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What is the best indicator for a regulatory transparency?

Wednesday, March 31, 2010

Gutierrez (2003, paper here) tried to come up with an operational elements of regulatory governance.  He considered that autonomy and independence should be reflected in financial and budgetary independence and no free removal of commissioners; accountability is reflected through clear mechanisms for solving disputes, while clarity of roles and objective is manifested through the regulatory authority’s ability to impose fines and set tariffs. Finally, he opined that "..transparency and participation are operationalized by the existence of hearings for the setting of tariffs and other issues" (see pages 18, 19 and 24). 

However the argument that public hearing is the best proxy in determining regulatory transparency was disputed by Stern and Cubin (2003, paper here), who argued that it is too american-centric. Stern and Cubin argued instead that the requirement for regulator to publish their decision is the better proxy.  

Now the hard task for lawyers is in translating this into a legal concept.  First we need to choose which one is the best proxy. Should we obligate public hearing, or instead, it is adequate for the legal framework to require regulator to explain and justify their decisions? The devil will of course be found in the detail. Public hearing without adequate information disclosure is a non-sense. The legal requirement to explain and justify decision is also not clear in itself unless it is detailed further on how this should be performed.  



 

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RI water services suffering from a lack of governance

Tuesday, March 30, 2010

Below, I repost my article at today's JP. 
RI water services suffering from a lack of governance

Mohamad Mova Al ‘Afghani ,  Dundee, UK   |  Tue, 03/30/2010 9:48 AM  |  Opinion
From more than 300 water utilities currently operating, only a quarter is said to be financially healthy. The rest is either suffering from high debts or continuously failing to be able to cover its costs.

Meanwhile, the population keeps increasing and the quality of water from surface and groundwater sources is rapidly decreasing due to deforestation, pollution, saltwater intrusion and other problems caused by climate change. Experts are pessimistic that Indonesia will be able to achieve the Millennium Development Goal (MDG) target on water by 2015.

What is the real problem in the water services sector? There are funds out there ready to be invested by the private sector, but yet, most private sector participation in the water sector is failing.

Water is also abundant in this country, but in the form of floods or waste. Many reports consider that the real problem is not the lack of financial or natural resources, but the serious lack of governance.
 
Given the seriousness of water for our daily lives, it is a pity that we do not have any single national legislation dedicated specifically to managing water services.

The reason for this is partially because of regional autonomy, that those are the duties of local governments. 

Has local government paid enough attention to governing water services? No. What I hear most is the fuss about regional bylaws regulating the decency and morality standards of their citizens, such as those related to gambling, prostitution, alcoholic beverages or women’s clothing.

I am not suggesting that public morality cannot be regulated. It’s just that in terms of priorities, we are certainly losing our sight. There are obviously more people dying and ill because of waterborne diseases rather than from gambling or prostitution.

It is the lack of access to sufficient and safe water which contributes to the escalation of criminal and socially immoral activities.

Within the world of water activism itself, the debate is often sidetracked. In Indonesia, people tend to always debate between public versus private ownership of water utilities. I think they are asking the wrong question.

We know so much about the failure of privatization but yet so little about the success of public water utilities. So the real question should be aimed toward a solution: What governance mechanisms work for either public or private water utilities? In what circumstances can water be privatized and in what circumstances is a public ownership desirable?

This sidetracked debate has contributed to a bitter reality, that is, that both privatized and nonprivatized services develop without adequate governance.

Jakarta, for example, which has a population of more than 10 million in daylight, is regulated through bylaws enacted in 1992 and 1993, way before privatization (by way of concession) was carried out in 1998.

These bylaws are poorly drafted and do not reflect the need to incorporate post-privatization reality. What is happening now is that, in practice, Jakarta drinking water services are regulated mainly through concession contracts.

This fact is appalling because water is a political good that contracts alone are never enough to regulate.

When a Jakarta citizen asks to what rights are they entitled as a water customer, there’s not much that the 1992 and 1993 bylaws can answer because the 1998 privatization has changed the landscape of accountability from Jakarta’s local government and PAM Jaya to its concessionaires.

Some of the answers could be provided in the concession contracts. Unfortunately, the concession contracts are said to contain a confidentiality clause and therefore are never to be found in the public domain.

On the other hand, a citizen in Bogor can obtain clarity that they are entitled to a discount and even exemption from payments if their water utility delivers substandard services because Bogor municipality enacted a bylaw in 2006, stipulating the rights and obligations of the customer.

