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INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships. Tuesday 17-Thursday 19 March 2009. Regulatory Structure in Oman ABDULRAHMAN ALHARTHY Moscow March 2009. 2. Presentation Schedule. Introduction to Regulatory Structure in Oman

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INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships

Tuesday 17-Thursday 19 March 2009


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Regulatory Structure in Oman Economic Regulation and Public Private Partnerships

ABDULRAHMAN ALHARTHY

Moscow

March 2009

2


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Presentation Schedule Economic Regulation and Public Private Partnerships

  • Introduction to Regulatory Structure in Oman

  • Structure of Electricity Market in Oman and its Regulation

  • Application of INTOSAI Guidelines in audit of Electricity Regulation

  • Findings of audit of Electricity Regulation in Oman


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Regulatory Structure in Oman Economic Regulation and Public Private Partnerships

Economic regulation

Exercise of control by the Government over suppliers of services to consumers.

Off-shoot of privatization process

- Need to check monopolistic power of vital utilities now in private ownership

Need for Arbitrator

- Need to balance legitimate interests of the consumer against those of the supplier: how to secure a fair service for a fair price.

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Mandate of State Audit Institution for audit of Regulatory Bodies

Audit of Financial services regulation

-Financial Services regulation through Capital Market Authority regulates issue and trading of securities as well as regulation of the insurance sector and Central Bank of Oman which regulates the Banking Institutions

- SAI audits only Capital Market Authority

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Mandate of State Audit Institution in audit of regulation of Telecommunications

Telecom Regulatory Authority established in 2002 to liberalize and promote telecommunications services

Objectives of TRA

regulating telecom services

promoting interest of telecommunications services providers and beneficiaries

ensuring that consumers receive international standards of services with reasonable choices at affordable prices.

Audited by State Audit Institution

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Mandate of State Audit Institution in audit of Electricity Regulation

All electricity related activities used to be run as government departments by Ministry of Electricity.

Government notified a legal framework in 2005 and created Authority for Electricity Regulation.

Authority for Electricity Regulation established as an independent entity responsible for public interest regulation of electricity sector under state law

Audited by State Audit Institution

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Functions of Authority for Electricity Regulation Regulation

The Authority shall:

Secure provision of electricity and related Water services in all parts of the Sultanate and protect interests of Customers

Encourage promotion of competition in public interest in electricity and related Water sector

Secure and develop safe, effective and economic operation of electricity and related Water sector and to enhance safety of the public

Secure Security of Supply in the country

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Structure of Electricity Sector Regulation

Activities were unbundled into separate companies

Generation,

Transmission

Distribution.

Companies operate under licence issued by the Regulator and also under the Economic Regulation put in place by the Regulator

Regulator is responsible for safeguarding interest of customer and investors.

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Ownership of Firms in Electricity Sector Regulation

As of now 6 out of 8 generation companies are in private sector

Government owned Transmission Company is in process of being privatized

Government owned Distribution & Supply Companies (three in number covering three geographical regions) are planned to be privatized in near future

State Audit Institution audits the Government Owned Companies separately

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Application of INTOSAI Guidelines in Audit Regulation of Electricity Regulation

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Audit of Authority for Electricity Regulatory (AER) Regulation

Audit of AER in Oman conducted in 2008

Audit conducted keeping in view INTOSAI Guidelines and the criteria developed

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Findings of Audit of Electricity regulation Regulation

Regulatory framework

- AER found to be independent and autonomous

Objectives, functions and power

- Objectives clearly laid down in the Law

Impartiality

- Found to be functioning and perceived as impartial

Information needs

- Information systems exist and there is a system of validation

Accountability

- Accountable to Council of Ministers and the sector law provides for independent Audit by SAI, Oman

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Supply of service Regulation

Consumer access

- Customer complaint handling mechanism exists. No instances of discrimination by any licensee till date.

Supply to vulnerable consumers

- Being safeguarded in the form of deferring disconnection, and waiver of arrears, if justified

Dealing with customer complaints

- Well publicized procedures exist and complaints are satisfactorily handled and documented

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Price of service Regulation

Controlling prices

- Pricing regime is transparent and well devised with incentives to licencees.

