The Design and Performance of Regulatory Agencies: What can South Africa Learn from the Brazilian Experience?

In recent years, dozens of OECD and non-OECD countries have followed the United States in establishing strong autonomous regulatory institutions empowered with regulatory instruments and financial independence. Flexibility and agility are required to implement ad hoc policies through regulations, resolutions, and decrees. Their special status also responds to the need to operate efficiently in an environment characterized by technical complexity leading to a rise in the number of interested stakeholders; arbitrage conflicts and potential clash of interests with other government bodies; and the risk of regulatory capture, since the agencies repeatedly interact with a reduced number of private firms. They enjoy a quasi-judicial status, but unlike the judiciary which applies the law to facts, they are required to balance the interests of different stakeholders, and promote the development of the sector. The existence of these institutions is deemed necessary to make the regulatory framework credible and transparent and thus allow the mobilization of private investment on the scale required. Where the functions of owner, operator, and regulator of public utilities were previously carried out by government in its different manifestations (including state-owned monopolies), the new market-friendly environment requires a number of institutional changes with a view to separating and more clearly defining responsibilities for policy and planning, regulation, and service provision.

Latin America has been at the forefront of this trends, and indeed the need to carefully analyze what happens on the other side of the Southern Atlantic had already been identified by Alexander and Estache at the 1999 TIPS Forum. In this paper we wish to go a step forward with respect to the useful, but still rather general, issues raised on that occasion by examining the performance of Brazilian regulatory agencies in selected infrastructure sectors – electricity (Aneel), natural gas and oil (Anp) and telecommunications (Anatel) – in view of making policy proposals to improve the design and functioning of similar regulatory bodies in South Africa.1 Following Spiller (1993), “it is only through detailed analysis of the economic and political implications of the privatization experiences that we may obtain insights about the role different institutions have in determining the performance of the regulatory and ownership reforms” (p. 388).

In order to set a framework to anayze the performance of regulatory agencies, in the next Section we distinguish between regulatory governance and regulatory incentives (Levy and Spiller 1994). In Section III we sketch the main characteristics of the Brazilian regulatory experience and study the agencies’ relationship with other government bodies and state-level regulatory bodies, and in Section IV analyze the agencies’ most important decisions and draw some policy implications. The following Sections identify the main challenges open to South Africa in this domain and conclude