Chapter 5. The governance of regulators in Argentina

Role clarity

The basic idea of the role clarity principle is that an effective regulator must have clear objectives and clear functions, embedded in a complete regulatory framework and other policy instruments. These functions shall be sufficient enough to accomplish the institutional objectives that gave origin to the regulators’ creation. This principle’s main justification: only through clear objectives and statements can the institution achieve the expected results and goals.

These regulators’ objectives should not be in conflict or competing with goals; they can otherwise undermine institutional performance. Only when clear benefits surpass potential costs should they be joined. However, in a situation where a regulator combines competing objectives, a regulatory framework and guidelines must be developed to help the institution trade off such functions. On the other hand, within the institution, these objectives should reflect separate and specific functions, goals, budget, personnel, etc. Therefore, a multi-purpose regulator would face important challenges in planning and executing all responsibilities and functions.

The legal framework should indicate the co-ordination mechanisms by which the regulator must co-operate with other institutions, such as congress, ministries, autonomous bodies, etc, on topics of shared responsibility. On the other hand, any co-operation agreement, memorandum of understanding or formal agreement should be published on the regulators’ websites to promote transparency in the roles of the regulator.

Finally, clear separation of functions and co-ordination with ministries is a relevant issue. The role of the regulators with regard to supporting the policy objectives of ministries can vary across countries. A common practice, however, is the independence principle of regulators, which would limit the responsibility to supporting ministries on policy issues. Notwithstanding, support on policy issues is a fact and regulators’ involvement in different stages of policy formulation is also desirable as co-ordination between promotion and regulation reduces uncertainty and misleading expectations over the role of regulated entities.

Preventing undue influence and maintaining trust

The notion of the principle is that regulators need to instil trust between stakeholders and institutions. In order to build this trust, close communication must be maintained with regulated entities and other parties; at the same time, the regulator must avoid any undue influence that may lead to regulatory capture.

The work of the regulators must be grounded in objectivity and impartiality. Thus, if there is a situation in which the scope of the regulator covers government and non-government firms, competitive neutrality is required to avoid distrust and reduce the risk of undue influence by public firms.

Formal and situation independence can promote objectivity and impartiality. Legal statutes can grant legal independence of regulators while independence can arise from institutional strength or the implementation of better practices. Both schemes face advantages and challenges. The choice between the two depends on several conditions, for example, the need to demonstrate independence, the dynamics of policy at the national level, the institutional strength of the country, etc.

Undue influence can arise from any governmental institution (ministries, congress, the executive, autonomous bodies, judiciary power, etc.), regulated entities or the public. The regulator must interact with these parties to deploy the regulatory process, co-ordinating on issues of shared responsibilities, consulting over regulatory projects and receiving feedback about the strategy and instruments it applies. Within this interaction, however, the regulator must pursue the institutional objective in the short and the long term, avoiding undue influence.

Avoiding regulatory capture and maintaining trust ensures that regulators, in fact, pursue their underlying policy objectives. There are several practices, which contribute to reduce the risk of regulatory capture and therefore create trust, for instance; the “revolving doors” restriction for officials working in regulated firms after certain periods of time; transparent communication between regulators and stakeholders; a defined agenda and official channels of communication; the degree of formal and legal independence; the implementation of regulatory impact assessment (RIA) and the consultation process for regulatory production; the selection process and the terms of the board members, etc. Principles such as the governing body of the regulator, the degree of independence, the fundraising scheme, the accountability obligations and the evaluation of the performance, also help limit the risk of regulatory capture.

Regulators can range from ministerial to autonomous bodies. Challenges linked to undue influence and trust are different in both situations. In principle, influence may be more probable between ministerial regulators in comparison with governing bodies, but the former may face challenges in a timely and effective manner. The election between a regulator within a ministry or an autonomous body is dependent on institutional arrangements and institutional capacity, not only linked to the regulator but also public entities.

Decision making and government body structure for independent regulators

The design of the governing body and the decision-making powers have an impact on the effectiveness of the regulators, the delivery of the regulatory policy and expected results of institutional objectives. Additionally, the governing body has an influence on the regulators’ integrity as it can affect the risk of regulatory capture.

