copy the linklink copied!Assessment and recommendations

This Performance Assessment Review looks at the external and internal governance arrangements of the Supervisory Agency for Investment in Public Transport Infrastructure of Peru (Organismo Supervisor de la Inversión en Infraestructura de Transporte de Uso Público, OSITRAN), and presents policy recommendations that aim to improve the performance of the regulator.

OSITRAN is one of four economic regulators created in the 1990s to oversee Peru’s transition to a liberalised economy. OSITRAN delivers on its mandate of overseeing private investment in the transport sector by supervising concession contracts awarded by the Peruvian state. The technical capacity of the regulator is recognised by stakeholders, and OSITRAN has been entrusted with the responsibility of supervising an increasing number of sectors over the years on account of its reputation to deliver (the total volume of contracts supervised by OSITRAN has evolved from USD 3.1 billion in 2006 to USD 15.2 billion in 2018). As many public entities in Peru, OSITRAN operates today in a highly complex environment due to recent corruption scandals that have rocked the Peruvian state and society, and have eroded overall confidence in public institutions. The regulator’s leadership has put in place a number of measures to address the need to rebuild trust internally and with stakeholders. For these efforts to bear fruit, the bar needs to be set high in order to successfully reset the identity and internal culture of a focused and high performing regulator and to foment a relationship based on confidence, predictability and stability with all stakeholders. The institutional maturity of Peru’s regulators in general is an opportunity for the achievement of these goals and may also be a chance to lead by example within the Peruvian public administration at this challenging time.

copy the linklink copied!Role and objectives

Status and mandate

OSITRAN shares the same legal framework as three other sector regulators created in the 1990s that places some limits on its autonomy. At its creation in 1998, OSITRAN was granted with technical, administrative, economic and financial autonomy but the regulator was placed under the Ministry of Transport instead of being created as an arms-length agency. In 2000, Law No. 27332 (Framework law on regulatory agencies for private investment in public utilities, Ley marco de los organismos reguladores de la inversion privada en los servicios públicos, LMOR) recognised the technical, administrative, economic and financial autonomy of all four Peruvian economic sector regulators1 and placed them under the Presidency of the Council of Ministers (Presidencia del Consejo de Ministros, PCM). These sector regulators, while autonomous to a degree, depend on the PCM for approval of internal procedures such as changes to internal organisation or staff travel.

OSITRAN was created in 1998 to oversee private investment in transport infrastructure for public use and the sectors under its purview have expanded over the past twenty years. At its creation, the regulator was given a mandate in four sectors (airports, ports, railways, roads) and granted powers to supervise concession contracts, set and review tariffs and provide non-binding technical opinions on transport infrastructure of national scope. In 2011, the supervision of passenger public services in the Lima and Callao Electric Transport System (the Lima metro) was added to OSITRAN’s portfolio. The latter is the only sector in which it regulates the provision of services, but without the ability to set and review passenger tariffs, a ministerial competence. In 2017, the supervision of the country’s first waterway, the Amazonian Waterway, was added to OSITRAN’s portfolio.

OSITRAN has an important role in the supervision of the Public-Private Partnerships (PPP) that govern most of Peru’s transport infrastructure but contracts are written and awarded by other actors. Contracts are awarded by the Ministry of Transport and Communications (Ministerio de Transportes y Comunicaciones, MTC) and written by ProInversión, in co-ordination with MTC. These contracts may be co-financed by the state or self-sufficient relying solely on private investments. Since 2018, a new design process of PPP contracts allows OSITRAN to emit opinions on initial versions of contracts; previously, this has only been possible ex post once contracts had been negotiated and finalised. The OSITRAN Board of Directors must issue a prior technical opinion on concession contracts at the request of ProInversión, as well as on any contract amendments at the request of the MTC. While these opinions are not binding, the regulator reports that its opinions are mostly taken into account. By law, OSITRAN holds the exclusive power to interpret contracts in case of dispute. Generally, tariffs are set by concession contracts and therefore principally by ProInversión and MTC, but in a few cases contracts assign this function to OSITRAN during implementation (for example, in the case of three road concession contracts, OSITRAN defines the level of tolls).

In delivering on its mandate, OSITRAN covers many functions which may spread its resources too thin. In carrying out its mandate supervising concession contracts, OSITRAN supervises the efficiency of public works (in the case of co-financed investments) and is responsible for monitoring the delivery of investment and the quality of services. More recently, it has also strengthened its focus on empowering and better informing users of transport infrastructure, as evidenced by its current strategic framework (Figure 1). While all of these activities are relevant to the overall performance of transport infrastructure, there may be scope for a more strategic focus and targeted use of OSITRAN’s specialised resources on outcomes (i.e. investment and quality of service). This is even more relevant in a context of restricted resources and central government austerity measures.

OSITRAN counts with a good technical reputation but its identity has been scarred by serious corruption scandals involving infrastructure investments in Peru over the past decades. Serious and far-reaching corruption scandals have rocked Peru since 2018 regarding contracts awarded by the state. Many of these have involved the transport sector. These scandals has implicated the highest levels of government and some cases have directly involved OSITRAN, although final investment decisions have not been taken by the regulator. The untangling of the massive webs of corruption in Peru and across the Latin American continent has eroded trust in public institutions and has also impacted OSITRAN’s identity and internal culture. The regulator has begun addressing gaps in staff morale but more needs to be done to bring staff together behind a common sense of purpose. The creation of a proud and united institution that counts with ambitious pro-integrity and anti-corruption measures can elevate OSITRAN above the blows it has been dealt over the years and form the basis for rebuilding trust with external stakeholders.

Recommendations

  • Revise the mission and vision of OSITRAN in a participatory manner for a more inspiring, uplifting and unifying future for the regulator. This opportunity can be used to launch a “new beginning” for the agency and form the basis for both a strengthened internal culture and more effective and trust-based relations with external stakeholders. This revision will need to be headed in a unified manner by the leadership and senior management of OSITRAN and solicit an empowered participation of staff from all levels of the organisation.

  • Consolidate a strategy that aims to boost OSITRAN internal culture and identity. This will include continuing initiatives such as “Diagnóstico Cualitativo y Cuantitativo de brecha Cultural” and “Plan de Alineamiento Cultural en OSITRAN” but also bringing them under one coherent policy that is easy to understand by staff, easy to monitor and that will be reported on to staff in a transparent manner, focusing as much as possible on impact and outcomes (changes in attitude or behaviour) rather than on input (number of trainings, etc.).

  • Devise and implement a communications strategy and plan for the new vision, mission and strategic framework of OSITRAN, with distinct activities and goals for internal and external stakeholders. The strategy will need a dedicated budget and resources for implementation.

  • Implement a clear strategic focus of OSITRAN’s activities on outcomes for the sector, economy and society. This will include a more targeted use of the regulator’s constrained and technical resources. This might include assessing how some supervision works can be delegated to third parties or could be directly implemented by concessionaires, applying the principles of evidence-based, selective, risk-focused and proportionate inspection and enforcement activities (Box 1).

  • Ensure that OSITRAN’s increased focus on users relies on an assessment of potential impact on workload (for example, in the area of consumer complaints) and that the approach to user protection is aligned across OSITRAN departments. It would also be essential to co-ordinate with other public entities with responsibilities in this area.

copy the linklink copied!
Box 1. Organisational renewal at the Canadian Transportation Agency (CTA)

In the fall 2015, the leadership of the Canadian Transportation Agency (CTA) identified a need for organisational renewal. This reflected the fact that despite being characterised by high levels of expertise and professionalism, the CTA did not have a strong sense of common purpose, was not particularly dynamic or agile, and had relatively low "name recognition," even though it delivered important services to the public and stakeholders. Three steps were taken over the next 18 months to address these issues: 

  • First, a reorganisation was designed and implemented to cluster functions in ways that minimised role confusion, de-layer management, improve analytical capacity, and foster greater internal collaboration and more nimble responses to external developments.

  • Second, the CTA's mission was re-articulated around three core mandates: helping ensure that the national transportation system runs smoothly and efficiently, protecting the fundamental rights of persons with disabilities to accessible transportation, and providing consumer protection to air passengers.

  • Third, drawing on past descriptions of organisational objectives but reflecting current needs, four strategic priorities were established: a modern legislative and regulatory framework, excellence in service delivery, public and stakeholder awareness of the CTA's responsibilities and services, and a healthy, high-performing organisation.

