copy the linklink copied!8. Transparent governance

copy the linklink copied!Management of OEFA

OEFA reports to the Ministry of the Environment and quarterly and annual statistical reports are duly published (OEFA, n.d.[3]), (OEFA, n.d.[4]). The Ministry of the Environment approves the National Plan of Environmental Action and the Multiannual Strategic Plan of the Environment Sector and OEFA is responsible for the preparation of the Institutional Operational Plan and Strategic Institutional Plan of the agency.

The relevant legislation and institutional regulation (e.g. SINEFA Law and OEFA Functions Organization Regulation1) foresee the appointment rules for OEFA’s management. The President of the Board of Directors is appointed by means of a Supreme Resolution based on a proposal from MINAM.2 The appointment of OEFA’s management is to be done in a transparent way, based on professional competence, following a public call for tenders, and minimising political interference. Senior management is appointed by resolution of the Board of Directors, following a competitive recruitment process. In practice, members of OEFA’s leadership–i.e. the President and the members of the Board of Directors, as well as Directors–demonstrate competence, understanding of their mission and commitment to transformation of the institution.

OEFA’s Board of Directors approves collegially the institutional policy, strategic plan, supervision and enforcement rules on processes and procedure (see in particular Art. 9 of the Functions Organization Regulation) to avoid excessive instability and discretionary managerial power.

The current members of the Board have academic and consulting background. However, there is no legal requirement to have stakeholder representatives from the public and private sectors, civil society, or academia in the governance of OEFA, such as in the capacity of members of an advisory body, different from the board. Ex ante public consultation on regulations prepared by OEFA is carried out as foreseen by the relevant regulation (Art. 21ff of the Regulation on Transparency, Access to Environmental Public Information and Citizen Participation and Consultation in Environmental Matters3). In 2018, feedback on draft regulations appeared to be regularly received from the private sector, the civil society and the general public (78 comments on a total of eight drafts, based on data provided by OEFA). As mentioned in Chapter 4 on Risk focus and proportionality, all legal acts, regulations and instruments prepared and adopted by OEFA are made accessible to the public for ex ante consultation. The online publication is often followed by Commentators’ meetings. Responses to comments provided are publicly available through the comments’ matrix published online.

Systematic engagement with stakeholder groups in the governance of OEFA – even only in an advisory capacity – in addition to ex ante consultation would be beneficial. Indeed, this would be an important step forward to build trust among the different actors, ensure that their needs and views are heard and considered (not only when preparing a draft, but during regular operations of the agency), and to overall increase the transparency and independence of the institution and of the environmental enforcement system more broadly.

copy the linklink copied!Measures to avoid conflicts of interest and conflicting goals

The gradual consolidation and transfer of functions into OEFA as the main inspection and enforcement authority in charge of protecting the environment and as the governing body of the entire system reflects the political will to avoid conflicting powers and missions between different public institutions in charge of the same regulatory area.

One of the stated objectives of the reform process is also to separate for the same regulatory sector (i.e. environment) licensing powers from inspection and enforcement powers In this sense, licensing powers will remain in the ministries and OEFA will consolidate the inspection and enforcement efforts. While a number of countries have pursued similar reforms, there is no strong evidence that this separation is beneficial from an effectiveness perspective. It could conceivably be beneficial in particular cases, when licenses are strictly revenue generating (e.g. mining concessions), and there would be a risk of conflicting purposes between licensing (revenue) and inspections (safety, environmental protection). In many cases, dividing licensing and inspections has led to increased fragmentation, reduced availability of professional competences at the licensing stage, and made information sharing and management more difficult. The institution in charge of safety inspections can issue safety-focused licenses, as the two processes are aligned and not in conflict.

The objective of separating licensing from inspections is thus not reflected in the OECD Regulatory Enforcement and Inspections Toolkit (OECD, 2018[2]), nor in this Review criteria. Rather, the review team noted that environmental licensing and permitting appears still far too pervasive, which is likely to contribute to high administrative burden and informality (see Chapter 3 on Selectivity).

