Knowing the FIELD for infrastructure and service regulation at local level: actors, information, incentives Firenze| 31 October 2014 Performances in the Water Sector: Benchmarking, Regulation Drivers & Information Sharing Franco Becchis, Turin School of Local Regulation 1
THE DESIGN • Is the local dimension relevant for regulation? • Are there peculiar critical aspects in local regulation? • Do we need a new approach? 2
The local case: improper costs of regulation NPVy = f ( α , net, θ) net = f (HLD) P n ∈ N HLD > P n ∈ N HLD C HLD > C HND 3
Traditional economics wins • Game theory • Incentive based contract theory • Mechanism design 4
Traditional economics fails • Network • Relationships • Institutions • Legacy 5
6 Ronald Coase, Oscar Williamson, Douglass North, Elinor Ostrom . Models of regulation and typologies of transactions cannot be merely transplanted from an institutional context to another. Institutions matter! Concepts of incentives, incentive- compatibility in information transfer, mechanisms for information disclosure Framework of Incentives to Empower Local Decision-makers A multidisciplinary methodology for the analysis of local actors, incentives and information endowment that surround and lie behind the success or the failure of local services, infrastructures and projects, defining the playing field where their implementation and regulation takes place. Institutional Economics Game Theory & Mechanism Design Political Economy e.g. concept of Instrumental use of Analysis Erving Goffman . Social settings, networks by individuals; centrality index; ‘front stage’ and ‘back stage’, in quantitative analysis; measuring the which the front stage plays a power within a network of players performance meant to manage the impressions of an audience Aims to situate development interventions within an understanding of the prevailing political and economic Social Network processes in society (incentives, relationships, distribution Sociology and contestation of power) all of which greatly impact on Analysis & Social Physics development outcomes.
THE MATRIX - FIELDS Categories of players Players’ Incentives Information endowment Information exchange Types of relations 7
8 Categories of players • Politicians • Public officials • Market actors (non-financial) Players’ incentives • Market actors (financial – local or national/international) Institutional & Shadow • Lobbies • Efficiency in provision of the service • Consumer organizations • Profit • Administrative tribunals • Market share (administrative,procedural, budget conflicts) • Effectiveness and quality • Consumers / final users • Equity / redistribution / accessibility • Electoral consensus • Consensus • Political control • Religious control • Ethnic control • Maintaining / increasing own budget • Financial public budget constraints • Legacy (NEW)
9 Information endowment Information on: • Operational costs • Investment costs • Physical assets • Revenues (NEW) • Demand side (NEW) Direct ownership (resident) vs indirect ownership (NEW) (non-resident, through transmission) of information? In case of indirect ownership, what are the costs to obtain information? Information exchange (NEW) Nature: mandatory (check, sanctions) control voluntary uses Truth revealing incentive compatibility? (Yes / No) Truth revelation mechanisms?
Types of relations • Appointment • Election • Lobby pressure • Strong political influence • Corruption • Command • Control • Regulation: price, quantity, quality, accessibility, distributional • Sentences / rule of law / judicial enforcement • Assignment • Business relationship (NEW) • Market power (NEW) 10
1. High degree of subjectivity (some solution tested, e.g. focus groups: see the case of district heating in Turin; or pools of referees?) 2. Difficulty to compare case studies that are economically and socially different 3. At the time being FIELD is a static snapshot of the situation. How to include the time dimension? Policy-oriented tool 11
THE CASE STUDIES ANALYZED SO FAR THIS PRESENTATION FOCUSES ON: • Belgrade (Water) • Sofia (Water) CAIRO (Egypt) Classification: Lower-middle income economy (WB) -- Regulatory framework: WWS sector --> Egyptian Water Regulatory Agency 12