Throughout these renewal efforts, the CTA's Chair and Executive Committee engaged staff regularly, giving them multiple and meaningful opportunities to provide input and shape outcomes, while sustaining momentum and emphasising simple, clear, compelling language.

This process resulted in increased motivation and productivity within the CTA, and to greater visibility and credibility with the public, stakeholders, partners in government, and the media.

Source: Information provided by the CTA, 2019.

copy the linklink copied!
Box 2. Bringing the organisation together to embrace the mission, vision and principles at Mexico’s Agency for Safety, Energy and Environment (ASEA).

Created in 2015 after the structural reform of Mexico’s energy sector, ASEA was a new agency under pressure to create a new regulatory framework in a limited amount of time. It was important to ensure every member of staff understood the mission, vision and guiding principles of the regulatory authority. The focus was to ensure every ASEA member felt pride in his or her work. Messaging was centred on the importance of ASEA’s work: saving lives and protecting the environment, whilst enabling a new era of economic and social development in the country. The process included introductory talks and courses on “the ASEA way of doing things”, both for new personnel, as well as those already working in the agency.

During a two and a half week process, staff were organised in groups of 10-15 persons and were exposed to the fundamentals of the institution in sessions that covered different areas of work of the agency: its mandate, strategic framework (mission, vision and objectives), guiding principles, internal processes, risk-based regulatory model and organisational structure. Some of the heads of department were responsible for delivering these short courses. The induction process would end, for each group, with a conversation with the Executive Director. The Executive Director would explain his personal understanding of ASEA’s mission, vision and principles and would ask the participants to explain their own understanding of these. At the end of these meetings, the Executive Director would ask the group to stand up and confirm if they were ready to commit to these concepts and carry out their work according to the guiding principles.

Finally, every ASEA member would add their signature to the “Commitment Wall” (the main wall in the boardroom), where the mission, vision and principles were displayed.

This process was highly valued by ASEA´s personnel as they felt it was a genuine and personalised strategy that helped build a sense of community and belonging.

Source: Information provided by ASEA, 2019.

Institutional co-ordination

Responsibilities for the planning and regulation of transport infrastructure and services are shared between many public bodies with limited structured co-ordination in place, hindering transparency and predictability. Policy for the transport sector is set by the Ministry of Transport and Telecommunications (Ministerio de Transportes y Comunicaciones, MTC). ProInversión designs the contracts in co-ordination with MTC, a process to which OSITRAN can contribute through non-binding technical opinions. OSITRAN regularly interacts with Indecopi on consumer protection and competition matters. Since 2018, the Comptroller General of the Republic (Contraloría General de la República, CGR), the supreme audit institution, is among the public bodies requested by law to provide opinions on draft contracts. Moreover, CGR interacts with OSITRAN when carrying out its ex post audit functions. Up to now, with no structured mechanisms in place, interaction with other entities is informal and often depends on personal relationships. This complex governance system creates potential overlaps and in some areas, lack of clarity around respective roles, in the negotiation and supervision of concession contracts.

copy the linklink copied!
Table 1. Public administration bodies involved in the transport infrastructure sector

Authorities

Mandate

Interactions with OSITRAN

 

ALL SECTORS

MTC

To design, regulate and implement the promotion and development policy in the transport sector.

The MTC sets sectoral policy, as well as performing the role of the grantor of concession contracts. The MTC can request OSITRAN to provide comments and opinions in relation to the legal and contractual framework under the regulator’s scope of action.

ProInversión

Specialised technical body attached to the MEF, responsible for the promotion of national investments through public-private partnerships (PPPs) in services, infrastructure and other state projects.

OSITRAN participates in processes under PPPs. ProInversión designs concession contracts in co-ordination with MTC. OSITRAN is requested to provide non-binding opinions for the approval of concession contract projects.

General Comptroller of the Republic (CGR)

Highest authority of the national control system. Supervises, monitors and verifies the correct application of laws and public policies, as well as the correct use of state resources and assets.

The CGR regularly interacts with OSITRAN through OSITRAN’s Institutional Control Body (OCI). The head of OCI functionally responds to CGR. OSITRAN has powers to supervise, enforce and interpret concession contracts. When exercising control body functions, the CGR interacts with OSITRAN. In addition, CGR must issue a non-binding opinion about the first drafts of contracts under PPPs.

Congress

Unicameral legislative branch of 130 members

Requests OSITRAN to provide comments on issues of draft laws.

PORTS

APN

Technical body attached to the MTC responsible for the development of the port sector. APN supervises compliance with ports operational and security aspects.

APN can request OSITRAN to issue non-binding opinions relating to the port sector, and vice versa. In the port sector, regulated entities are supervised by both APN and OSITRAN.

Indecopi

Independent regulatory body aimed at both providing competition and consumer protection. Assessment of competition conditions in the framework of tariff setting for port infrastructure.

Port regulations state that Indecopi is empowered to establish whether the market has competition conditions within the framework of port tariff setting procedures.

PUBLIC TRANSPORT

Urban Transport Authority for Lima and Callao (ATU)

Technical body attached to the MTC, responsible for planning, regulating, managing and supervising the operation of the Lima and Callao Integrated Transport System. This body was created in 2019 and absorbed ATTE (agency that was responsible for managing the Electric Transport System).

ATU plans, regulates and supervises the operation of the Lima Metro. OSITRAN supervises compliance with concession contract provisions.

Superintendence of Land Transportation of People, Cargo and Merchandise (SUTRAN)

Technical body attached to the MTC, responsible for supervising compliance with regulations for land transport and transit services of national scope.

While OSITRAN supervises transport infrastructure of public use, SUTRAN supervises transport services. There is ad hoc co-ordination when vehicles carrying heavy cargo can affect both transport infrastructure and transport services.

Source: Information provided by OSITRAN, 2019.

Little predictability of requests by the Ministry creates stress on the regulator’s resources. In general, interactions between the regulator and the line ministry are fluid and MTC regularly (both formally and informally) requests technical opinions from the regulator. The MTC normally provides OSITRAN with 10-15 days to respond to its requests, which gives little time to plan and creates pressure on the resources of regulator. It may be challenging for the regulator to comply in a timely manner and OSITRAN reports that it often needs to ask for extensions to be able to respond.

Recommendations

  • Advocate for more structured and effective co-ordination among public entities involved in the planning and supervision of transport infrastructure and private investment, in the interest of promoting predictability, transparency and trust, in a manner that upholds the independence of OSITRAN’s regulatory decisions.

  • Actively push for the creation of a MTC-OSITRAN co-ordination platform for the purpose of giving advance notification of future requests from MTC that the regulator will have to respond to. In addition to creating a predictable and transparent work programme, this platform should be used to discuss and define a longer period for the preparation of technical opinions by the regulator (currently 10-15 days).

  • Formalise existing successful operational co-ordination with other public agencies through protocols, regular working groups or Memoranda of Understanding, providing more structured and permanent co-ordination mechanisms.

  • Advocate for establishing a collaborative relationship with the CGR, in order to safeguard independent regulatory decisions while complying with control body requirements. This relationship should be based on a clear definition of roles and the need to safeguard the autonomy of regulatory decision-making.

  • Set up a forum of economic regulators of Peru to harmonise external communication on the role of economic regulators, share good practices (e.g. the use of regulatory management tools), and jointly advocate for governance-related topics as relevant. The leadership of the group could rotate between the regulatory authorities and the group should aim to focus on concrete deliverable and activities, rather than setting up a bureaucratic system of collaboration.

  • Seek to participate in or create instances for sharing of experience with other sector regulators, beyond the national level. This could involve seeking to create an informal group to share experiences between transport regulators across the Americas, or another relevant group of countries for Peru such as APEC.

copy the linklink copied!
Box 3. Examples of forums of economic regulators in Australia and in France

In Australia, the Utility Regulators Forum aims to facilitate the exchange of information, understanding of the issues faced by regulators, consistency in the application of regulatory functions and the review of new ideas about regulatory practices. The newsletter of the forum is published quarterly and contains articles on common challenges, summaries of recent journal articles on regulatory matters, and updates on regulatory decisions.

In France, the Club des Régulateurs provides a forum for both established and new economic regulators to share common problems with a few thematic meetings every year, most recently on issues of data privacy and data handling. It is hosted by a third party, currently an academic institution.