The governing body of the regulator can take different forms:

• The governance board model: oversight, strategic guidance and operational policy.

• The commission model: a board advises on regulatory decisions.

• The single member model: one individual takes the regulatory decisions.

The selection of the model per se has some effects on the effectiveness of the regulator. For instance, under certain conditions, a commission or a governance board model reduces the risk of regulatory capture and strengthens the decision making in comparison with the single member model.

Membership to the governing body is an important institutional arrangement that would go against regulatory capture and promote transparency. In order to go in this direction, the policies, criteria and selection process of the terms of appointment must be transparent. Government body members can be elected by public opposition contest or by direct appointment from an authority. Public opposition contest, however, creates greater trust if carried out fairly and inclusively.

Direct election of the board is another common practice of regulators. This type of governing body can be elected by a single authority or different public officials. The model requires, however, more transparency in the selection criteria as there could be bias in the process. For example, stakeholders, industry and ministry representation can be in conflict with the need to have board members with a technical background. Regulators must follow their institutional objectives but members can be influenced or have a biased opinion due to their public position. Thus, clear statements over objectives and goals, as well as guidelines to reduce conflict are advisable.

A multi-member model also has more institutional memory when the replacement is staggered. Due to this reason, changes in the board are less costly and less likely to completely modify the work of the regulator. This model can remove the institution from the political process. For instance, the appointment of board members can go beyond the period of the elected government in place

Regardless of the governing model, in general terms, corporate models have more accommodating features to enhance accountability, transparency, effectiveness, integrity and independence of the regulator. In contrast, a single member can be more adaptable to industry changes and more responsive. Regulatory capture is more challenging with a single member but institutional strength of the head ministry can be of support in this matter.

Accountability and transparency

This principle highlights the relevance of accountability and transparency for economic regulators. In fact, accountability and transparency are the foundations of trust but also a mechanism to align expectations between regulators and stakeholders. The main message of the principle is that compulsory or self-imposed practices in accountability and transparency promote the decision-making process and provide elements to lower the risk of regulatory capture.

Governments usually keep transparency and accountability obligations for all public entities, including the regulators. Notwithstanding, independent regulators should go beyond these duties in comparison with all public entities; thus, as long as regulators advance on independence or autonomy, they should increase their accountability and transparency practices to strengthen trust.

Accountability obligations could include the executive, congress, the public and stakeholders. Of course, the areas to be accountable for are not necessarily the same for all the stakeholders. For instance, the executive may focus on policy objectives, co-ordination with ministries and budget execution; congress would focus on policy objectives and budget execution; and the public and stakeholders may focus on policy objectives. In these topics, it is relevant that regulators publish their operational plans for each year, so the stakeholders can compare the planned agenda with the achieved results.

In perspective, transparency is a sort of accountability for the public and the value of the information published is worth the additional work involved. Thus, regulators should publish all possible information about their operation, including budget execution, industry statistics, annual working plans, meetings with stakeholders and their summaries, goals and objectives achieved, etc. This information should be readily accessible for most potential users and in manageable formats. It is also advisable that regulators pay attention to the information needed by users and include it in day-to-day statistics. Regulators should follow a transparency policy as a mechanism to obtain trust.

Engagement

The engagement principle refers to an integral policy of interacting with regulated entities and other stakeholders. The relevance of engaging with stakeholders is down to the fact that regulators learn from the industry how it works; from the public the effects of regulation; and from public entities how to work together.

Engagement with stakeholders is also a mechanism to produce quality regulation as they can provide feedback about a specific problem and proposals to solve them. Through engagement activities, regulators can improve the relationship with stakeholders, as they can offer opinions about potential problems and the effects of regulation as well as anticipate regulation and reduce implementation costs and uncertainty.

It is important that regulators commit to a policy on stakeholder engagement. Most regulators have active contact with their regulated firms and other actors but this is slightly different from a policy approach. A policy on stakeholder engagement requires objectives, a scheduled and planned agenda to discuss regulatory issues, analysis of the discussion topics, etc.

