The World Bank says in a new study that telecoms is among the infrastructures that need regulated reform to meet development goals.
The study was launched at the bank yesterday and will be made public on 14 June. It found that credible regulation is essential to ensure that reforms involving restructuring or privatisation of infrastructure utilities improve their performance and help reduce poverty.
"Getting infrastructure reform right is essential to achieving the Millennium Development Goals on reducing child mortality and empowering women," says Francois Bourguignon, the World Bank`s chief economist and senior VP, who directs the bank`s Development Economics department that produced the study.
"While there was probably some `irrational exuberance` in recent years on the potential benefits of privatisation, the fact is that utilities in developing countries need private financing to maintain and expand services to the poor."
SA`s lesson
The report, "Reforming Infrastructure - Privatisation, Regulation and Competition", cites "effective regulation" as the most critical enabling condition for getting infrastructure reform right.
The World Bank study has particular relevance for SA as it struggles to liberalise its telecommunications industry and move from a state-owned monopoly situation to one of free market participation.
Since the partial privatisation of Telkom, with government retaining a 30% stake, the country has been unable to establish credible competition to the telecommunications utility through the second national operator process. Telecommunications minister Ivy Matseppe-Casaburri is due to give an update on the process in August.
The Department of Communications has also been criticised by international research firms such as Gartner for not allowing the regulatory body in the form of the Independent Communications Authority of SA to see its decisions through.
"Regulation that provides a credible commitment to safeguarding the interests of both investors and customers is crucial to attracting the long-term private capital needed to secure an adequate, reliable supply of infrastructure services," the report says.
Free the regulatory agencies
The report notes that regulatory agencies must be free of political influence, and that their decisions must be subject to review by the judiciary or oversight by another non-political entity.
It says regulatory processes should encourage competition, be open and transparent, and be designed before privatisation is undertaken.
Regulatory weaknesses explain most failed attempts at infrastructure reform and privatisation in developing countries, says the report`s lead author, Ioannis Kessides, a lead economist at the World Bank.
A recommendation of the report is that a key to successful restructuring of old public monopolies is "unbundling", that is, breaking down the original monopoly in various private or, possibly, public entities, within the same utility or sphere of activity that is exposed to competition.
The remaining natural monopoly components, meanwhile, should be subjected to close oversight or retained under public ownership.
However, the study warns that such unbundling "makes the regulatory task more complex, which is likely to be a problem in environments with weak governance - as in most developing and transition economies".
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