Note: For more information see: https://www.accc.gov.au/about-us/consultative-committees/utility-regulators-forum and http://chairgovreg.fondation-dauphine.fr/fr/club.

Source: Public information, 2019.

Strategic objectives

OSITRAN sets out its strategic objectives for a four year period via a participative internal process and makes this framework available on its website. The regulator’s strategic objectives are set through the Strategic Planning Commission (Comisión de Planeamiento Estratégico Institucional) that is led by the President of OSITRAN’s Board of Directors and includes all senior management. The members of the Board of Directors are not part of the Commission and do not take part in setting the objectives and the strategic planning of the institution, nor does the process involve consultation of external stakeholders. The Strategic Institutional Plan (Plan Estratégico Institucional, PEI) is the main reference framework for the management of its internal activities and is operationalised via an annual work plan (Plan Operacional Institucional, POI) and Strategic Institutional Actions (Acciones Estratégicas Institucionales, AEI).

copy the linklink copied!
Figure 1. OSITRAN Strategic Objectives 2019-2022
Figure 1. OSITRAN Strategic Objectives 2019-2022

Source: (OSITRAN, 2019[1]).

Recommendations

  • Update the strategic framework of OSITRAN (PEI) to follow the new vision and mission of the regulator.

    • Include internal teams, Board members as well as external stakeholders in the definition of the new strategic objectives for enhanced ownership and understanding of the framework.

    • Focus the strategic framework on a few objectives that are clear in their wording and inspiring to staff. The objectives should include economy, sector, or society-wide goals as well as objectives closer to the regulator and its processes.

    • Make sure that objectives are SMART: specific, measurable, achievable, relevant, and time-based.

    • Define a clear and accessible (for example, with a focus on plain language) reporting and communications strategy around the new strategic framework, with a dedicated budget.

  • Prioritise objectives and actions systematically across the short, medium and long term, thereby providing a timeline for actions and targets in the PEI.

  • Continue carrying out evaluations of the PEI to prioritise its actions and resources effectively to achieve the objectives.

copy the linklink copied!
Box 4. The inclusive and collaborative process to establish a strategic framework at Ireland’s Environmental Protection Agency (EPA)

The EPA has a long history of strategic planning with the first strategic plan published in 1998. Both the plans and the process for making them have evolved over time with greater emphasis on consultation and engagement both within the EPA and with external stakeholders.

EPA operates in the framework of a strategic plan 2016-2020 “Our Environment, our Wellbeing” which sets out the EPA’s goals to be:

  • a trusted environmental regulator

  • a leader in environmental evidence and knowledge

  • an effective advocate and partner

  • responding to key environmental challenges

  • organisationally excellent.

The strategy making process was the most collaborative ever undertaken by the EPA. The Director General, in consultation with the senior management team and staff of the EPA, sets the objectives. Input from the EPA advisory committee is also considered. EPA’s senior management conducted four workshops between November 2013 and November 2014 to establish the grounds of the strategy work.

A draft of the 2016-2020 strategic plan was published on the EPA website for public consultation. The EPA published a summary on its website of the major issues that were raised through the consultation and an explanation as to how the EPA responded to the points that were raised (http://www.epa.ie/pubs/reports/other/corporate/occs/Consultation Issues Response.pdf).

The 2016-2020 strategic plan was submitted to the former Minister for Environment, Community & Local Government. The EPA corporate governance manual states, “a copy of the draft strategic plan should be sent for views from the Minister or Department who should have up to 12 weeks to comment”.

In 2018, the EPA carried out a mid-term review of the 2016-2020 strategic plan through a collaborative process involving over 40 members of staff. The review resulted in amendments to the objectives and to the outcomes. A number of actions were also revised.

Source: Information provided by the EPA, 2019.

copy the linklink copied!Input

Financial resources

OSITRAN is mostly funded by resources received from the regulated sector but this income is decreasing and the regulator feels it is underfunded. LMOR establishes that all regulatory agencies will be financed by the regulated sector up to 1% of operators’ income (aporte por regulación). For OSITRAN, Supreme Decree No. 104-2003-PCM sets contributions at the maximum 1% level since 1 January 2004 (while in other sectors, regulators receive under 1% of sector income). The same level applies to all transportation sub-sectors under the purview of OSITRAN except for the Lima metro where OSITRAN receives up to 2% of income. In real terms, between 2017 and 2018, OSITRAN’s initial annual budget declined by 15%. According to OSITRAN, this can be explained by a decrease in industry income on the one hand, and by a low budget execution by OSITRAN in the previous years on the other hand. The latter taken into account by MEF when deciding OSITRAN’s budget allocation. OSITRAN’s budget execution fell below 80% in 2016 and 2017 (from almost 100% in 2015) due to a change in leadership in 2017. This trend combined with other contextual factors has led to the regulator feeling that its activities are under-funded.

copy the linklink copied!
Table 2. OSITRAN annual budget and execution, 2015-18
Expressed in million PEN

Year

2015

2016

2017

2018

Initial budget

66.5

84.0

93.8

79.9

Supplemental funds

N/A

6.0

-1.4

4.7

Modified institutional budget (PIM)

N/A

90

92.4

84.6

Execution of initial budget (%)

96.2

79.4

78.8

97.2

Execution of modified institutional budget (%)

N/A

74.1

80

91.8

Notes: Initial budget is sourced from funds collected from the regulatory contributions levied to regulated entities. Supplemental funds are approved by MEF.

Source: Information provided by OSITRAN, 2019.

Budget availability and autonomy in managing resources are limited by central government rules and recent austerity measures. Since 2017, the Ley de Equilibrio Financiero requires all public entities to transfer surplus funds to the Treasury if not executed in a given fiscal year. Government has renewed this measure for 2018 and 2019. Previously sector regulators could retain unspent funds and carry them forward to finance activities over the next years freely. Since OSITRAN’s budget execution has sometimes been below 80%, unspent funds have been forwarded to Treasury. This practice limits the autonomy of the regulator in managing its resources and directs income from regulated entities towards funding general government activities rather than those of the regulated sector. In addition, the PCM has decision over some budgetary allocations, including approval of trips abroad for institutional representation. The latter are currently limited by austerity measures.

The regulator’s budget is limited by caps defined in law rather than according to the principles of cost recovery. The Multi-annual Budget Allocation (APM) is communicated by the MEF on the basis of projected income from industry. The Planning and Budget Department (Gerencia de Planeamiento y Presupuesto, GPP) of OSITRAN prepares a budget proposal, with reference to the POI and historical performance and taking into account inputs from internal departments. Nevertheless, the total amount of budget is set according to the available resources mainly received from the industry contributions, rather than an estimation of the costs related to the delivery of the regulator’s mandate.

Recommendations

  • In light of funding uncertainty, ensure adequate prioritisation of activities during the budgeting and planning phase when establishing annual work plans (POI); a clearer strategic focus on outcomes may provide an opportunity for this practice.

  • Introduce principles of cost-recovery of regulatory activities, used by many economic regulators in OECD countries, into the budgeting exercise.

  • If and when budget surpluses currently transferred to the Ministry are returned to the regulator, increase transparency around the use of funds over the following financial cycle. This practice will be important in showing that unused funds collected from industry are not retained over a long period of time by the regulator but rather, are quickly recycled into funding activities that will benefit the sector or, as far as possible, are used to decrease financial burden on regulated entities following a cost-recovery model.

  • Document and share the direct impacts of the central administration constraints and measures that impact on OSITRAN’s funding model, financial management and activities.

  • Engage in a documented and evidence-based discussion with relevant stakeholders on the need for additional resources when new functions or tasks are assigned to the regulator (e.g. Lima Metro concession supervision).

  • Based on the principle of using income from industry to recover the costs of regulatory activities, advocate with other economic regulators for a review of financial and human resource legal constraints, including cap limits, ministerial decision over budgetary allocations, absorption of carry forward from the budget of economic regulators, etc.

copy the linklink copied!
Box 5. Cost-recovery budgeting in Ireland (CRU) and Canada (CER)

Ireland’s Commission for Regulation of Utilities (CRU)

The CRU is funded entirely through levy and licence fees from relevant electricity, gas, petroleum safety, and water industry participants. Levies from market participants comprise the bulk of the CRU’s income. The CRU sets its own budget without requiring government participation, and is defined annually on a cost-recovery basis in the fourth quarter of the year, on the basis of an estimate of CRU operating and capital budget required for the next year. There is no direct government contribution to the CRU budget and the regulator’s annual budget is approved by the Commission without approval or ex ante assessment by the Oireachtas.