Engagement undertakings are highly recommended but regulators must take into account best practices in such activities to avoid risks of regulatory capture and conflict of interest. At the same time, regulators must be clear on the purpose of these activities, so the stakeholders fulfil their expectations. Finally, all exercises should fit the purpose; this means that activities need rationality criteria. For example, it may be excessive to undertake a complex, expensive and full consultation in situ for a proposed small regulation with few expected potential effects. Thus, consultation practices as early consultation, RIA and ex post consultation (under ex post evaluation activities) should be adopted as part of the engagement policy.

Funding

The principle has at least two branches. In the first place, funding is the channel that allows the regulator to achieve the goals according to objectives. On the other hand, funding sources can contribute to ensuring independence (mainly from the government but also from the regulated firms) in the decision-making process and the implementation of the regulation.

The number of funding sources available for the regulators must be objectives-planned and set with goals in mind. The funding for regulators must be sufficient to achieve the expected goals in the given timeline – which can include yearly or longer aims. In fact, the planning of goals and budget is closely aligned. Still, the budget should not be the main driver, as sometimes a tight budget is assigned to accomplish high goals. This does not otherwise mean that regulators should be granted substantial budgets. More than that, there must be a balance between budget and goals and the key is planning.

Sources of funding and easy access to funds are also a relevant issue for independence purposes. Independence relies on institutional arrangements between the regulators and the entities responsible for providing funding. These arrangements could be strong and it may not be necessary to separate the regulators’ budget from other institutions, as is the case when the agency is part of a ministry or the former validates the budget. If the arrangements are strong over time, it is possible to maintain such structure but, if there is a perceived risk of change in policy, it may be sensible to separate the budget from the ministry through legal instruments. Assigning legal powers to the regulator to evaluate, propose, and implement the budget, helps to reduce the risk of capture and alleviate potential pressures to influence the regulator’s decisions. Particular arrangements about the budget depend on country profiles and institutional capacity, but it is worth mentioning that self-budget planning and execution works towards independence.

Performance evaluation

This principle encourages regulators to conduct performance evaluation according to the underlying policy objectives. If the regulator does not evaluate its work and actions, it will never know if the effects of its intervention are in line with their objectives and if there has been a return on invested resources.

Performance evaluation allows regulators to strengthen the activities or actions that contribute the most to their goals and modify those with poor effects. Due to the relevance of the performance evaluation, it is important to conduct these exercises periodically. The frequency depends on the relevance of the policy and the type of evaluation. For instance, an evaluation of performance indicators regarding outcomes can be launched on a yearly basis, as they need “simple” statistical analysis, which is not as time-consuming. On the other hand, the actual impact or effects of the regulatory decisions require more complex analysis and advanced tools. At the same time, identification of the final effects may be blurred in the early stages of implementation.

Finally, the publication of the results is as important as the launch of performance evaluation activities. It helps with accountability and transparency issues.

Role clarity

Preventing undue influence and maintaining trust

Decisions based on evidence, relationships with stakeholders, transparency and accountability are some of the most important elements when evaluating trust. In Argentina, some of these practices are common for all public institutions as they share the same legal requirements; specific regulations or practices also exist for each regulator.

Regarding public information, a general law regulates the rights of information access, which states the general principles of public participation and access and transparency of the public administration. More specifically, Decree 1.172/2003 publishes bylaws on public hearings from the side of the executive power, public participation on the elaboration of norms, public information access, and open meetings with regulatory bodies, amongst others (see Chapter 3 for more details). In addition to the general regulation on public hearings, some of the legal instruments which created the economic regulators specify under which situations public hearings must be conducted. For example, the laws creating ENRE and ENARGAS specify guidelines for public hearings. In contrast, the legal instruments that created ENACOM do not have specific guidelines to conduct public hearings.

For complementary information on this principle’s practices, see the engagement section below, in which practices and relations with stakeholders are indicated.