Linking price to quality

- Standards found to exist

Encouraging supplier efficiency

- Improved dispatch procedures resulted in reduction in subsidy per unit. There is further scope for improvement in dispatch.

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Developing Competition Regulation

Reducing monopoly and market domination

- Only Generation market is liberalized. Conditions are conducive to new entrants

Promoting consumer choice

- AER is working to introduce competition in Supply in the near future

Combating anti-competitive practices

- Systems exist to enforce market share and economic interest restrictions to prevent monopoly

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Thank You Regulation


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INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships

Tuesday 17-Thursday 19 March 2009


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Modernization Economic Regulation and Public Private PartnershipsProject for External Control of Regulation


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Modernization Project for External Control of Regulation Economic Regulation and Public Private Partnerships

From 2004 to 2008, the Brazilian Court of Audit (TCU) developed the “Modernization Project for External Control of Regulation”, financed by the Inter-American Development Bank (IDB) and technically supported by the Getulio Vargas Foundation.

  • Why?

  • The need for a specific project in the area of regulation control arose after identifying opportunities for advancing the work that was being carried out, not only in areas already under TCU’s oversight but also regarding new objects of external control of state regulatory activities in the field of infrastructure.


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Modernization Project for External Control of Regulation Economic Regulation and Public Private PartnershipsSchematic diagram

Diagnosis

Development

Sustainability

Mapping of Sefid work methods and techniques

Mapping of SEFID work processes

Mapping of macro processes and computer systems of Regulating Agencies

Diagnosis of target audiences

Role of control

Consolidation of Methods, Techniques, and processes (SEFID)

Regulation Control Study Center

Planning and mobilization – understanding and analysis of current situation

Role of agencies

Evaluation of organizational structure

Development of new Methods and Techniques


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Modernization Project for External Control of Regulation Economic Regulation and Public Private PartnershipsDiagnosis Products

The diagnosis products have the objective of registering the work processes as well as the methods and techniques currently used by TCU. By comparing this information and identifying the objects of control mapped in the regulating agencies, one can propose improvements or new approaches for TCU’s performance in control of regulation of public services.

Internal diagnosis

  • Mapping of Sefid organizational processes

  • Mapping of Sefid methods and techniques

    External diagnosis

  • Mapping of the macro processes of regulating agencies

  • Mapping of computer systems of regulating agencies


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Modernization Project for External Control of Regulation Economic Regulation and Public Private PartnershipsExternalDiagnosis Products

  • Mapping of processes and risk in regulating agencies

    • 159 processes and 2025 negative events were mapped in 8 regulating agencies (National Oil, Natural Gas, and Biofuels Agency - ANP, National Ground Transportation Agency - ANTT, National Water Transportation Agency - Antaq, National Telecommunications Agency - Anatel, National Electricity Agency - Aneel, Electronic Communication Secretariat of the Ministry of Communication - SCE/MC, Undersecretariat of Postal Services of the Ministry of Communication - SSPO/MC and Brazilian Postal Service - ECT);

    • Risk evaluation of regulating agencies

    • Based on the process mapping of the agencies, on the identification of the risks associated with such processes and on a risk matrix, it was possible to create new models of control designed to improve the oversight carried out by TCU in order to reduce the greater risks that exist in the end activities (atividades finalísticas) of the regulating agencies under TCU’s jurisdiction.


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Modernization Project for External Control of Regulation Economic Regulation and Public Private PartnershipsExternalDiagnosis Products – Main Results

low

medium

high

not assessed

The results showed that the economic-financial regulation and of concession (outorga) processes are more significant from the external control perspective.

Importance of the processes of the agencies to External Control

Technical Audit

Economic-Financial Audit

Technical Regulation

Economic-Financial Regulation

Concession

Relation to Society


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Modernization Project for External Control of Regulation Economic Regulation and Public Private PartnershipsDevelopment Products

  • Development Products

  • Based on the diagnosis reached, we created models that will be used to enable a more comprehensive and effective performance on the part of TCU regarding regulation control.