Annual budgets for the electricity, gas, petroleum and water are allocated by the CRU to each sector. Revenues, expenses and capital expenditure directly incurred by each sector are recorded in the separate budgets of the electricity, gas, petroleum and water sectors. Shared costs are allocated to each sector in proportion to the staff numbers engaged in the relevant sector. Costs linked to shared administrative functions such as finance, HR, IT, and Communications are pooled for all sectors.

Where annual expenditures exceed revenue, the balance is offset against the levy income for the subsequent year. The balances for the electricity, gas, petroleum and water sectors are recorded in their respective accounts, and audited on an annual basis by the Office of the Comptroller and Auditor General, which reports to the Public Accounts Committee of the Oireachtas. The CRU also conducts an annual internal audit, which is outsourced to an audit company). Moreover, based on a risk assessment, a contingency fund is defined on a yearly basis to provide flexibility to deal with potential legal challenges or costs linked to safety cases or events. Any excess of revenue in the financial year is taken into account in determining the levy for the subsequent year per sector. The CRU can carry unspent funds over to the following year’s budget without review or approval from external government entities.

Canada Energy Regulator (CER)

The CER’s Cost Recovery Regulations set out the manner in which the CER determines the costs related to carrying out its mandate and the process for recovering all or a portion of those costs from the companies it regulates. Currently, the CER’s cost recovery system is premised on commodity charging costs that are allocated to specific entities within those sectors (oil – oil pipelines, gas – gas pipelines, etc.). While the CER performs the administrative functions of calculating, billing and collecting cost recovery levies from industry, it does this on behalf of the Government of Canada and does not have respendable revenue authority, rather, companies pay their share of recoverable costs to the Consolidated Revenue Fund of Canada and the CER receives its funding through an annual appropriation process through Parliament.

The CER has a Cost Recovery Liaison Committee, which is composed of the staff from the regulator and representatives of the regulated companies. The purpose of this committee is to:

  • provide industry with a thorough understanding of CER costs,

  • provide a forum to raise issues or concerns related to the cost recovery processes and methods; and,

  • discuss the Cost Recovery Regulations.

Source: Information provided by CRU and CER, 2019.

Managing human resources

OSITRAN reports a high level of voluntary departures and is implementing measures to reverse this trend. Voluntary resignations have been the leading cause of staff turnover between 2015 and 2018 with 18% of staff resigning annually (overall turnover is at 21.5%). Resignations are high among technical staff, posing problems for the continuity of highly specialised work on PPPs. While OSITRAN staff is recognised as highly capable, staff are not always trained to cover the different sectors under OSITRAN’s purview; moreover, staff have expressed their frustration with respect to the training system in a staff survey. OSITRAN acknowledges this challenge and is implementing measures to address it. For example, the “Cultural Alignment Plan” and “Talent Management and Development Plan 2019-2022” contain key recommendations on recruitment and the selection process, induction, performance management, trainings and social welfare of staff. OSITRAN is also implementing a national recruitment programme for engineering, economics and law graduates through internship programmes often leading to full employment to attract the best-qualified candidates.

Contracts, salaries and other benefits of OSITRAN staff are governed by three parallel systems that may undermine staff motivation and HR practices. The three labour regimes are governed by three distinct regimes (Laws 728, 1057 and 30057). As of September 2019, 45% of staff (139 out of 310) work under labour regulations for the private sector, not commonly offered in public entities (Law 728). The 728 regime offers open-ended contract term with full benefits. The number of positions is fixed, meaning that recruitments can only be made when a 728 position has been vacated. 55% of OSITRAN employees (171 out of 310) work under non-permanent positions governed by law 1057, a regime for “Administrative Service Contracting” (Contratos Administrativos de Servicios, CAS) that offers non-permanent employment on a fixed-term six-month contract that can be renewed without limit. Contracts in the last six-months of the year must end in December and be renewed in January. The CAS regime also offers less employment benefits, such as insurance or pensions, in contrast to the 728 regime. A new labour regime was created by SERVIR (30057) in 2013 as an administration-wide project seeks to create a unified employment regime for all public officials. OSITRAN currently applies this new regime only to the President of the Board of Directors. According to OSITRAN, migration to SERVIR regime would imply a decrease in salary for staff currently employed under the Law 728 regime.

As allowed by law and practiced across Peruvian public entities, many senior management positions at OSITRAN are filled outside public and competitive selection process. The President and GM appoint 23 senior management positions outside the usual public competitive selection process and without term limit. Eighteen senior managers are appointed under the “puestos de confianza” modality in application of Supreme Decree 084-2016-PCM and five senior managers are directly appointed in application to the Public Employment Framework Law. Three senior staff positions are appointed by other public entities (Head of the Institutional Control Body, Public Prosecutor, Deputy Public Prosecutor). This practice, while allowed by law and governed by OSITRAN’s human resource manuals, may create a sense of lack of transparency in hiring and appointments.

Recommendations

  • Level the playing field for staff between the different employment regimes by advocating for the implementation of one unified regime with similar benefits. The creation of a unified employment regime system will be one of the conditions for the creation of a unified and motivated staff. While this unification may need to be progressive, an early move in this direction will send the right signal to staff.

  • Advocate with other economic regulators that any migration to the SERVIR regime should not imply a decrease in salary for any staff.

  • Implement transparent and open requirements and recruitments for all posts in the regulatory authority, including the senior management.

  • Continue the implementation of the performance assessment system that links staff objectives and a human resources policy based on performance recognition and the improvement of skills recognition.

  • Develop and implement an offer of trainings to addressing current needs and future expectations in collaboration with existing staff and maintain technical expertise.

  • Develop and implement a broader benefit employment package to make OSITRAN an attractive place to work.

  • Continue investing in recruitment strategies in order to remain an attractive choice for new graduates.

  • Monitor the implementation of the “Cultural Alignment Plan” and “Talent Management and Development Plan 2019-2022” and report on results to staff.

  • Share good practices and results in terms of talent retention and staff well-being across Peruvian national administration and other regulatory authorities.

copy the linklink copied!
Box 6. Remuneration policy independent of civil service salary policy in Portugal, Water and Waste Services Regulation Authority (ERSAR)

ERSAR is entitled by law to have a different remuneration policy from other civil servants. The salary of the members of the Board is established by a remuneration committee, under the terms defined in the Framework Law for Regulatory Entities, which is composed of three members: one appointed by the Ministry of Finance, one appointed by the Ministry responsible for the economic activity which ERSAR regulates (environment) and one appointed by ERSAR (Article 23 of ERSAR statutes). The determination of the remunerations is made according to the complexity of the sector, the remuneration benchmark within the regulated industry and other relevant criteria.

Source: Information provided by ERSAR, December 2019.

copy the linklink copied!Process

Governing body and decision making

The Board of Directors, led by the President, is the regulator’s decision-making body and is called on to fulfil a wide variety of principally executive duties, with limited resources. The President of the Board holds a full-time executive position, while other four Board members only serve on a part-time basis. The part-time members are remunerated for two mandatory board meetings per month and the law expressly forbids additional remuneration (the President works and is remunerated on a full-time basis). Part-time Board members make decisions based on reports provided by OSITRAN management three days prior to Board meetings and can consult technical staff in case of questions, but they do not count with dedicated supporting staff. Requests can be made for the Board to meet exceptionally by the President or a majority of Board members. Due to the little time to meet monthly, board meetings are dominated by operational and technical matters, rather than strategic planning. The Board also approves the PEI, the POI, the initial institutional budget, the general balance sheet and the audited financial statements, as well as the Accountability Report.

The members of the Board are appointed for staggered five-year terms following a process involving different actors from the Peruvian executive. As of September 2019 the Board is composed of four members, one of whom is its President, two lawyers, two engineers and one economist. In the past ten years, there have been two women on the OSITRAN board. Board members are selected by a multi-step process that includes review by an inter-institutional selection committee, submission of selected candidates to the President of the Republic by the President of the Council of Ministers, appointment by the President of the Republic by Supreme Decree, and finally endorsement by the PCM, MEF and MTC.