This is not to say that Bogor’s water services bylaws are perfect as there are many clauses which need amendment.

This is to say that when local government has a strong will to govern water services, it can.

Currently, there are several other water services cooperation, concessions and joint ventures taking place or being planned, oftentimes with the support of International Financial Institutions (IFI).
Reading their reports, I am skeptical that enough attention is given toward transparency, accountability and participation, all of which constitute an important element of governance.

Some reports even modeled water services as a sale-and-purchase transaction like other ordinary goods, whereby the Regional Water Company (PDAM) bought water from the private sector and re-sold it to customers, away from the scrutiny of local parliament and other accountability mechanisms. 

If this is the way to go, then we are doomed to another failure because no privatization is ever successful without proper regulatory governance.

If local government wishes to privatize, they should tightly regulate the private sector. No contracts can be above the law, especially when it comes to an essential element of human life such as water.

If they don’t regulate, they will soon realize that they will lose control. Prices rising, taps not flowing, no investment made to extend the network. 

When this happens, the citizens will come after them to demand responsibility. If they find no favorable answer, they can start taking matters into their own hands, such as by stealing water from the network.
This, in turn, will raise the burden on those who actually pay the price. If the local government decides to terminate the contract, the private sector will threaten to use international arbitration.  

Thus, local governments should start establishing the framework for transparency, accountability and participation through regional bylaws. If the services are to be privatized, they must ensure prior consent from the citizen.
Contracts should be available in the public domain, rights and duties of both customer and the service provider should be stipulated under bylaws, complaint mechanisms should be set up, redress should be available to customers, service levels and the consequences of violations thereof should be
established.

No contracts can be above the law, especially when it comes to an essential element of human life such as water.

The writer is a PhD candidate at the UNESCO Centre for Water Law, Policy and Science at the University of Dundee, UK.

 

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Legal System and Governance Transparency

Friday, March 26, 2010

Bushman, Piotroski and Smith (2004) distinguished between two elements of Corporate Transparency: Governance Transparency and Financial Transparency. The factors of financial disclosure are segments, r&d, capex, accounting policies and subsidiaries. Meanwhile, the factors of governance disclosure are major shareholders, management, boards, director and officer's remuneration and officer's shareholdings.

The results of their study is very interesting. They found that financial transparency is correlated with political economy, while governance transparency is correlated to legal systems. Financial transparency is higher in states where state ownership of enterprises and bank is low while governance transparency is higher in common law systems compared to civil law tradition.

One of the explanation for this result is because governance transparency is highly dependent of efficient judicial system and legal framework, and it appears, civil law countries are not that efficient with respect to their judicial system. 
 
On the qualitative side, it will be interesting to evaluate if legal frameworks in civil law countries are -- independently of the efficiency of their judicial systems -- adequate with respect to corporate reporting.  It would also be interesting to see if this situation in civil law tradition can be rectified using both mandatory and voluntary disclosure policies combined with incentive.
 


 

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[RTWS Update] Consultation on the Human Right Aspects of Private Sector Participation in the Water Sector: more responses from the private sector

The UN Independent Expert launched a consultation a few months ago regarding the human rights aspects of private sector participation in water services. As of today, several companies including Suez, Veolia and American Water had sent their responses. Reading the consultation responses, I feel that there are growing anxiety from the private sector that the Right to Water movement will use human rights instrument to outlaw private sector participation from the water services sector. 

This view is incorrect and absurd. It is not possible for the human rights system to dictate on a specific ownership model. The stance of RTWS with respect to private sector participation is already clear from the General Comment 15: there is a state duty to regulate. Hence, when it comes to PSP, the only question is what and how to regulate.

To read more on the responses, click here.


 

 

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[RTWS Update] Two Misconceptions about the Human Right to Water (Part 1)

Thursday, March 25, 2010

David Zetland wrote:

To understand the costs, begin with the difference between negative and positive rights. Negative rights (e.g., the right to free speech) should not be taken from you; positive rights (e.g., the right to “clean and accessible water, adequate for the health…") should be given to you. We can immediately see that it is easier to protect negative rights from violation by an outsider than positive rights, which as violated by a lack of action. Even worse, we cannot tell when action, of a certain quality, quantity or price, is enough. Finally, consider that the cost of positive rights grows with demand (e.g., population); it costs nothing to supply an increased demand for negative rights.

