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13 Oct 2023

Overcoming the Regulatory Capture Conundrum : The Road to African Electricity Regulatory Autonomy

Author
Michaellah Mapotaringa, Freda A. Opoku,  Guillaine Neza, and Rhoda Mshana.
Regulatory

Is regulatory capture in Africa a myth? No! We see it every day, and many African countries are yet to fully tackle this electricity regulatory conundrum. This begs the questions -what is the electricity regulatory capture conundrum? What should be done to ensure regulatory autonomy and who should be doing what ?

The African electricity regulatory conundrum is the difficulty in addressing the regulatory capture of electricity regulators by political authorities, and the utility companies  they attempt to  regulate. Regulatory capture is a situation where regulated utilities or any other sector stakeholders influence the financial and operational autonomy of the regulator and  compromise the regulator’s decision-making independence. Regulatory capture in the African context often stems from the statutes used to create regulatory bodies. These laws regularly carry provisions that stipulate regulatory commissions' dependence on governments for funding, appointment of commissioners and fail to keep governments at arm’s length, especially when it comes to decision making.

Additionally, utilities and major consumers also capture regulators through capitalizing on regulatory weakness, limited procedures, and the inadequate staff capacities of regulators. Regulatory capture cripples the institutional, financial and operational independence of electricity regulatory entities, making it difficult to effectively deliver on their mandates. This hinders the attractiveness of the electricity market for potential investors, thereby preventing African countries from quickly transitioning to cheaper renewable energy, and fostering the right regulatory environment for sustainable development.

Outside of autonomy, regulatory capture also affects other important aspects of electricity sector regulation such as tariff-setting, transparency, accountability and  predictability. According to the African Development Bank’s 2022 Electricity Regulatory Index for Africa (ERI), economic regulation is the heartbeat of the electricity sector and one of the most important regulatory instruments to ensure industry sustainability. Due to interference in the regulation of a country’s electricity sector, the transparency, and credibility of the regulator may be marred, especially when it pertains to tariff-setting and institutional capacity. This  discourages investors from making long-term investments in the electricity sector of the country, and increases barriers faced by new entrepreneurs within the sector.

What should be done to ensure regulatory autonomy?

Diagnosing an illness is often easier than curing it. The ERI measures regulatory autonomy through globally agreed best practices around the following indicators: independence from government and the legislature, autonomy from stakeholders and market players (this includes utilities and consumers), decision-making autonomy and financial and budgetary independence. To strengthen regulatory autonomy ERI recommends that countries should: amend laws and acts that allow government to meddle in regulatory matters especially the appointment of commissioners, ensure that the regulator is funded from sources outside government e.g. licensing fees, institutionalize the regulator as the final decision-maker on tariffs and conflict resolution, and prohibit the appointment of former heads of utilities as commissioners in the regulatory body.

Recommendations

 Policy makers should amend laws as recommended by the ERI to enhance the independence and accountability of the regulator. While legislation amendment is a lengthy process, Senegal has proven that modification of regulations can significantly increase the regulator’s autonomy. Since 2019, the country has initiated a “turnaround plan” which  included a series of reform measures to improve the electricity sector regulation by enhancing the institutional capacity of the regulator: La Commission de Regulation du Secteur de l’Eléctricité (CRSE). In July 2021, the La Commission de Régulation du Secteur de l'Energie was established with a larger sectoral focus including a new electricity code. The amended laws increase the regulator’s autonomy by: modifying recruitment practices, establishing a clear independent dispute resolution mechanism and strengthening financial autonomy. Similarly, other efforts to amend laws have been seen in Uganda where “over eight new regulations and instruments used to govern the operations of the electricity sector were passed between 2018 and 2021.

Regulators should focus their efforts to attract adequate technical expertise. Effective regulators are expected to enhance sector performance, protect public interest, enhance consumer protection and improve economic efficiency. These responsibilities are often hampered by a lack of technical expertise. With the right staff who are able to effectively implement the key activities, regulators demonstrate their competence and build confidence with other stakeholders. The National Association of Regulatory Utility Commissioners (NARUC) ,USAID and AFDB continue to provide technical assistance and training which all countries should take advantage of, following the examples of Tanzania and Togo.

All stakeholders should press the regulator to remain accountable and transparent in their activities. Indeed, the role of watchdogs cannot be overemphasized in resolving issues like regulatory capture in the electricity sector. Civil Society Organizations (CSOs) and Think-Tanks play a key role in keeping the regulator accountable, flagging potential for regulatory capture and ensuring that public interest is ultimately served. In 2022, the Bank in collaboration with the West Africa Energy Program (WAEP) trained over 46 Civil Society Organizations and Social Accountability Actors on Ghana's electricity tariff principles, methodology and computation. This training aimed at increasing their understanding of the electricity tariff processes in Ghana and enhancing their participation during stakeholder engagements with the Public Utilities Regulatory Commission and the public utilities.

Achieving electricity regulatory autonomy is a goal that all African nations should aspire to if they are to overcome all the negative results of regulatory capture, improve sector governance and ultimately sector performance. While the task may be enormous, regulators, governments, civil society and development financial institutions can all play a significant role. The African Development Bank has instituted the ERI, mentioned above, to highlight  some of these issues and provide interested stakeholders with a knowledge product that can be used to advocate for reforms. 

 

This blog is authored by Michaellah Mapotaringa, Freda A. Opoku,  Guillaine Neza, and Rhoda Mshana.

 

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