Table 6-3: Model 3 – Multi-Sector Regulator (MSR) [6.1.1]

Advantages

Disadvantages

  • Reduce risk of “industry capture” because the creation of a regulator with responsibility for more than one sector can help avoid the rule-making process being captured by industry-specific groups.
  • Reduce risk of “political capture” because a regulator with responsibility for more than one sector will necessarily be more independent of the relevant line ministries. The broader range of entities regulated by such a regulator will be more likely to resist political interference in a decision on, say, price regulation in one sector since that could set a precedent for other sectors.
  • Create more precedents, and therefore less uncertainty, for investors because a decision by an MSR in relation to one sector on a regulatory issue common to other sectors (e.g., the application of price cap regulation or cost accounting rules) will set a precedent that is valuable to potential investors in those other sectors.
  • Economies of scale in use of one set of high-caliber professionals (e.g., economists, lawyers, financial analysts). Such economies are particularly important during the early stages of liberalization and privatization in a transitional and developing country (TDC) when there is likely to be a scarcity of regulatory experience.

Other Advantages

  • Economies of scale in administrative and support services (e.g., computers, office space, support staff), particularly important where the costs of regulation can have a real impact on the affordability of basic services.
  • Flexibility in dealing with “peak load” periods, such as periodic prices reviews, where intensive regulatory expertise is needed which may spread across sectors if a multi-sectoral approach is adopted.
  • Economies of scale in the development and implementation of the regulatory authority whereby, for example, uniform rules on licence award or dispute settlement procedures can extend to more than one sector and, therefore, avoid the need to “reinvent the wheel” for each sector.
  • Transfer of regulatory know-how between regulators responsible for different sectors; again, this is particularly important when a country has limited experience in regulation.
  • Effective means of dealing with converging sectors (e.g., telecommunications and broadcasting where it is increasingly difficult to decide what is telecoms and what is a broadcasting service, for example video-on-demand, or telecommunications and posts, for example e-mail and fax re-mailing.
  • Effective means of dealing with the bundled provision of services (e.g., provision of both telecommunications and electricity by the same company) and with the coordination requirements between sectors (e.g., where companies from number of different sectors all need to dig up the same roads to construct their networks.
  • Avoidance of market distortions due to the application of different rules to competing sectors (e.g., electricity and gas, or road and rail).
  • Increase risk of “industry capture” by a dominant industry player not only of the single-sector regulator but of the entire MSR body.
  • Increase risk of “political capture” by a dominant ministry of not only the single-sector regulator but of the entire MSR body.
  • Increase the risk that a precedent set in relation to one sector could be applied inappropriately in another sector (although this can also be mitigated by creating strong sector-specific departments underneath a central cross-sectoral decision-making body).
  • Dilution of sector-specific technical expertise required where, for example, the skills of a tariff expert for one sector are not transferable to similar tariffing issues in another sector, or, for example, of a frequency engineer.

Other Disadvantages

  • Failure by the regulator cascades to other sectors.
  • Difficulty in achieving acceptance by relevant line Ministries of the concept of having an MSR.
  • Subsequent difficulty in achieving consensus from the relevant line Ministries on the type of MSR to be established.
  • Greater complexity in establishing the legal framework for the MSR, including the level of independence and allocation of functions as between the Minister and the regulator.
  • Potential delays in the reform process due to the disadvantages mentioned above.
  • Merging existing agencies may be problematic.

Source: World Bank

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