27
Gustavo Ferro
1
and Mauricio E. Roitman
2
Recibido: 13/12/2023 y Aceptado: 10/05/2024
ENERLAC. Volumen VIII. Número 1. Junio, 2023
ISSN: 2602-8042 (impreso) / 2631-2522(digital)
‘Antifragile’ regulators for developing
countries? Lessons from Latin America
1.- Universidad del CEMA (UCEMA) and CONICET. Argentina
Profesor Asociado de la Universidad del CEMA
gferro05@yahoo.com.ar; gaf97@ucema.edu.ar
Orcid: 0000-0002-1592-0163
2.- Instituto Tecnológico de Buenos Aires (ITBA). Argentina
Director Adjunto de la Maestría en Desarrollo Energético Sustentable y Profesor en ITBA
mroitman@itba.edu.ar
Orcid: 0009-0002-0586-4126
28
29
En este ensayo, analizamos el diseño pasado y el futuro potencial de las agencias reguladoras de los
sectores de infraestructura en los países en desarrollo, con un enfoque en América Latina, su papel
después de que algunas privatizaciones fueron revertidas y los nuevos desafíos que surgirán pronto
para la regulación de la infraestructura debido al cambio tecnológico. Las agencias reguladoras se
introdujeron en América Latina, África, Asia y los países postsocialistas cuando una ola de privatizaciones
se generalizó a partir de 1990. El paradigma de la época era la provisión privada más la regulación
y la supervisión pública en manos de nuevas agencias reguladoras independientes. Presentamos el
paradigma de la década de 1990, discutimos sus detalles en el mundo en desarrollo, estudiamos
su éxito y fracaso y buscamos comprender los nuevos objetivos y funciones de la regulación de la
infraestructura (electricidad, gas natural, agua y saneamiento). Sugerimos que la independencia del
regulador debe estar garantizada por diseño y tener cierta “antifragilidad” para superar los fuertes
shocks de inestabilidad política y económica típicos de los países de la región latinoamericana y otros
del mundo en desarrollo.
In this essay, we discuss the past design and potential future(s) of regulatory agencies of infrastructure
sectors in developing countries, with a focus on Latin America, their role after some privatizations were
reversed, and the new challenges that will emerge soon for infrastructure regulation due to technical
change. Regulatory agencies were introduced in Latin America, Africa, Asia, and post-socialist countries
when a wave of privatizations became widespread from 1990 onwards. The paradigm of the time was
private provision plus public regulation and supervision in the hands of new independent agencies. We
present the 1990s paradigm, discuss its specics in the developing world, study success and failure,
and seek to understand new goals and functions of infrastructure regulation (electricity, natural gas,
water, and sanitation). We suggest that the regulator’s independence must be guaranteed by design
and have a certain “antifragility” to overcome the strong shocks of political and economic instability
typical of countries in the Latin American region and others in the developing world.
Palabras clave: regulación, agencias reguladoras, Latinoamérica, gobernanza regulatoria.
Keywords: regulation, regulatory agencies, Latin America, regulatory governance.
JEL Codes: L43, L51
Resumen
Abstract
30
Looking back, 1990 stands out as a pivotal year.
The conclusion of the Cold War marked the
beginning of a race for countries from the former
Second World (Eastern Europe, the former Soviet
Union) and Third World (Latin America, Africa,
and much of Asia) to align themselves with the
former First World (North America, Western
Europe, Japan, and Oceania), eagerly embracing
globalized capitalism. This initial group of countries
was often labeled as “Emerging”.
The fresh start ushered in a revitalized belief in
the power of market forces, enhanced openness
to trade and nancial ows, and privatization to
add capital, technology, and know-how in sectors
with solid spillovers and chronic deciencies
in the hands of states sometimes pressed by
scal imbalances (Ferro et al., 2021). Those
privatizations had scarce historical precedents,
being the most famous of the British ones in
the Thatcherian United Kingdom one decade
before. In the British experience, privatization was
initiated to inject eciency and stimulate growth
into a lagged economy, compared with Germany,
France, and Italy in post-WWII (Viscusi et al.,
2005). Alongside the privatization of infrastructure
provision, the gure of regulatory agencies
appeared: independent entities, free from political
and business inuences, thought to cope with
technical matters and noteworthy tari settings,
as well as overseeing and monitoring the services
(Church & Ware, 2000).
When developing (or emerging) worlds embarked on
their accelerated privatization processes, they had
three models to draw inspiration on how to regulate
operators: the US, where since the early 20th century
regulatory agencies coexisted with a consolidated
system of regulation based on usage and practice,
the UK, where brand-new regulatory bodies and a
1. INTRODUCTION
novel regulatory framework were established when
privatization occurred, and the French system,
where agencies did not carry out regulation but
rather through contracts (Foster, 2005).