Decision making and government body structure for independent regulators

Accountability and transparency

In Argentina, internal control relies on Law No. 24.156 of Financial Administration and Control Systems of the National Public Sector. This law is compulsory for all public entities, including autocratic bodies, such as the regulators analysed in this chapter (Article 8). The powers under the umbrella of this law include controlling budget (technical regulations, governing body, organisation, design and execution), public credit, internal and external control and accountability.

The institution in charge of internal control is the General Administrator of the Nation, according to Article 100 of Law No. 24.156. A general administrator and three deputy administrators head the office.

On the other hand, Law No. 24.156 also creates the General Audit Office of the Nation, as a National Congress-dependent entity with the responsibility of internal and external control of the public sector. Its responsibility is the external control of the budget, the economy, treasury, assets and legal administration after their execution. Seven professional members with relevant experience in budget and control form this body – designed by the chambers of congress.

Regarding transparency obligations, Law 27.275 of Right to Access Public Information establishes the duties that public entities must comply with on this matter. For instance, the basic information public bodies must publish on the web portal includes: i) organisation charts and functions; ii) salaries and their components for all staff; iii) planned and spent budget; iv) fund transfers; v) audit and evaluation reports; vi) services provided and accession protocols; vii) means to attend public information requests; viii) permits, concession documents; etc. Furthermore, the law establishes that all information in the hands of the state is public with specifically indicated exceptions.

Additionally, ENRE publishes, a yearly report about discharge of duties and sector performance. The report may include regulatory guidelines, a market outlook, tariff summary, quality control results, inspections, firms’ shareholder follow-up, institutional relations and communications, audit outcomes, amongst others. ENARGAS also publishes a yearly report about its activities, users, the market structure, financial statements, licensees’ holders, and the transport system, amongst others. Finally, the administrative units of ENACOM publish monthly reports about the main activities they perform and some related indicators.

Engagement

In Argentina, public hearings constitute a channel for society to participate in the decision-making process. Public hearings are public participation procedures in which the authority provides formal spaces of communication in which stakeholders may express opinions about particular interests.

Decree 1.172/2003 includes the regulation of public hearings, which defines actors, roles, timing, budget responsibilities, stages, protocols, formats and procedures. The decree also publishes the regulation of the public participation of norms, as an institutional mechanism to express opinions on regards of drafted administrative norms and laws that will present the executive before congress. In this regulation, it stands out that any person can formally request the authority to launch a public participation procedure of norms – implying that not all regulation proposals may be subject to a consultation process (see Chapter 3 for more details).

The decree also defined the regulation to publish the interests and opinions of any person within the public hearing, with the aim to influence functions and decisions of public entities, as economic regulators. The basic principle of this regulation is that all information recorded is public and must be free to access, updated daily and published on web portals.

In addition to public hearings, ENRE, ENARGAS and ENACOM hold meetings with different stakeholders. For instance, ENACOM has monthly consultations with consumer commissions but there is no evidence of systematic meetings beyond public hearings with regulated firms with protocols to ensure transparency. In ENRE and ENARGAS, apart from public hearings which follow transparency practices, there is no evidence of formal meetings within a planned agenda with regulated entities or other stakeholders.

Funding

Performance evaluation

Establishing and publishing indicators varies across regulators in Argentina. In general, they publish reports over indicators, mainly regarding their yearly operation such as financial execution, administrative compliance, activities undertaken, etc. However, performance indicators measuring the progress in achieving the policy objectives of the regulator are not a common practice. Instead, economic regulators such as ENARGAS, ENRE and ENACOM produce and publish a monthly report with a summary of the most relevant activities and some indicators. These can be:

• input indicators

• process indicators

• output indicators

• financial indicators.

ENRE’s indicators focus on tariffs, quality control, inspections, institutional communications, audit outcomes, quality service and budget execution, amongst others. ENARGAS also publishes indicators about activities performed, users, financial outcomes, licensees’ holders, quality of service, complaints, personnel performance, etc. ENACOM also publishes indicators about conflicts, agreements, services, user assistance, authorisations, and registries, amongst others.

In summary, the work on different levels and types of indicators from the side of the economic regulators is extensive but all of the information they produce regarding the evaluation of the institutional performance must be upgraded and categorised.