OSITRAN is managed by the President of the Board, with the support of the General Manager (GM). The President appoints the GM without open recruitment and can remove them from the post at their discretion. The GM is responsible for the administrative, operational, economic and financial responsibilities of OSITRAN, implementing the policies established by the Board and the President. The GM also manages, co-ordinates and supervises OSITRAN’s departments. Together, the President and General Manager chair a weekly meeting with OSITRAN senior management. A large number of decision-making functions are concentrated in these two executive positions, placing very high expectations on the individuals and centralising risk for the organisation.

OSITRAN has placed an emphasis in becoming paperless; this drive could be expanded to overall digitalisation and standardisation of processes for a modern and transparent regulator. Current leadership of the regulator has set ambitious targets with regard to moving away from an analogue mode of working. These efforts could be continued with a digitalisation of all internal and regulatory processes, in an effort to alleviate burden on regulated entities and for more operational efficiency. Moreover, decision-making by technical staff could be made more predictable and transparent by a standardisation, as far as possible, of criteria used in decision-making, such as the issuance of technical opinions or interpretations. The interface between efficient digital processes and predictable criteria would make a case for a modern and predictable regulatory authority.

Recommendations

  • Ensure that the resources and structure of the Board of Directors reflect its mandate and duties. More specifically ensure that the Board is able to weigh in on strategic matters and the overall direction of the regulator. This could include ensuring the participation of the Board in the elaboration of OSITRAN’s strategic framework, or quarterly strategic retreats that could bring together Board members and senior management, as necessary with external perspectives.

  • Ensure that Board members have sufficient time, resources and advice to engage in decision-making. This may include:

    • Provide Board members with succinct and consolidated information ahead of meetings to support more informed decision-making, with sufficient time to review briefings and documents ahead of meetings (more than the current three days).

    • Consider strengthening existing and, where necessary, allocating additional advisory and support resources to Board members. This could include assessing the possibility of creating a dedicated advisory secretariat to the Board.

    • Consider proposing specialisation and responsibility for certain strategic and technical areas that could rotate between Board members.

  • Ensure diversity of inputs and opinions in the decision making process. This may include:

    • Develop opportunities for strengthening the challenge function in decision making.

    • Include analysis of alternatives and justification for proposed decision for matters presented to the Board when proportional to the decision being weighed.

    • Consider delegating some of the decisions that are currently concentrated between the President of the Board and the General Manager.

  • Continue efforts to digitalise and standardise processes:

    • Build upon recent digitalisation and process engineering efforts to make procedures and communications with regulated entities fully digital.

    • Standardise consistent criteria for analysis (opinions on contracts, amendments, application of penalties, etc.) as far as possible and issue them as Board resolutions for maximum transparency and predictability.

Integrity and conflict of interests

OSITRAN has expressed a strong commitment to being a leader within the Peruvian public administration with regard to anti-corruption and it has gone beyond central government requirements to achieve this goal. The current national context highlights the importance of strong measures across the public sector to promote a culture of accountability and transparency. OSITRAN has adopted a number of initiatives with this in mind. These include:

  • In February 2019 the regulator adopted an anti-bribery policy and created two reporting mechanisms,2 one concerning allegations of corruption accessible to OSITRAN staff and the public and another for general allegations concerning concessionaires accessible to the public. Both mechanisms are implemented by the head of the human resources department and are placed under the responsibility of the General Manager.

  • A 2019 Presidential Resolution provides general ethical principles for OSITRAN staff, including bribery and conflicts of interest prohibition.

  • OSITRAN obtained the ISO 37001 “Anti Bribery Management System” certification in 2019.

  • A compliance officer in charge of the effective implementation of the anti-bribery policy has been designated in May 2019.

  • Awareness raising activities include training sessions for new employees, and emails sent to staff.

  • Like all public entities, OSITRAN is governed by the ethical principles of the Civil Service Ethics Code (Law No. 27815) and has to implement the institutional integrity model (modelo de integridad) and the Offices or Officers of Institutional Integrity as foreseen in the Anti-corruption Policy of the government (Decreto Supremo 092-2017-PCM) and the resolution No. 001-2019-PCM/SIP of the Secretariat of Public Integrity of the Presidency of the Council of Ministers. Some provisions of the Law deal with conflicts of interest, but not with undue influence specifically.

  • OSITRAN is further required to publish on its website a list of all private meetings held with regulated entities, detailing the names and roles of participants, aspects discussed and any conclusions reached. However, explicit protection of engagement processes against potential conflict of interest is lacking. Capture and conflicts of interest through engagement processes should be avoided to guard against pressures from special interests.

The stated strategic importance of these measures is currently undermined by an apparent lack of articulation in their implementation and communication on results. The current measures combine a series of public administration wide requirements and specific measures adopted by OSITRAN. They are accompanied by some training, but there appears to be little monitoring of the results of awareness raising, with monitoring focusing on inputs (i.e. number of training sessions). Moreover, persons currently dedicating time to advancing the integrity and anti-corruption agenda inside the organisation appear to do on top of their “day jobs”. While this ensures buy in from several areas of the organisation, it puts pressure on resources and may undermine the strategic importance of this agenda for OSITRAN’s leadership.

Recommendations

  • Consolidate the various integrity, anti-corruption and ethics policies and initiatives of OSITRAN under one umbrella. This consolidated strategy (“Institutional integrity model”) should have one over-arching goal and clear objectives and targets, aiming high above central government requirements.

  • Consolidate the Whistle-blower protection and reporting mechanisms and policies.

  • Develop, as part of the Institutional integrity model, a dedicated OSITRAN Code of Conduct in line with the OECD Recommendation on Public Integrity.

  • Develop and implement a policy approach to conflicts of interests of participants that may arise in stakeholder engagement processes in order to safeguard against capture.

  • Ensure consistent and continuous support and communication of the goals and implementation of the Institutional integrity model and Whistle-blower policy from the leadership and OSITRAN senior management. This should include consistent messages from the top (i.e. newsletters, top-level speeches to employees, company intranet, memos, social media, etc.) and also leading by example in disclosing potential conflicts of interest and behaving in a transparent manner. This could start with simple measures such as re-signing a disclosure of potential conflicts of interest on a yearly basis or every time a new process starts.

  • Develop and implement a comprehensive internal communications and training strategy as part of the Institutional integrity model and Whistle-blower policy aiming to raise awareness of existing measures and ensure buy-in; it should also report in a transparent manner on results and activities. Adequate resources should be assigned to the design and implementation of communications and training activities.

  • Assign specialised resources and staff to the implementation of the strategy, including a dedicated staff member to lead its implementation (“Chief Integrity Officer”). In addition to dedicated staffing, sufficient financial resources should be assigned to: awareness-raising activities for staff and regulated entities, training, oversight, monitoring and review of the Institutional integrity model and Whistle-blower policy to ensure effective implementation in line with the OECD recommendations on the offices of institutional integrity in Peru (Box 8).

copy the linklink copied!
Box 7. Stakeholder ethics registry at Spain’s National Authority for Market and Competition (CNMC)

In 2016, the Spanish regulatory and competition authority, created a public, free and voluntary transparency register. This register is an institutional mechanism with the objective of increasing transparency on external contributions to activities developed by CNMC. Provided that external inputs can support appropriate decision making by the regulator, the register makes visible which interests are being pursued, by whom and with which budgets. In this way, the register allows for public scrutiny, giving citizens and other interest groups the possibility to track the activities of lobbyists.

Any party related with the activity of CNMC could become part of the transparency register, including companies, professional associations, trade unions, consultants or law firms.

Being part of transparency register implies, in addition to complying with legal framework, the fulfilment of an ethical code that includes the following commitments:

  • Inform CNMC staff on the interests represented.

  • Accept that part of the information dealt in the meeting will be published.

  • Avoid actions that could create a conflict of interest to CNMC staff.

  • Avoid leading CNMC staff on breaking the law by offering presents or services that could challenge their integrity.

  • Refrain from obtaining confidential information by dishonest actions in the relationships with CNMC.

Despite being voluntary, CNMC transparency register accounts 519 companies or association since its creation including 286 companies, 120 consultancies or 104 non-government associations.