In Latin America, most countries mimicked the
British experience. Chilean privatizations were
contemporary to British ones, and regulatory
agencies in Chile were the rst to be created
under the British model (Brown et al., 2006)
3
.
Unlike Britain (and Chile), most Latin American
countries faced severe macroeconomic trouble.
The “original sin” of some developing countries’
privatizations stemmed from scal imperatives
and macroeconomic instability, coupled with
more genuine microeconomic objectives aimed at
technical and allocative eciency (Andrés et al.,
2008).
In the years following 1990, highly unstable
countries, such as Brazil, Argentina, Peru, and
Bolivia, began to stabilize their macroeconomic
landscapes. In some cases, this stabilization
was only transient (as in the case of Argentina).
Meanwhile, in other countries, stability endured
(such as in Brazil, Peru, Bolivia, and Uruguay),
while in a third group of nations, macroeconomic
instability was not a signicant concern (including
Colombia, Mexico, and Paraguay). Concurrently,
democratization progressed throughout the
developing world -partly as a dividend of the
peace following the end of the Cold War. In Latin
America, a new era of political stability emerged in
most countries.
Over three decades, the success stories in
privatization and independent regulation have
been concomitant (even when, to our best
knowledge, there is no formal analysis showing
at least a strong correlation) with the countries
3.- While some writers argue that Chile was the rst country to liberalize its electric sector, and while several reforms for privatization,
restructuring, and competition were introduced, starting in the 1980s; this did not mean the creation of a wholesale electricity market, and for
many years, the main generating company, and transmission and distribution companies, were under common ownership (Joskow, 2008)
(Fischer et al., 2000). We thanked an anonymous referee for this necessary caveat.
31
2. WHAT WERE THE FOUNDATIONAL PRINCIPLES
GUIDING THE DESIGN OF REGULATORY AGENCIES IN THE
DEVELOPMENT WORLD DURING THE 1990S?
where macroeconomic stability was achieved
and sustained and where democracy was
upheld (e.g., Chile, Brazil, Colombia). Conversely,
failures are concentrated in countries where
macroeconomic stability was not maintained, even
in the presence of democracy (e.g., Argentina),
where both the macroeconomic and the political
climates deteriorated (e.g., Venezuela), or where
the macroeconomy functioned well, but political
authorities’ bias changed towards some socialist
view (Bolivia). In these latter countries, some
utilities were renationalized, and regulatory
agencies lost autonomy, inuence, and/or power
(e.g., Argentina) or were eventually replaced by
new bodies, as was the case in Bolivia
4
.
We aim to discuss the design of regulatory agencies
in the 1990s, their role after privatizations, and
the imminent challenges arising in infrastructure
The fundamental premise underlying all the
regulatory agencies established in the developing
world after the 1990s is based on the “public
interest” conception of regulation, in opposition to
alternative normative or positive hypotheses aimed
at explaining regulation (Viscusi et al., 2005). The
rationale behind regulation within this paradigm is
that it serves as a response to market failures (such
as natural monopolies, technological externalities,
public goods, and asymmetric information). The
regulation mimics the behavior of pure competition,
providing a “second best” solution to the lack of
eective competition (Church & Ware, 2000).
Implicitly, the paradigm assumes some benevolence
on the part of the regulator (i.e., the regulator seeks
regulation due to technological advancements,
with a specic focus on Latin America.
In pursuit of this goal, we pose ve questions,
each of which we address in a dedicated section.
The rst section is this introduction. In the second
section, we try to understand the premises that
guided the design of regulatory agencies in the
developing world during the 1990s. In the third
section, we endeavor to identify specic aspects of
regulation in developing countries as compared to
developed ones. In the fourth section, we explore
what happened to regulatory agencies thought
to regulate private providers when these were
renationalized. In the fth section, we ask which
issues seem most lagged in the regional practice.
In the sixth section, we analyze some emerging
challenges for infrastructure regulators. Finally, in
the seventh section, we present our conclusions.
4.- The correlation between stable macroeconomics and better regulatory and energy infrastructure performance (and vice versa) is a stylized
fact easily veried in Latin America. Paradoxically, the theoretical explanations of the mainstream regulatory-economic literature focus on
structural particularities of developing countries, such as institutional weakness and contractual incompleteness (Laont, 2005; Estache &
Wren-Lewis, 2009), in the same way that several empirical works linked to concession renegotiations in Latin America summarized in Guasch
& Straub (2006), but leaving out theoretical links that study the relationship between macroeconomic stability and regulatory performance.