  • The choice of new methods and techniques for regulation control was based on the confrontation between the knowledge that already exists in TCU and the challenges that were identified after knowing the areas that are most exposed to risk.

  • Example: National Electricity Agency – Aneel / economic financial regulation / impact of information asymmetry


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Modernization Project for External Control of Regulation Economic Regulation and Public Private PartnershipsDevelopment Products

  • Development of New Method and Techniques for Sefid

  • Control Models Developed


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Modernization Project for External Control of Regulation Economic Regulation and Public Private PartnershipsDevelopment Products

With the implementation of the “Modernization Project for External Control of Regulation” we propose to create, within the scope of TCU/Sefid, the professional skills, technical infrastructure and the organizational structure needed to adopt a a comprehensive control system for processes of delegation of public services focused on the external control of the regulator.

  • Evaluation of the organizational structure of Sefid

    • Evaluation of the organizational structure;

    • Creation of alternatives for organization aiming at optimally quantifying the resources necessary to meet the demand for control objects.


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Modernization Project for External Control of Regulation Economic Regulation and Public Private PartnershipsSustainability Products

.

  • Diagnosis of target audiences

    • Survey of target audiences of the Court when it comes to regulation;

    • Proposal of a mechanism for sustained interaction;

    • Proposal of a tool to disseminate the actions of the Court and the benefits resulting from these actions involving each target audience identified.

  • Center for Studies on Regulation and Control - Cerc

    • Assemble and systematize the knowledge acquired during the Project;

    • Collect, systematize, and disseminate information on infrastructure regulation and its control (legislation, technical documents, academic production, events, news, etc.);

    • By using a website, it intends to stimulate dialogue and cooperation among all agents interested and involve in the Brazilian regulatory framework;

    • Offer room for contributions by users which is a way of improving discussions and intensifying the generation of knowledge in the area;

    • It is expected that Cerc will offer means for carrying out a direct and critical analysis of the performance of the delegated economic agents on aspects related to the quality of the services delivered, to the PPPs, to the economic-financial balance of the contracts and to other factors that will enable a more comprehensive understanding of the political, economic, and operational model adopted to provide the public services that are the object of the state delegation.


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Modernization Project for External Control of Regulation Economic Regulation and Public Private PartnershipsImpact for the SAI

  • Impact of the Project on the SAI

    • Promotion and consolidation of the ability of the Brazilian Court of Audit to oversee the Brazilian regulatory system in a more efficient and effective way;

    • Easier access to sources of information on doctrines, best practices in regulation, news, regulatory reform, and state regulation;

    • Consolidation and systematization of the methods and techniques already used by TCU when performing regulation control;

    • Better possibilities for capacity building and specialization of the technical staff;

    • Definition of new regulation control methods and techniques;

    • Greater knowledge regarding access and contents of the data bases of the regulating agencies;

    • Improvement of the model for planning, organization and management of external control of regulation;

    • Definition of a communication and dissemination strategy for control of regulatory activities that will meet the needs of the different audiences to whom the information, determinations, and recommendations on control are destined;

    • A better understanding of the essential activities of the regulating agencies that are under Sefid’s jurisdiction, taking into consideration the criteria of materiality, risk, relevance, and other criteria needed for regulation control, aiming at improving it.


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INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships

Tuesday 17-Thursday 19 March 2009



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TCU’s external government auditing and its work with regulatory bodiesStrategy Map of the Brazilian Court of Audit (TCU)

The Court’s mission is to ensure the effective and legitimate management of public resources for the benefit of society.

MISSION: ensure the effective and legitimate management of public resources

for the benefit of society

Improving public management

Fighting corruption, embezzlement, and fraud

Target actions to

areas of high risk

and relevance


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TCU’s external government auditing and its work with regulatory bodies Strategy Map of the Brazilian Court of Audit (TCU)

The Court’s mission is to ensure the effective and legitimate management of public resources for the benefit of society.

effective

MISSION: ensure the effective and legitimate management of public resources

for the benefit of society

Assesses the performance of government.


