From populist democracy to rule-based regulation: regulatory regimes in Brazil

Brazil’s state monopolies are giving way to private service providers which are regulated by newly-formed autonomous regulatory agencies. Is Brazil meeting the challenges of regulatory good governance? Are regulators delivering cost efficiency, product variety, innovation and reduced prices for consumers? How does Brazil’s recent regulatory performance measure up against that of other states?

A report from the University of Manchester’s Centre on Regulation and Competition evaluates the performance of Brazil’s three largest regulatory agencies – involved with electricity, telecommunications and natural gas and oil. Finding that these young agencies have started reasonably well, the authors offer guidance to improve their performance and draw out lessons for other Brazilian industries still in the process of establishing a regulatory compact.

Between 1994 and 1998, 170 state-owned enterprises (SOEs) were transferred to the private sector, earning total revenues of US $83 billion. The system of regulatory governance that accompanied privatisation is embodied in law – and is thus hard to change without parliamentary debate. However, initial government propositions regarding the regulators’ ability to access information, provide firms with efficiency-enhancing incentives and instate safeguards against expropriation were watered down by legislators.

The report shows that:

• Indicators such as price, quality of services, financial results and productive efficiency all show across-the-board improvements since privatisation.
• The decision to create two separate agencies for the energy sector has created serious inefficiencies, delayed investment decisions, contradicted the goal of increasing the use of gas and complicated coherent responses to recent energy crises.
• Brazil’s judiciary has consistently sided with plaintiffs seeking to block the sale of state assets: most magistrates argue that courts can overhaul decisions of regulatory agencies on both procedural and substantive grounds.
• Development of the electricity regulator has been restricted by the strong market power of residual state-owned companies, the failure of its management to create a genuinely competitive market and insufficient institutional co-ordination with Brazil’s water agency.
• The regulator’s ambition to be referee in the market for oil and gas is threatened by the dominant upstream and downstream market power of Petrobás and the regulator’s lack of responsibility for the regulation of prices and tariffs.

The authors argue that international experience suggests that the process of regulatory agencies gaining autonomy and respect from the government, regulated firms and consumers takes time. Learning-by-doing effects are considerable. In order to make further progress towards modern regulatory good governance, Brazilian decision-makers need to:

• better define the boundaries of each regulatory agency’s competency and enhance policy coherence and credibility by giving them wider decision-making powers
• consider transferring regulatory competencies over electricity and gas to a single agency
• clarify regulatory responsibility for both media and telecommunications with a view to removing the right of Brazil’s parliamentarians – many of whom own media interests – from granting media licences
• draft a constitutional amendment to restrict opportunities for those aggrieved by regulatory decisions to contest them in court
• recognise that while there is a risk that pressure from social interests can decrease the quality of regulatory decisions, too much insulation of regulatory regimes from societal pressures may be harmful
• identify symptoms of regulatory capture by special interest groups.

Source(s):
‘Brazilian regulatory agencies: early appraisal and looming challenges’, Working Paper No. 43, Centre on Regulation and Competition, Institute for Development Policy and Management, University of Manchester, by Andrea Goldstein and Jose Claudio Linhares Pires, December 2002 Full document.

Funded by: OECD and BNDES

id21 Research Highlight: 18 August 2003

Further Information:
Andrea Goldstein
OECD Development Centre
94, rue Chardon Lagache
75775 Paris Cedex 16
France

Tel: +33 1 4524 1558
Fax: +33 1 4524 7943
Contact the contributor: andrea.goldstein@oecd.org

OECD

Centre on Regulation and Competition
Institute for Development Policy and Management
University of Manchester
Crawford House
Precinct Centre
Oxford Road
Manchester M13 9RG
UK

Tel: +44 (0)151 275 2798
Fax: +44 (0)161 275 0808
Contact the contributor: crc@man.ac.uk

Centre on Regulation and Competition, IDPM, University of Manchester, UK

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