Source: Information provided by the CNMC, 2019.

copy the linklink copied!
Box 8. Offices of institutional integrity in Peru

In Peru, the National Plan of Integrity and Fight Against Corruption 2018-2021 (PNILC) lay the foundations for a coherent integrity system in public sector entities Peru with the implementation of the Offices of Institutional Integrity (OII). These Offices or Officers of Institutional Integrity have the potential to become key actors in order to assure the implementation of an organisational culture that cultivates integrity, adopted in the context of every public entity and also ensuring a coherent framework. The OECD report on the offices of institutional integrity in Peru recommends that the OIIs should focus on the prevention of corruption and promotion of integrity within their organisation.

The OIIs should promote integrity culture and co-ordinate efforts to implement the Institutional integrity model in all public entities. Specifically, it is recommended that OIIs perform the following functions:

  • Support public officials in the identification of integrity and corruption risks and advice units in the selection of effective and efficient controls.

  • Lead the incorporation of integrity measures in public entity plans.

  • Take part in Internal Control Committees and contribute from there to the joint monitoring of internal control.

  • Communicate public integrity matters both internally, to all employees, and externally, to stakeholders and users of the institution’s services. This includes communicating the progress of the implementation of the integrity model at the entity level and the results of evaluations.

  • Raising awareness among public officials on public integrity matters and reminding them about their obligations.

  • In co-ordination with the Office of Human Resources, support the development of an internal integrity training plan and assure the implementation thereof.

  • Advise and guide public officials on doubts, ethical dilemmas, conflict-of-interest situations regarding complaint channels and existing protective measures and other aspects of integrity policies.

  • Monitor the implementation of the institutional integrity model aided by the Secretariat of Public Integrity.

  • Monitor the follow-up on whistleblower reports and the use of protective measures. This includes assuring that units responsible for receiving complaints, investigating and sanctioning have adequate personnel and perform their functions promptly and effectively.

  • Collect information on complaints and sanctions as a source of information in order to focus preventive measures more specifically. For example, concentrate certain training or communication activities in areas or processes that generated more complaints than others.

  • The public entity could designate the OII to be in charge of the application of the Law of Transparency and Access to Public Information (Law 27806). If it were to be decided that these two areas are to be kept separate, co-ordination between integrity and transparency needs to be assured.

In order to fulfil their functions effectively, the Officer or OIIs could report directly to the head of the entity and have certain degree of administrative and financial autonomy. Likewise, they should work in close co-operation with Secretariat of Public Integrity of the Presidency of the Council of Ministers, in charge of implementing the integrity policies in Peru.

Source: (OECD, 2019[2]), Offices of Institutional Integrity in Peru.

Regulatory quality tools and practices

Ex ante and ex post assessments

OSITRAN has been a pioneer amongst government agencies in Peru in implementing regulatory impact assessments (RIA), along with other sector regulators, contributing to predictability and trust in the regulatory process. In response to the 2016 OECD Regulatory Review of Peru, the PCM began developing a Regulatory Quality Assessment (RQA) framework that requires a RIA for regulations that add administrative processes. OSITRAN, independently and in parallel, developed and released in 2018 the manual “Regulatory Impact Analysis Handbook” with guidelines for applying RIA to all regulatory decisions. As of February 2019, one full RIA was completed, two other RIA were underway. The alignment of the central government framework and the regulator’s one will be key for success going forward, and the regulators overall will need to engage with PCM to ensure their lessons in using good regulatory practices are taken on board in national frameworks.

OSITRAN has reviewed its entire stock of regulations in accordance with the PCM Regulatory Quality Assessment (RQA). The Technical Secretariat of Multi-sectorial Regulatory Quality Commission validated twelve out of fifteen administrative procedures that were submitted for analysis under the RQA on November 2018. In April 2019, a new RQA regulation was approved.

Recommendations

  • Maintain momentum towards the full implementation of the new RIA system and continue to make efforts to improve regulations on an on-going basis.

  • Use the lessons learned from evaluating the entire stock of regulations to extend ex post evaluations as a consistent and automatic component of policy making at OSITRAN.

Stakeholder engagement

The regulator’s increased focus on consumer protection and user satisfaction has been translated into regular and purposeful stakeholder engagement. OSITRAN counts with several national and regional statutory Users Councils that report high levels of satisfaction in engaging with OSITRAN through existing procedures and mechanisms. The President of the Board of Directors convenes the election of the members of the User Councils for a biannual period and the User Protection Department (GAU) acts as a Technical Secretariat during these User Council sessions. The regulator convenes at least two ordinary sessions of the Users Councils per year to provide relevant information on the implementation of the infrastructures under concession, and to gather the main requests submitted by the members of the User Council. The Agenda is prepared in co-ordination with the President or the GM as appropriate.

OSITRAN consistently engages with regulated entities through mandatory written consultations and public hearings on tariffs and regulatory projects, but there is no systematic early stage consultation. Consultations can take place either before or after deciding to issue a regulation. Private hearings shall also be held with the service-providing entities and user representative organisations at their request to share comments on tariff proposals. OSITRAN is supposed to systematically prepares a matrix of comments that assembles stakeholders’ comments with an evaluation on whether and how they are considered.

OSITRAN places a high priority on transparency in its activities and decision making. OSITRAN is committed to publishing all regulatory, supervisory, and normative decisions on its website supported by the relevant non-confidential information used to render the decisions. It publishes information on its activities on its website, including the list of meetings held and of people met, and uses social networks to disseminate informative material to a wide audience. Finally, entities and Users Councils are satisfied with the availability and accessibility of data and information used by the Board to make decisions.

Recommendations

  • Share Users Councils’ experience and good practices with other Peruvian regulators and internationally.

  • Align to best practice in consultation by systematically providing feedback to comments received.

Supervision, enforcement and inspections

OSITRAN is entrusted with supervising compliance with all obligations of 32 concession contracts making prioritising and resource management challenging. The regulator supervises a large number of obligations from 32 concession contracts in five different sectors, including for public works. The regulator considers that permanent on-site inspections are the best strategy to fulfil this mandate. In consequence, OSITRAN devotes a high percentage of its resources for supervision and inspections (in fact, out of 310 staff, 125 focus on inspections and enforcement). Given the important amount of resources needed for these activities, the PEI 2018-2022 establishes as one of the seven strategic objectives ‘to optimise supervision and inspections activities’.

When prioritising, the regulator often responds to user complaints and also gives priority to inspecting breaches of key contract obligations. According to the Annual Supervision Plan 2019, the regulator prioritises supervision and inspections activities that secure the adequate provision of services for users. This plan describes the types of inspections, the “service level standards” (niveles de servicio) and the supervised obligations per infrastructure and concessionaire. Nevertheless, it lacks a clear prioritising strategy and a risk-based approach that would be more aligned with international best practice in this area.

Supervision, enforcement and inspections are core functions of OSITRAN and regulated entities perceive OSITRAN as a sanctioning authority. The Budget of the Inspections and Enforcement Department represent 43% of OSITRAN Modified Institutional Budget and 40% of OSITRAN staff work in this department. While OSITRAN can give the opportunity to correct an infraction without applying sanctions and penalties, the regulator relies highly on sanctioning for enforcement. However, the regulator acknowledges the importance of strengthening the role of prevention and compliance, and aims to achieve a strategy where sanctioning is the last option. Regulated entities have expressed that they would like to receive more guidance from OSITRAN concerning operational policies covering compliance as well as enforcement and decision reviews in general and how their compliance with regulations and contracts will be monitored in particular. This would contribute to the regulated entities having confidence and understanding of what is expected from them and how their compliance will be monitored, judged and enforced in the event of breaches of the law or contract.

Recommendations

  • Improve the efficiency of supervision, enforcement and inspections by better prioritising the use of public resources. Strive to become a proactive supervisory agency with a clear prioritising strategy that considers a risk based-approach.

  • Increase efficiency by adopting a compliance-driven and risk-based supervision, inspections and enforcement strategy and using solutions offered by regulatory technology (regtech).

  • Alleviate burden on OSITRAN staff by continue enhancing use of third party actors and self-reporting mechanisms, as well as using solutions offered by digital and electronic tools.

  • Continue reviewing methods in the sanctioning process to promote compliance while using sanctions as a last resort, aiming to achieve desired behaviours rather than punishing regulated entities.

  • Continue standardising consistent criteria for analysis (opinion on contracts, amendments, application of penalties, etc.) when possible, and issue them as Board resolutions for maximum transparency and predictability.

  • Consider organising awareness raising activities for regulated entities on how their compliance with regulations and contracts will be monitored (e.g. forums, media dissemination material).