OEFA receives funding from the budget allocated by the government and from the Regulatory Contribution paid by companies operating in the energy and mining sectors, which represents approximatively 80% of the resources, according to OEFA4. The corresponding fee is calculated through a transparent and published methodology approved by Supreme Decrees No 096 and 097-2016-PCM5 and on the basis of the monthly turnover of the regulated entity, after deduction of relevant taxes (in particular the Tax on general sales). The payment digital.

Additionally, OEFA is partly funded by imposed fines (up to approximatively 7% of its total budget, as reported by OEFA). The SINEFA Law, Art. 27.c establishes this mechanism. International experience has shown that the use of penalty fines to fund enforcement institutions bring strong perverse incentives. This applies even when fines only represent a relatively minor part of the total financial resources. First, this methodology does not ensure a stable, long-term funding, as the volume of income collected from fines is not (or should not be) predictable.6 Second, it incentivises the institution to find as many violations as possible, and to impose fines in all cases, thus contradicting objectives of risk-proportionality and compliance promotion. On the contrary, if compliance is maximised, violations will fall–and if sanctions are risk-proportional, fines will not be imposed in all cases.

OEFA argues that the functional and administrative management of the institution has been designed to ensure that such perverse incentives do not occur in practice–i.e. first instance decisions can be reviewed by three levels of independent tribunals and the rate of decisions upheld by the judiciary are of over 90%. Nonetheless, international experience strongly suggests that this practice is not appropriate and another funding source should be used, to avoid such bias in incentives. This recommendation does not only apply to OEFA, but to any other inspection and enforcement authority in Peru.

On the positive side, OEFA seems to benefit from long-term support from the government, translating into an adequate and generally stable budget allocation. However, this may not necessarily be true for all EFAs.

OEFA has been developing processes, guidelines and criteria to ensure consistency and independence from political interference in planning and operations–e.g. PLANEFA and corresponding guidelines, regulation and guidelines on inspections, methodology to assess non-compliances, and calculation methodology for fines, amongst others,

There are however several areas of potential improvement:

• The criteria triggering ‘special’ inspections based on requests from other authorities could be further clarified, as interference in OEFA’s operational decisions could take place.

• Prioritisation criteria and data analysis need to be improved, to promote data-driven planning and reduce the influence of the political salience of complaints.

• While there is a well-established procedure for businesses to report emergencies, the subsequent assessment process to decide whether a ‘special’ inspection is needed remains uncertain. Moreover, reports on emergencies may come from other sources, and the relevant reporting procedures are often unclear. Instances were reported where there was in fact no real emergency, whereas staff were already sent on site because of lack of proper prior assessment. Clear and specific criteria for assessing emergencies could help avoid or reduce such instances. This would also help limit the risk of excessive executive discretion on this matter.

copy the linklink copied!Assessment

Governance structures and strategic decision-making processes of OEFA support transparency and accountability. However, OEFA could benefit from systematically including representatives of different stakeholder groups (private sector, civil society, amongst others,) in the governance of the agency, particularly when it comes to discussing strategic priorities and transformations.

Although OEFA’s funding comes primarily from the governmental budget and regulatory contributions from companies in specific regulated sectors, all other funding mechanisms should exclude conflicts of interest and incentives. It is preferable to avoid using fines as a source of funding.

OEFA has displayed significant efforts to develop processes, methods and criteria for consistency and independence of operational decisions. These efforts should be continued. In particular, mechanisms for “special” inspections should be made more transparent.

copy the linklink copied!Recommendations

• Consider stakeholders’ systematic engagement in the governance of OEFA. This would be an important step forward to build trust among the different actors, ensure that their needs and views are heard and considered, and to overall increase the transparency and independence from political influence of the institution and of the environmental enforcement system more broadly. Options that might be considered include setting up an advisory body, strengthening the participation of stakeholders in the preparation of regulatory instruments and in asking for feedback on public reports.

• Fines, ideally, should be excluded as a source of funding to avoid any bias in incentives for the agency. The Government of Peru may consider withdrawing allocation of fines to fund the agency from the legislative framework.

• An assessment system of intervention requests from other authorities should be developed and used. It is important to consider reforms to the legal framework, which obliges to systematically trigger an inspection in the face of such requests. Criteria for both cases should be very clear to ensure transparency and accountability.