ASi" kUCTURE FlOR DEVELOPMENT

plus," or rate-of-return regulation, which ensures between alternative services is a formidable task.
that the financial return received by the provider Determiining an appropriate rate of return is also a
covers all costs (operations and maintenance, depre- source of much contention between the regulators
ciation, and taxes) and, in addition, guarantees a ne- and the regulated. Thiese problems encourage misgotiated
return on investment
representation of information and the adoption of
In recent years this instrument has come in for inefficient technologies that inflate the base on
much criticism. Rate-of-return regulation is difficult which rates of return are calculated; they also foster
to implement-obtaining accurate information on unproductive lobbying. Most important, because all
costs of production and the allocation of such costs costs are covered and a rate of return is guaranteed,
Box 3.9 Development of reglatory capacity in Argentina
Although a well-defined regulatory framework was ExIm CNT's inability to effectively address service
legally in place after the privatization of telecommunica- complaints.
tions, regulatorv practice did not conforn to the frame- Since mid-1993-ahnost three years after the beginwork.
Charged with regulatory responsibilities in ning of the rform process-4CT has inproved its per-
November 1990, the.Comisidn Nabonal de Telecmuni- formance, in particular with respect to the concerns of
caciones (CNI) did little until the end of 1991. ND dear consumer A team of outside consultants working with
reguiatory processes were developed, and a bacldog of CNT made progress in developing strategies and procedecisions
began to pile 'tp. Experienced staff were lack- dures. Moreover, aftersome early difficulties in the selecmg,
as wereresourcestohueaddiflonalstafforevenpay
tion process, CNTs top staff (6 directors) are now in
existing staff on a regular basis.
place. The selection was made bv an independent pri-
The outcome of these regulatory and staffing gaps vate recauitment company after a rigorous screening of
was that the development of new telecommunications 125 professionals, and its five nomninees were retained as
services proceeded slowly. This was due in part to CNTs directors, including the president The last director was
failure to formulate standards and processes for issuing proposed by the provinces.
licenses, maIking most of these services uneconomic Progress in Argentina's telecommunications sector
Meanwhile, a number of radio operators and telephone has been significant, and privatization has been able to
cooperatives, faced with little or no regulation, started move ahead in spite of the delays in implementing reguoperations
without licenses. Consumers also suffered latory changes.
.
Box 3.10 Jamaica's regulatory roller coaster for telecommunications
Jamaican telecommunications were initiaUy privately lished the Jamaica Public Utlity Commission in 1966.
run, then nationalized in 1975, and then reprivatized in Not onlv was the commission open to representations
1987. Investment under private ownership wkas strong from allinterested parties; the new system did not set a
until the 1960s and has been strong again since 1987. But floor on the returns that the utility could ean. In the
between 1962 and 1975 utility-government relations United States constitutional protections plus well-develwere
turbulent, and invesmnent levels were low.
oped rules of administrative process afford private utili-
Repeated shifts of power between tvo opposing po- ties substantial protection, even though the privatelitical
parties with divergent views have made it difficult utility commission system nominally gives regulators
to establish a credible regulatory regime that investors substantial discretion But Jamaica lacked these foundacould
rej on with confidence beyond another election. tions. It also lacked a cadre of well-trained regulators
Until 1962 the regulatory regime-including precise, en- and experience in delegating authority to a quasi-indeforceable
provisions on the rate of return the utility. pendent commission. Clashes between the utility and
could earn-was built into the utility's operating lcense. the commission ensued, culminating in the 1975 nation-
Because of Jamaica's strong, independent judidary, pri- alization of telecommunications.
vate participants were willing to invest, confident that After the 1987 privatization, Jamaica returned to its
parliament would not unilaterally change the terms of a pre 1962 regulatory system. It wrote into the operating lilicense
cense of the newly pnvatized utility a guarantee of a 17.5
The newly independent Jamaican government de- to 20 percent annual rate of return on equity, shielded
cided in 1962 that a precisely specified operating license from change except with the consent of the utiity, and
unacceptably constrained the democratic process. Using enforceable by the judidarv. The result was a surge in inthe
United States as a model, the govemment estab- vestment and substantial welfare gains for Jamaica.
69