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TCU’s external government auditing and its work with regulatory bodies Strategy Map of the Brazilian Court of Audit (TCU)

The Court’s mission is to ensure the effective and legitimate management of public resources for the benefit of society.

legitimate

MISSION: ensure the effective and legitimate management of public resources

for the benefit of society

Ensures the legal compliance of resource management.


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TCU’s external government auditing and its work with regulatory bodies Strategy Map of the Brazilian Court of Audit (TCU)

The Court’s mission is to ensure the effective and legitimate management of public resources for the benefit of society.

MISSION: ensure the effective and legitimate management of public resources

for the benefit of society

benefit

Generates a positive impact for society.


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TCU’s external government auditing and its work with regulatory bodies TCU’s work

TCU’s work stems from an ambitious constitutional and legal mandate that provides a series of functions to be performed and instruments to be utilized within the wide world of the Federal Government.

Mandate

Functions

Instruments

  • Audits and inspections

  • Administrative acts subject to approval and registry

Audit/Inspection

Constitution

  • Preliminary opinion

  • Consultations

Advisory

  • Power to issue rulings on the accounts of those responsible for managing public money and goods

Judicial

  • Application of sanctions (fines, prohibition on bidding, etc.)

Punitive

Laws

  • Issuance of mandatory regulatory acts in its areas of competence

Rulemaking

  • Tips and formal complaints about illegal activity

Ombudsman


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TCU’s external government auditing and its work with regulatory bodies TCU’s Role in Overseeing Regulation

TCU acts during different phases of the regulatory process...

  • Concessions

  • Contract performance

  • Performance of regulatory body

... with a focus on various aspects ...

  • Compliance

  • Transparency

  • Improvement

... seeking external oversight that adds value to agencies’ results.

  • Continuous and systemic

  • Technical

  • Independent

  • Effective

In this context, the Court is responsible for exercising external oversight of regulatory agency activities.

Oversight of concession contracts is the responsibility of regulatory agencies.

TCU is responsible for overseeing the work of regulatory agencies, not for regulating the market.


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Successes and challenges of Brazilian regulation regulatory bodies Regulation in Brazil

Regulatory reform in Brazil took place beginning in the mid-1990s as a result of privatization and the outsourcing of public infrastructure services.

Main Expected Benefits:

  • Separation of roles and inter-institutional coordination

  • Lower rates

  • Improved quality of service

  • Universal access and expansion of coverage

  • Accountability, Transparency, and Public Oversight

  • Increased competition

  • Continuity of service

  • Fair rate of return

  • Environmental sustainability

Regulatory bodies were created to ensure a stable and economically attractive environment that safeguards the public interest.


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Successes and challenges of Brazilian regulation regulatory bodies Separation of Roles and Inter-Institutional Coordination

Successes

Challenges

  • Creation of regulatory agencies responsible for implementing public policy

    • Power sector: formulation of public policy by the Ministry of Mines and Energy, project design by the Energy Research Corporation and the National Electricity Agency (ANEEL)

  • Guarantee of increased inter-institutional coordination among formulators of public policy and regulatory agencies

    • There still is no integrated environmental policy in the regulation of the various infrastructure sectors

Examples of TCU’s participation

  • Audit of the National Council for Energy Policy (CNPE) in 2001: ineffectiveness of agencies responsible for formulating energy policy and recommendation of reformulation of sector planning.

  • Environmental and energy audit conducted with government institution responsible for policy making and implementation (2008): deficiencies in the implementation of sector planning (ten-year plan).


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Successes and challenges of Brazilian regulation regulatory bodies Lower Rates

Successes

Challenges

  • Creation of mechanisms to harness productivity gains for consumers' benefit

    • Rate adjustments in power distribution and transmission

  • Strengthening of agencies’ economic regulation

    • Capacity building for technical staff

    • Adequate handling of information asymmetry

Examples of TCU’s participation

  • Concomitant control of concessions for new electricity projects: improvement of feasibility studies.

  • Monitoring of main power utility rate review processes: analysis of legality and technical consistency of the process, thus contributing to the legitimacy of the regulatory agency’s actions.