First Misconception: The Right to Water is a 'positive' right. 
The distinction between positive and negative rights stems from political discourse, such as that of Isaiah Berlin who distinguishes between positive and negative liberty. Human Rights Courts, such as the ECtHR have argued that human rights provisions have both a 'positive' and 'negative' aspects. The right to life cannot be realized without the state's duty to provide protection. The right to vote is meaningless without the ballots and the infrastructure to support an election. The right to property is a blank cheque if the police is not well supported to enforce the law.

If one day you got robbed in a State, because that State would rather invest on something else rather than paying sallaries to its police officers, what does it mean to you to have the right to property? If the right to property only means a 'negative right' which, as Zetland suggests, requires the state only "not to do anything", then it is sufficient for that state to enforce the right to property by not robbing you. Under this conception, as long as they don't steal and rob from you, no human rights is breached. This means that you can't come to the Court and ask the state to provide funds for the police force.

On the contrary, the right to property also has some positive elements. Not only that it means that the state cannot take away your property (the negative aspect) without due process and compensation, it must provide all available means to protect your property (the positive aspect), for example, by having a police force. 

The right to water is also like that. It has both positive and negative elements. The negative element obligates the state not to interfere or impede your access to water, the positive one obligate the state to enact regulation, or, in certain cases, to deliver the water, if public ownership is opted by the state as a mode of delivery.  







 

[RTWS Update] Does Human Rights to Water Improve Access to Clean Water?

Tuesday, March 23, 2010

Prof Zetland argued in his paper that the right to water does not improve access to sufficient and safe water (download paper here):

Some argue that a *human right* to clean water would improve this situation. This paper shows that human rights have not improved access to clean water and argues that it would be more productive to give people a *property right* to water. Because property rights - unlike human rights - are alienable, some portion of an individual's rights can be exchanged for access to clean water. 

In his paper, he distinguished between countries which --de jure-- constitutionally acknowledge the right to water and those which do not. He found that states which incorporate human right to water does show a marginal percentage of two percent increase in terms of access compared to states which do not provide right to water in its constitution. However, upon a careful analysis by looking at the rate of access before the countries amended their constitution, he found no correlation between such phrase and the increase of access. He argued that the access increased because of the number shown in the previous year.

My concern stems from his distinction: which states acknowledge human right to water and which states does not, which leads to his conclusion: that human right to water does not deliver. I do not think it is right to suggests that states does not acknowledge right to water simply because it is not explicitly mentioned in the constitution. Indonesian constitution contains no explicit provision recognizing the right to water. However, the Constitutional Court does recognize right to water by inferring it from other rights. Hence, de jure, Indonesia too, recognize the human right to water. States which are members to the ICESCR too, to a certain extent, acknowledge the right to water.

Second, is his distinction between human right and property right to water and its subsequent application. He argued that explicitly mentioning right to water in the constitution does not guarantee any delivery. By the same token, we can argue that explicitly mentioning the guarantee of property rights in the constitution does not guarantee any delivery. One needs a governance system and a rule of law to enforce property. Let me quote the words of an extreme right-winger, the Nobel Prize Winner Milton Friedmann:
It turns out that the rule of law is probably more basic than privatization. Privatization is meaningless if you don't have the rule of law. What does it mean to privatize if you do not have security of property, if you can't use your property as you want to?

The same thing exactly applies to the human right to water. If property rights does not work without rule of law and governance, so does the right to water. But more importantly, I categorically rejects the antinomy of human right to water and the property right to water. The essence of human right to water is also governance, except that it puts a little more weight on affordability. Human right steers development, but it does not in anyway dictates the constellation of ownership system within a particular state. What human rights does, is that it solves problems in context. No, it does not grants anyone access to free water. But it can give citizen a sufficient armoury in pressing for developments and give guidance to judges in solving water allocation problem, for example.




 

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The Bonn Charter for Safe Drinking Water

Friday, March 19, 2010

  According to the WHO website :

The IWA Bonn Charter for Safe Drinking Water sets out the principles of an effective drinking water quality management framework and the responsibilities of key parties. The Charter presents a framework for drinking water safety, which incorporates the development of water safety plans. The goal of the Charter is good safe drinking water that has the trust of consumers.

Click here to download International Water Association (IWA) Bonn Charter of 2004. The pfd links to this charter is broken in many websites, so the document is rather difficult to obtain online. Fortunately watsan.net kept a copy of it.