ASi" kUCTURE FlOR DEVELOPMENT

Providing suffident resources, autonomy, and though often monopoly) provision of infrastrcture
credibility for the. regulator
services has been the nonn. The United States,. rely-
* Where price regulation is necessary, choosing ing on federal and state commissions, has develinstruments
that encourage cost efficency in the oped a significant capacity for autonomous regularegulated
entity
tion. Although the process is remarkably open, it is
* Creating constituencies in the regulatory also characterized by adversarial relationships and
process.
litigation. Europe and Japan have had less experience
with explict regulation, since they rely on
RECULAmRY RESOURCES, AUTONOMY, AND CREDI- public monopolies, combined with regulatory and
BILITY. Regulation requires detailed knowledge and operatiortal responsibilities. Even when regulatory
continual monitoring of the activity concerned. The instruments such as price controls, technical stanregulatory
menu includes problem identification, dards, and entry licensing have been used, they
fact finding, rulemaking, and enforcemenL Regula- have been implemented by related ministries or intors
need to be able to shift course in order to antici- terministerial committees rather than by specific
pate or respond to changing conitions in the indus- regulatory agencies. The U nited Kingdom has retry.
They also need.operational autonomy within a cently moved .toward privatization and indepenbroad
policy mandate to ensure their effectiveness. dent regulation, and similar reforms are tking
Because doing all of this well requires a detailed place elsewhere in Europe. Developing countries
worldng knowledge of the industry, there is a strong have virtually no experience with regulation of pricase
for regulatory bodies to be specialized and au- ivate providers because their infrastructure entertonomous
public agencies, rather than general bu- prises have, in the main, been publicly owned and
reaucracies. But because sectoraly specialized agen- operated- An exception is Hong Kong, which is well
ces are more susceptible to capture by the known for its encouragement of private initiative
industry-and so are more likely to perpetuate reg- but which has a regulatory system that protects
ulation that favors incumbents-the regulatory consumer interests.
agency must be monitored as welL. A problem for developing countries is assem-
Much of the experience with statutory regulation bling experienced professionals to staff a regulatory
derives from North America, where the private (al- agency Regulators have limited resources and are
Box 3.7. The evolution of private power in the Thilppines
The Philippes evolutionary approach to attracting pri- menting rules and regulations-the law created a dearer
vate entrepreneurs in power generation is instructive. In legal basis for allowing entrv by private capital, though
July 1987 private power generation becane a deliberate still requiring tmnsfer of owrnership back to the governelement
of government policy and effectively signaled ment at the end of the concession period.
the end of the generating monopoly of the state-owsned The Philippines is also seeldng to streamline the pri-
National Power Corporation. Although the first project, vate powser solicitation process. Under preset arrange-
Hopewell Navotas I, was successfilly negotiated and ments, the effectiveness of project contracts depends on
conumenced operation in 1991, early dealings with other several conditions that must be met after the contracts
private proposalswere generally not fruitful. A proposal are signed. Delays or failures to meet certain conditions
for a 220-megawatt cogeneration plant did not proceed can jeopardize a project The National Power Corporabeyond
the negotiation stage in 1989, in part because of tion is seeking to establish model contracts. preapproved
inadequacies and inconsistencies in adminiistering regu- by concemed government agencies, to facilitate private
lations. The lessons from the failed effort helped ongoing participationL This arrangement is expected to enable inefforts
to improve regulatory and clearance procedures. vestbrs to proceed immediately from signing the con-
-After 1989, Philippine agencies associated with pri- tract to finalizing the financing plan.
vate power began to work in a more coordinated man- The urgency in creating new capacity in the Philipner
There was greater participation from the National pines led to expensive power generation. Early projects
Economnic Development Authority (which had played a used "peak-load" plants that can be installed rapidly but
key role in initiating the private power program) and operate at very high cost and are designed to serve only
more ranlIdng of priorities through the Investment Coor- for the few hours in the day when demand is very high
dinating Commnittee. A major improvement in the frame- Subsequent projects, p:epared under less time pressure,
work for reviewing and cdearing proposals was the 1990 have addressed this concern. At the same time, expenbuild-operate-transfer
law and its accomparying imple- ence has allowed project size to grow.
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