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Successes and challenges of Brazilian regulation regulatory bodies Quality

Successes

Challenges

  • Independent agency to regulate quality of service

    • Indicators

    • Inspection

    • Sanctions

    • Communication channel for end-user issues

  • Improved efficiency in utility operations

    • Reduction in power loss

  • Improvement in quality inspection

    • Adherence to end-user perceptions about the quality of services rendered

    • Review of agency work processes

    • Effectiveness of agencies’ punitive power

Examples of TCU’s participation

  • Monitoring of main power utility rate review processes: incorporation of high levels of power loss into rates and absence of regulatory incentives to reduce them.


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Successes and challenges of Brazilian regulation regulatory bodies Universal Access and Expansion of Supply

Successes

Challenges

  • Universal access to certain services

    • “Luz para todos” (Universal service: Light for all)

    • “Tarifa social” (subsidized rates for low-income consumers)

    • Integration of isolated power generation systems (specially in the North Region – Amazon)

  • Improved oversight of attainment of universal access goals

    • Correct distortions in subsidized power rates (“tarifa social”)

Examples of TCU’s participation

  • Audit of “Tarifa Social”: ineffectiveness of criteria used to apply the subsidized rate.

  • Audit of the Fuel Consumption Account (“ContaConsumo de Combustível”): confirmation of the need for the Account for the economic sustainability of the benefited regions and its growth due to losses in the isolated system.


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Successes and challenges of Brazilian regulation regulatory bodies Increased Competition

Successes

Challenges

  • Increased competition in certain sectors

    • Competitive energy contracts

  • Regulatory mechanisms for efficiency of natural monopolies

    • Power distribution sector regulatory system based on rate-of-return incentives

  • Improvement of rate setting process and information asymmetry

Examples of TCU’s participation

  • Monitoring of main power utility rate setting processes: recommendations for improving methodology (ex.: rate of return and capital costs)


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Successes and challenges of Brazilian regulation regulatory bodies Continuity of Service

Successes

Challenges

  • Guarantee of greater legal security of signed agreements

  • Reduced risk of undue state interference in prices and rates

  • Monitoring of financial health of concession

  • Investment planning

    • Security of supply (cost, sustainability)

    • Studies and Projects

    • Improved governance between energy and the environment

Examples of TCU’s participation

  • Topics of great import currently underway: Security of Supply


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Successes and challenges of Brazilian regulation regulatory bodies Fair Rate of Return

Successes

Challenges

  • Creation of rate setting mechanisms during performance of contract

    • Rate adjustments for power distribution and transmission

  • Improvement of economic feasibility studies in concession processes

    • Power transmission and generation

  • Strengthening of agencies’ technical capacity in economic regulation

    • Technical capacity building, budget, and contingency planning

    • Reduction of information asymmetry among agencies and utilities

Examples of TCU’s participation

  • Monitoring of concession processes: recommendations and orders for improving economic feasibility studies in various sectors (e.g. hydroelectric plants on the Madeira River and transmission lines).


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Successes and challenges of Brazilian regulation regulatory bodies Environmental Sustainability

Successes

Challenges

  • Development of mechanisms to manage environmental impacts in infrastructure sectors

    • Requirement of prior licensing as a requisite for competitive contracting in the power sector.

  • Coordination and integration of environmental policy among the various formulators and implementers of public policy

Examples of TCU’s participation

  • Environmental and energy audit conducted with government bodies: finding, among other things, that there are no government contact persons for social and environmental issues at the National Council for Energy Policy (CNPE).


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Conclusion regulatory bodies

  • With the assistance of TCU’s external government auditing, regulatory bodies in Brazil have made significant progress toward the healthy functioning of infrastructure sectors, including:

    • capacity to promote investments

    • incentives for productive efficiency – appropriate costs

    • control of market power abuse – “just and reasonable” rates

    • management of negative externalities (e.g. environmental impact)

    • promotion of positive externalities (e.g. coordination and optimization of network utilization, universal or expanded access)

    • protection of consumer rights (quality, information, health consequences, individuals with special needs, etc.)


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INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships

Tuesday 17-Thursday 19 March 2009


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