewater systems </li></ul></ul><ul><ul><li>Lack of enforcement on effluent standards </li></ul></ul><ul><li>Under resourcing of regulators: </li></ul><ul><ul><li>MoNRE, DoNRE, particularly under funded </li></ul></ul>
  32. 32. Key Questions for Stakeholders in the Water Sector <ul><li>How could tariffs be increased for those able to pay? </li></ul><ul><li>Use of targeted subsidies with increases in general tariffs? </li></ul><ul><li>Has there been any improvement in cost recovery for equitised water suppliers? </li></ul><ul><li>How best to improve the capacity of PPCs? </li></ul><ul><li>Should responsibility for management of water suppliers be less decentralised? </li></ul><ul><li>How best to improve pollution control? </li></ul><ul><li>Resourcing of relevant Ministries and departments? </li></ul><ul><li>Improving lines of accountability? </li></ul>
  33. 33. Next Steps Next Steps
  34. 34. Next Steps <ul><li>Commence stakeholder interviews (March & April) </li></ul><ul><li>Produce Draft Case Studies (mid May) </li></ul><ul><li>National Workshops (early June) </li></ul><ul><li>Finalise Case Studies & Produce ADB Publication (mid June) </li></ul><ul><li>Regional Workshop (mid June) </li></ul>
  35. 35. Project Contacts <ul><li>Nicholas Morris: </li></ul><ul><li>Sue Jaffer: [email_address] </li></ul><ul><li>Nguyen Ngoc Hung: </li></ul><ul><li>Ngo Van Dzuong: </li></ul><ul><li>Do Hong Anh: </li></ul>