  • Develop guidance material to aid understanding of this matter and support regulated entities to achieve compliance with contracts and regulations.

  • Make available operational policies covering compliance as well as enforcement and decision reviews.

  • Build on the Annual Supervision Plan to develop an Enforcement and Compliance Strategy to ensure more transparency on inspections and their outcomes. For example, the regulator could use the outcome of sanctioning administrative or judicial processes (once they are finalised) to encourage other regulated entities to improve their practices. The strategy could reflect annual enforcement priorities to inform decision making.

copy the linklink copied!
Box 9. OECD best practice principles: regulatory enforcement and inspections
  1. 1. Evidence-based enforcement. Regulatory enforcement and inspections should be evidence-based and measurement-based: deciding what to inspect and how should be grounded on data and evidence, and results should be evaluated regularly.

  2. 2. Selectivity. Promoting compliance and enforcing rules should be left to market forces, private sector and civil society actions wherever possible: inspections and enforcement cannot be everywhere and address everything, and there are many other ways to achieve regulatory objectives.

  3. 3. Risk focus and proportionality. Enforcement needs to be risk-based and proportionate: the frequency of inspections and the resources employed should be proportional to the level of risk and enforcement actions should be aiming at reducing the actual risk posed by infractions.

  4. 4. Responsive regulation. Enforcement should be based on “responsive regulation” principles: inspection enforcement actions should be modulated depending on the profile and behaviour of specific businesses.

  5. 5. Long term vision. Governments should adopt policies and institutional mechanisms on regulatory enforcement and inspections with clear objectives and a long-term road-map.

  6. 6. Co-ordination and consolidation. Inspection functions should be co-ordinated and, where needed, consolidated: less duplication and overlaps will ensure better use of public resources, minimise burden on regulated subjects, and maximise effectiveness.

  7. 7. Transparent governance. Governance structures and human resources policies for regulatory enforcement should support transparency, professionalism, and results-oriented management. Execution of regulatory enforcement should be independent from political influence, and compliance promotion efforts should be rewarded.

  8. 8. Information integration. Information and communication technologies should be used to maximise risk-focus, co-ordination and information-sharing – as well as optimal use of resources.

  9. 9. Clear and fair process. Governments should ensure clarity of rules and process for enforcement and inspections: coherent legislation to organise inspections and enforcement needs to be adopted and published, and clearly articulate rights and obligations of officials and of businesses.

  10. 10. Compliance promotion. Transparency and compliance should be promoted through the use of appropriate instruments such as guidance, toolkits and checklists.

  11. 11. Professionalism. Inspectors should be trained and managed to ensure professionalism, integrity, consistency and transparency: this requires substantial training focusing not only on technical but also on generic inspection skills, and official guidelines for inspectors to help ensure consistency and fairness.

Source: (OECD, 2014[3]), Regulatory Enforcement and Inspections, OECD Best Practice Principles for Regulatory Policy, Paris, https://doi.org/10.1787/9789264208117-en.

copy the linklink copied!
Box 10. The ACCC’s compliance and enforcement strategy
In Australia, the Australian Competition & Consumer Commission (ACCC) has developed a compliance and enforcement strategy that is communicated to all stakeholders. The agency uses four integrated strategies to achieve the compliance objectives:
  • Encouraging compliance with the law by educating and informing consumers and businesses about their rights and responsibilities.

  • Enforcing the law, including resolution of possible contraventions both administratively and by litigation and other formal enforcement outcomes.

  • Undertaking market studies or reporting on emerging competition or consumer issues with a view to identifying any market failures and how to address them, and to support and inform the compliance and enforcement measures and identify possible areas for policy consideration.

  • Working with other agencies to implement these strategies, including through co-ordinated approaches.

The ACCC is selective in the matters to investigate and the sectors in which the agency engages in education and market analysis. The ACCC uses annual compliance and enforcement priorities to inform decision making in this regard.

In deciding which compliance or enforcement tool (or the combination of such tools) to use, the first priority is always to achieve the best possible outcome for the community and to manage risk proportionately. The ACCC’s enforcement actions seek to maximise impact across an industry sector. For example, the agency uses the outcome of one court proceeding to encourage other industry participants in the sector to improve their practices.

The ACCC’s role is to focus on those circumstances that will, or have the potential to, harm the competitive process or result in widespread consumer detriment. The ACCC therefore exercises discretion to direct resources to matters that provide the greatest overall benefit.

Each year the ACCC reviews the compliance and enforcement priorities. Priorities are determined following external consultation and an assessment of existing or emerging issues and their impact on the regulated matters. The ACCC publically announces its priorities in February each year. The priorities are released with the aim of promoting market wide compliance with the law and to manage public expectations regarding the ACCC’s ability to take on additional matters outside its priority areas. A number of key stakeholders in Australia actively respond to the ACCC’s announcement of the priorities and take active measures to improve compliance.

Source: Information provided by ACCC, 2019.

Appeals

Citizens and businesses have access to an administrative review system that is part of OSITRAN, but appeals can be very lengthy and there have been delays in the appointment of members of the dispute resolution bodies. The different appellate bodies housed within OSITRAN are staffed with lawyers and engineers to hear and rule on matters presented to them. However, the appointment of some of them is pending. The Controversies Court Settlement members must be appointed by PCM and two out of five members have not been nominated. On the other hand, the Administrative Affairs Tribunal was created as second instance for appeals against sanctions imposed by GSF (e.g. sanctions for non-compliance with service level standards). Its members must be appointed by the Board of Directors at the proposal of OSITRAN’s President. To date, the members of the Administrative Affairs Tribunal have not been appointed and its functions fall under OSITRAN’s General Management. Complaints can be filed by consumers and citizens easily via the OSITRAN website.

Recommendations

  • Advocate for the timely nomination of dispute resolution members by PCM and the Board of Directors.

  • Advocate for the simplification of the current administrative review system. This simplification should apply best practices in the area of administrative justice (expert, streamlined and efficient) and could be carried out with other Peruvian regulators that have similar institutional dispute resolution bodies.

copy the linklink copied!Output and outcomes

Assessing the performance of the regulated entities

OSITRAN collects a vast amount of data and information from regulated entities, and produces regular statistical reports. The Statistical Declaration is the main tool used by the regulator to collect information from the regulated entities. To date, more than 16 000 forms of statistical declarations have been filed by the service-providing entities. OSITRAN reports on the contracts under its supervision through a number of different channels including a monthly bulletin that summarises relevant data (traffic, income, trends) in four sectors (not waterways) that are published on its website; more detailed bi-monthly statistical reports that include information for each concession contract. The sectoral statistical reports provide a good picture of the evolution of the main indicators over time for each concessionaire in a transparent manner.

OSITRAN manages a wealth of data and feels that it lacks sufficient resources to manage them in a systematic manner. Despite the large size of available information, OSITRAN does not have the relevant IT tools that would allow to manage a database bringing this data together. Moreover, while the regulator publishes regular reports and working documents on traffic and income linked to concession contracts, it does not appear to turn this data into information or evidence that could be used to guide decisions linked to regional development and policies. OSITRAN is very aware of these challenges and is currently implementing information technologies to efficiently manage statistical information on entities performance.

Recommendations

  • Use the wealth of information held by OSITRAN to engage with concessionaires on delivery, for example through yearly public events, as well as to formulate evidence on the performance of concessions to the executive in favour of improved regulation and policy.

  • Adopt a comprehensive approach to data management to avoid burdensome data flows and improved data interfaces with regulated entities.

  • Continue implementing information technologies to efficiently manage statistical information on regulated entities and sector performance.

  • Strengthen IT and analytical tools across all departments, and more particularly in GSF and GRE that are in charge of reviewing the information and producing reports and indicators.

copy the linklink copied!
Box 11. Data collection and stakeholder engagement at the Hungarian Energy and Public Utility Authority (HEA)

The Hungarian Energy and Public Utility Authority (HEA) regulates the energy and public utility market in Hungary, supervising sectors of strategic importance such as electricity, natural gas, district heating, water utility supply and waste management. HEA’s competences include licensing, supervision, price regulation, consumer protection and energy statistics.

As an official statistical body, the HEA performs tasks related to national energy-statistics and complies with data reporting obligations to national and international bodies and organisations. The HEA compiles the monthly and annual energy statistics and requires a large amount of detailed data from regulated entities. As part of the National Statistical Data Collection Programme, the HEA liaises with around 5 700 data suppliers.