Under reform Source: LORENET State and Local governments Bulgaria Serbia through Water Associations Water Service Operators State Who has the ownership of waterworks and plants? State Local governments Local governments If applicable, who is in charge of tendering the Municipalities and the State Municipalities administration services? Water Associations to existing WSO, or will choose concessioners By law: up to 99 years. On average: up to 35 ys. What is the average duration of concessions? Can Renegotiation is possible. Existing case: 25 ys they be re-negotiated? In practice: no experience in the Renegotiation: yes water sector. Water Service Operators, Municipalities and public Who manages the service? generally public companies. companies 2011 Law on Public Private One case of PPP Partnership and Concessions, but limited in No. It exists (one case in scope by the Law on Sofia), but this model is not No Is PPP a common practice in the Country? Communal Services and common. difficult to be applied for low capacity of local public Who regulates tariffs, profits/revenues and so on? The State Energy and Water The Government sets a reference policy-makers Regulatory Commission price, local authorities set tariffs. Water Associations with the support of Water Service Op. The Directorate for Water of the Water services operators with Ministry of Agriculture, Forestry & Who plans investments? approval by the regulator Water Management and local authorities Customer bills (+) Customer bills (mainly) and What is the structure of revenues? EU funds (-) subsidies 13
BELGRADE: PLAYERS & INCENTIVES 14
Public bodies Belgrade | Water sector Players Market operators International financial institutions Belgrade and donors Waterworks and Consumers and their organizations e.g. WB, IFC, Sewerage EBRD Public operator, founded by the City Int ’l Financial Institutions (WB, IFC, EBRD) Central Govt Water Council (potentially) Private Consultative bodies operators / PPPs Not existing yet Consumers National Conference on Water Local Govt Foreign Investors Consumer organizations
Belgrade | Water sector 1.Efficiency Players’ Incentives (first 3 in 2.Profit 3.Market share the rank) Public 1.Consensus Operator 2.Efficacy & quality 3.Efficiency 1.Equity 2.Efficacy & quality Int ’l Financial 1.Consensus 3.Efficiency Institutions 2.Efficacy & quality 3.Efficiency 1.Profit Central 2.Market share Govt 3.Efficiency Water Council 1.Equity (potentially) Private 2.Efficacy & quality operators / PPPs 3.Consensus 1.Efficacy & quality 2.Efficiency 3.Equity Consumers National Conference 1.Market share Local Govts on Water 2.Profit 1.Consensus 3.Efficiency 2.Equity Foreign 1.Equity 3.Efficacy & quality Investors 2.Efficacy & quality Consumer 3.Consensus organizations
Electoral consensus Belgrade | Water sector 5 th Political control Players’ Incentives 4 th Bureaucracy (Maintaining / increasing own budget) (shadow) Public Financial public budget constraints Operator 4 th 6 th Int ’l Financial 4 th 5 th Institutions 5 th Central Govt Water Council (potentially) Private operators / PPPs 4 th 5 th 4 th 6 th Consumers National Conference on Water Local Govts 4 th Foreign Investors Consumer organizations
SOFIA: PLAYERS & INCENTIVES 18
Public bodies Sofia | Water sector Players Market operators Sofiyska International financial institutions and donors Voda Consumers and their organizations PPP operator. Now Municipality Int’l Financial of Sofia (22.9 %) and the French Institutions company Veolia Water (77.1 %). EBRD Central Govt National Veolia Regulator Water International operator Consumers Political Parties Local Govts Consumer organizations
1.Profit Sofia | Water sector 2.Market share Players’ Incentives 3.Efficiency Sofiyska Voda 1.Profit 1.Political control 1.Profit 1.Equity 2.Electoral consensus EBRD 2.Market share 2.Political control 3.Public budget constraints 3.Efficiency 3.Bureaucracy Central Govt National Veolia Regulator Water 1.Efficiency 2.Efficacy 1.Electoral consensus 1.Political control 3.Equity 2.Public budget constraints 2.Electoral consensus 3.Efficacy & quality Consumers Political Parties Local Govts Consumer 1.Efficiency organizations 2.Efficacy 3.Equity
COMPARISON ON WEIGHTED TOTAL INCENTIVES Weight given to each incentive according to the position in the ranking: 1 st position: 8 | 2 nd position: 4 | 3 rd position: 3 | 4 th position: 2 | 5 th position: 1 21
BELGRADE: SOME RELATIONSHIPS 22
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