Unified concept for universal service in Latvia: postal aspects

1. Unified concept for universal service in Latvia: postal aspects Prof. Edvins Karnitis Public Utilities Commission of Latvia Commissioner

2. Services of general economic interest: not a conjunctive term only • they are fundamental for health, even for life itself of every citizen as well as for elimination of his/her social exclusion; • theyare essential for business, backbone of the national economy; • general availability of qualitative services is of great importance for equalization of life quality in the whole territory; service providers have a limited interest in general provision of qualitative services (low income consumers, remote and sparsely populated areas, unprofitable services) for affordable tariffs; Universal service is a real instrument for general availability and affordability of various services across the whole country

3. Policy of the EU related to US: aiming at unified approach • Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community; Protocol on services of general interest; Lisbon, 13 December 2007; • Services of general interest, including social services of general interest: a new European commitment; COM(2007)725; • White Paper on services of general interest; COM(2004)374; • sectoral Directives: • electronic communications and post; • electricity and gas;

4. Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European CommunityProtocol on services of general interest The shared values of the Union in respect of services of general economic interest … include in particular: • the essential role and the wide discretion of national, regional and local authorities in providing, commissioning and organising services of general economic interest as closely as possible to the needs of the users; • a high level of quality, safety and affordability, equal treatment and the promotion of universal access and of user rights.

5. Latvia: Unified Regulator (PUC) – unified USmodel Percent of the services within the household budget by income (2006) all 1. quintile 6,09% 6,14% 0,054% 0,057% 2,1% 2,81% • priority – liberalized sectors: • electronic communications; • postal services; • electricity; • opened for district heating, water, gas, waste; Unified: principles, methodology, procedures, management Sector specific: services, indicators, financing

6. Set of the US • minimum facilities have been adopted by Directive; • service oriented, technologically neutral; • clusters of US users: • expensive (remote, sparsely populated) areas – uniform tariffs; • vulnerable individuals (low-income households, invalids) – electronic communications, electricity; not actual in postal market; • all users throughout the national territory – to guarantee service, to decrease uniform tariffs (electronic communications, post); • processing and delivery of postal items (including registered and insured items) weighing up to 2 kg; • processing and delivery of postal packages weighing up to 20 kg; • delivery of subscribed periodicals;

7. Standard of quality for services • uninterrupted, non-discriminatory, identical services for all users; • reasonable standard of quality; optimum: service – costs – quality; • information and claim presentation services; • public postal network – post offices, access points (incl. letter boxes) of defined density; • appropriate delivery installations (post boxes) – on the ground floor, near the public road; • requirements for items processing (frequency, regularity, ...); • minimum one delivery every working day, reasonable time regime; Standard of quality – set by the Regulator

8. Status quo in Latvia’s postal market • Postal market 2007: • items and packages de jure: • LP monopoly on processing (incl. delivery) of correspondence weighing up to 50 grams till 2013; de facto: • monopoly services are permitted for every provider, if its tariffs are 2,5 times higher than LP regulated tariffs; • processing postal items and packages in profitable segments (45 companies): • value added services; • regional – delivery in cities;

9. Development of postal sector: LP vs newcomers Items Packages Liberalization of the postal market has been started; reserved area cannot be a long-term solution for the financing of US

10. Liberalized market: necessity for new US model Market opening abolish any potential cross-subsidy. US obligations cannot be put on incumbent only. All companies have to be included.

11. US financing: principles Sectoral separation. Efficiency, market equilibrium, sustainability …

12. US financing: algorithm • budget financing (taxes): not related to sector, support of cream skimmers; • sectoral contribution: fair dealing, market is not distorted, participation of all providers of the sector (for postal services – clearance, sorting, transport or distribution of any item/package); • solidarity (general participation) and equality of all providers, equal rate of duty; • de minimis exemptions (for newcomers and small providers) – distort the market, not purposeful in Latvian case; • combined financing – budget partnership max 10% of total funding (motivation of contributors);

13. US financing: size • political decision – determines level of the regulatory intervention; • users of the US have to have appreciable gains; • virtual benefits (scale effect, marketing, ...); for US provider; • net cost financing should not influent fear competition; • support of vulnerable customers – related to average use of service;

14. Compensation of the net cost: principles • compensation of real expenditures for really provided / used services (post factum): • company-oriented – compensation to customers, for personalized services only, significant delay, hard administration; • customer-oriented – financing of US provider, uniform process, use of standard billing system;

15. Compensation of the net cost: algorithm • calculation of the US compensation – according to audited annual report of the US provider; • methodology for calculation of intangible benefits (scale effect, marketing, branding, ...); • minimum unfair burden exemptions – not purposeful, distort the market; • participation of all providers of the sector, proportionality (equal rate of duty);

16. Compensation of the net cost: roadmap Reports of service providers on year n turnover and prognoses on year n+1 Decision of the CoM on year n and framework for years n+1 and n+2 Payments into US Fund for year n Audited annual reports of US providers on year n 1 Jan 1 Feb 1 Mar 1 Apr 1 Mai 1 Jun 1 Jul Year n Year n+1 • annual decision on contribution rate and budget co-financing (CoM), framework for next 2 years (compensation, sector turnover); • unutilized or unavailable funding – included in next year calculation; • updating algorithm (PUC and CoM) – every 3 years;

17. Provider of the US: desig-nation • any sectoral service provider (standard of quality) have a chance to become the US provider; • selection of the US provider – principles of efficiency, objectivity, transparency, non-discrimination, proportionality and equality; duty of the Regulator; • one or more US providers? (small country and small market); • for personalized services (vulnerable consumers) – choice of US customer (standard of quality!); • tendering (beauty contest) on state aid: efficiency, quality, experience, reliability, trust… ; • periodicity – every third year; • if no acceptable applications – obligation on incumbent (LP);

18. Administration of the US: separation of regulatory and monetary functions • principle of equal withdrawal for regulatory activities; • competence in administration of budget means; • responsibility of the PUC: • determination of the US set; • definition and control of US quality standard; • tendering procedure; • control of expenditures and net cost; • responsibility of the Ministry: administration of compensation means; • Ministry of Welfare – people with disabilities; • Local governments – status of low-income household;

19. Strong, independent, fair-dealing Regulator – a crucial issue • institutional autonomy, neutrality; • financial independence; • decision-making body; • staffing, expertise; • right to appeal to a body that is independent of the Regulator (administrative court); • cooperation with competition authority; • cooperation with Regulators of Member States;

20. Implementation of the US model: step by step I • lot of innovations, lack of experience; • pilot stage – electronic communications (from 2011): • significant density in household budget; • categorical and pressing demands of EC Directives; • all US procedures will be implemented and tested; • the only sector where some experience has been gathered; • adoption of laws and secondary normative acts (Saeima, Cabinet of Ministers and PUC) – 4Q 2009; • updating the Net cost methodology (PUC) – 1Q 2010; • improvement of existing information systems (vulnerable people), development of the register of US providers (MoEGA, MoW, PUC, local governments) – 3Q 2010; • tendering procedures 3Q 2010;

21. Implementation of the US model: step by step II • 2nd stage – postal services, electricity supply (from 2013): • market liberalization is going on; • more soft demands of EC Directives (full liberalization of postal market from 2013); • updating the US concept – 1Q 2012; • development of cost allocation principles and methodology; • development of net cost principles and methodology; • 3rd stage – decision on district heating, natural gas, water, waste; gas, heating post, electricity electr. commun.