In 2019, the HEA received questions from stakeholders, regarding its reporting and data collection activities regarding the water sector. In this process, the HEA acknowledged that it was putting too much burden on data providers and it used this information to change its data collection strategy. The HEA organized several meetings during the year with the association of service providers in the water sector and reviewed its datasets. As the result of the review process, the HEA simplified its datasheets and reduced the amount of data collected from the service providers. The HEA also decided to hold regular workshops and direct meetings with the regulated stakeholders in order to help them to provide correct and reliable data. The first report that takes into account these comments will be published in 2020.

Another example for stakeholder engagement is the assessment of consumer’s satisfaction. The HEA’s predecessor, the Hungarian Energy Office first started surveying the consumer’s satisfaction level in the field of electricity and natural gas more than 20 years ago. This activity has been a legal requirement in the energy sector and this practice was put into legislation after the regulator got its competencies in the water sector. Since 2016 the HEA also carries out an assessment of the user satisfaction level in the water sector and district heating.

The HEA regularly publishes how it monitors companies to build a better relationship with them and to learn from international experience.

Source: 13th OECD Network of Economic Regulators, http://www.mekh.hu/introduction.

Assessing the performance of the regulator

OSITRAN has defined an institutional strategic plan which does not include objectives for the sector or sector policy. The seven objectives of the strategic plan (Plan Estrategico Institucional, PEI 2019-2022) are classified in two categories: first order priorities (type 1) and second order priorities (type 2). In PEI 2019-2022 the three main priorities of the institution (type 1) are focused on optimising enforcement and inspection activities, optimising the regulatory function for the benefit of citizens and strengthening protection rights. The objective number 7 (to implement disaster risk management) is a requirement set by National Centre for Strategic Planning (CEPLAN) rules and is required in strategic frameworks of all public bodies in Peru. Only one objective (4. Strengthen citizen’s and stakeholder’s knowledge of OSITRAN’s role) looks at external impact and the rest focus on OSITRAN processes and own performance (management or intermediate objectives), making for an imbalanced strategic framework.

copy the linklink copied!
Table 3. OSITRAN strategic objectives and indicators, according to OECD input-process-output-outcome framework

Priority

Strategic objective

Indicator

Type of indicator

1

To optimise supervision and inspection activities (OEI.03)

Supervision and inspection efficiency index

Process

1

To optimise the regulatory function for the benefit of users and citizens (OEI.04)

Regulatory function compliance index

Process

1

To strengthen user rights protection (OEI.05)

User protection index

Output

2

To strengthen stakeholders and citizens knowledge of OSITRAN's role (OEI.01)

% of knowledge of OSITRAN

Outcome

2

To optimise its organisational development (OEI.02)

Organisational development index

Process

2

To efficiently manage institutional resources (OEI.06)

Resources management index

Input

2

To implement disaster risk management.

Number of implementation reports

Process

Source: OECD analysis based on OSITRAN’s strategic objectives.

Each strategic objective has a number of “strategic actions” (acciones estratégicas) with an indicator per action. The PEI includes a matrix per strategic objective, which includes the description of the strategic objective and its main indicator, as well as the strategic actions and its indicators. Measurement can be complicated due to the large number of indicators (41). In addition, the strategic action indicators are greatly focused on the implementation of activities, plans and projects. Monitoring is carried out twice a year, at mid-year and year-end review.

copy the linklink copied!
Table 4. Example of main aspects of a strategic objective matrix
Strategic Objective (OEI) No. 2

Code

Description

Name of the indicator

OEI.02

To optimise organisational development

Organisational development index

Strategic actions (AEI)

AEI.02.01

Strengthened organisational culture

% of implementation of the Plan for Strengthening organisational culture

AEI.02.02

Optimised strategic, operational and support processes

% of optimise processes

AEI.02.03

Strengthened in-person user protection

Number of enquiries attended to by ‘deconcentrated offices’

AEI.02.04

External supervision contracts efficiently managed by OSITRAN

% of efficient selection processes

AEI.02.05

Implementation of OECD Regulatory Policy Standards

% of implementation of the OECD Regulatory Policy Standards Plan

AEI.02.06

Knowledge management system

% of implementation of the Knowledge Management Plan

AEI.02.07

Digitalisation of processes and services

% of digitalised processes

Source: OSITRAN PEI 2019-2022.

OSITRAN has devoted great effort to elaborating several sophisticated indicators, but their monitoring may be under-utilised for transparency purposes. While OSITRAN is not required to report on these indicators, the regulator could use them to communicate on its performance to public authorities and the public, rather than using them mainly for internal management purposes. Given the internal focus of the objectives and indicators, the focus of monitoring activities misses the opportunity of linking OSITRAN performance to sector performance (and thus the impact of OSITRAN activities on the quality of services or economic growth).

OSITRAN is accountable to Congress, while being overseen by PCM; there is room for continuing efforts to put in place more transparent and predictable performance reporting. In early July 2018, OSITRAN issued an internal resolution to require the President of the Board to submit the annual report to Congress, as part of its Regulatory Improvement Policy. There are two ordinary committees in Congress directly related to OSITRAN: The Consumer Defence Commission for Regulatory Agencies and the Transport and Communications Commission. In April 2018, OSITRAN submitted to Congress the first performance report but it was not discussed at a dedicated session in either Committee.

Recommendations

  • Develop outcome-focused performance indicators for newly visited strategic framework and assign time-bound targets to KPIs.

  • Develop a small number of KPIs that capture the quality and impact of process/activities with focus on delivery of investment, service quality, and high level sector performance.

  • Continue monitoring the indicators twice a year and use the results for transparency purposes for the benefit of stakeholders and citizens.

  • Continue efforts to strengthen reporting and engagement with Congress, as well as the wider public.

copy the linklink copied!
Box 12. Key performance indicators

Key performance indicators (KPIs) provide a means to measure whether organisations are performing in relation to their strategic goals and objectives. A manageable number of well-designed KPIs give a clear picture of current levels of performance and can aid decision-making. Each KPI should be clearly linked to a strategic objective and accompanied by a target or benchmark.

Indicators of output from regulatory activity capture whether regulatory decisions, actions and interventions are effective (e.g. decisions taken which were upheld). Indicators of direct outcomes or the impact of outcomes could include, for example, compliance with the regulator's decisions.

Indicators of wider outcomes ("watchtower" indicators) can be included as learning (rather than accountability) indicators. These could include, for example, service and infrastructure quality (e.g. frequency and reliability of services to consumers).

Note: The framework for performance indicators was proposed in the initial methodology for the performance assessment framework for economic regulators (PAFER) discussed with the OECD Network of Economic Regulators (NER). It has been refined to reflect feedback from NER members and the experience of other regulators in assessing their own performance.

Source: (OECD, 2015[4]), Driving Performance at Colombia's Communications Regulator, Figure 3.3, http://dx.doi.org/10.1787/9789264232945-en.

References

[2] OECD (2019), Offices of Institutional Integrity in Peru.

[4] OECD (2015), Driving Performance at Colombia’s Communications Regulator, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264232945-en.

[3] OECD (2014), Regulatory Enforcement and Inspections, OECD Best Practice Principles for Regulatory Policy, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264208117-en.

[1] OSITRAN (2019), Plan Estratégico Institucional de OSITRAN PEI 2019-2022 (OSITRAN’s Strategic Institutional Plan 2019-2022), https://www.ositran.gob.pe/wp-content/uploads/2019/06/027CD2019.pdf (accessed on 2 July 2019).

Notes

← 1. In addition to OSITRAN, these include: the Supervisory agency for investment in energy and mining (Organismo supervisor de inversion privada en energía y minas, Osinergmin), the Supervisory agency for private investment in telecommunications (organism supervisor de inversion privada en telecomunicaciones, OSIPTEL), and the National superintendency of sanitation services (Superintendencia nacional de servicios de saneamiento, SUNASS).

← 2. https://plataforma.ositran.gob.pe/pySIDECO/denuncia.jsp.

Metadata, Legal and Rights

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Extracts from publications may be subject to additional disclaimers, which are set out in the complete version of the publication, available at the link provided.

https://doi.org/10.1787/d4ddab52-en

© OECD 2020

The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at http://www.oecd.org/termsandconditions.