It could be a fertile eld of research to better understand this macroeconomic-microeconomic interaction with a signicant impact on
economic development. However, extensive literature has studied reverse causality, that is, how bad regulatory and/or tari policies aected
macroeconomic stability (Heymann & Canavese, 1988; Canitrot, 1983; Navajas, 2006).
to maximize social welfare), that market failures are
identiable, and that the problems they generate
can be tackled at relatively aordable costs.
The regulation includes taris primarily because
private unregulated monopolies would otherwise
set prices far above marginal costs. The second-
best facet of regulated taris stems from the
impossibility of aligning prices with marginal costs
in natural monopolies without driving them to
bankruptcy. Additionally, the regulation addresses
quality and service standards, as well as social,
health, or safety considerations, infrastructure
maintenance, and expansion. A signicant
contrast between infrastructure in developing and
32
developed lies in coverage, often only partially in
the former. In developing countries, regulators also
bear the responsibility of overseeing the completion
of infrastructure projects and accommodating
the needs of a growing population. However,
conceptually, distortions can arise from regulatory
actions akin to those activities arising from taxation.
Taxation can impose deadweight losses by
reducing quantities concerning non-taxed activities;
regulation can impose costs by limiting otherwise
optimal decisions of unregulated rms.
There are indirect costs associated with regulation,
and regulatory activity can also lead to failures,
particularly in developing countries (Estache & Wren-
Lewis, 2009). For instance, procedures may prove
ineective; decisions can be made with insucient
information, revealed of costly implementation, or
be biased to benet or the opposite of the regulated
operator. Certain decisions may be unsustainable
or inconsistent due to political interference, while
regulatory capture is an open possibility from
dierent stakeholders (e.g., rms, unions, organized
clients, politicians, etc.). Finally, regulators may not
always act benevolently or be capable of doing so.
The empirical importance of each potential failure is
a matter for further investigation.
In the 1990s, there were certain normative
assumptions surrounding regulatory agencies.
Nowadays, however, some of these assumptions
may have been relaxed based on experience, and
the focus is now on achieving ambition through a
“t to purpose” and “agile” (OECD, 2021) regulator.
The expression “t for purpose” is common in
modern regulatory jargon, indicating suitability for
the function for which it was created. The regulatory
agencies were initially conceived as “independent”
entities akin to central banks or judiciary. Trillas (2010)
discusses the regulator’s autonomy regarding
Central Banks. Endowed with some nancial
autonomy, shielded from political interference,
staed by capable and professional experts, and
possessing the ability to face and solve conicts
that routinely arise from the service operations,
regulators are entitled as arbiters between various
interests: consumers versus producers, producers
versus labor unions, producers versus politicians,
and current customers versus future customers
(Durand & Pietikäinen, 2020).
Berg (2013) points out the crucial role of a proper
institutional framework and technical consistency in
inuencing both the performance of the regulator
and the overall sector. His arguments are related
to institution building, which implies establishing
an adequate governance structure (concept
about the rules of the game) and implementing
correct substantive actions (in terms of game
development). Suitable performing regulators are
characterized by having adequate institutional
capacity (ability to decide in an objective, technical,
impartial, and integer way), organizational capacity
(to function eectively), and operational capacity to
enact reasonable regulations (Berg, 2013; Parker
& Kirkpatrick, 2002; Cubbin & Stern, 2004). The
expected outcomes of such regulatory eectiveness
include increased eciency in service provision (in
terms of both resource allocation and production),
sector expansion, investment levels, promotion of
competition, and quality of services, among other
variables (Brown et al., 2006).
Eective governance of regulatory agencies
demands clarity in roles and mandates, autonomy,
accountability, transparency, stakeholders’
participation, and community engagement, along
with the predictability of the regulatory interventions
(Cubbin & Stern, 2004). In the same vein, OECD
(2014) and IADB (2020) identify several best
practices as principles of good regulation, including
clearly dened roles, safeguards against undue
inuence on regulators, appropriate decision-
making mechanisms aligned with governance
structures, robust accountability and transparency
procedures, commitment to the task and
knowledge of the industry and its consumers,
adequate nancing to warrant independence,
and measuring of performance and impact of
regulations. The OECD has developed policy and
regulatory governance indicators for Latin American
countries (Querbach & Arndt, 2016).
Roitman et al. (2021) compile the principles of
regulatory governance following Brown et al. (2006),
identied as the classical model of independent
regulator plus the new roles added by the practice
and compiled by OECD in the Table reproduced
below.
33
In the classic model of a regulator, we envision an
agency characterized by political independence
(autonomy), technical solvency among its sta,
and budgetary autonomy (autarky-nancial
independence). This hypothetical and ideal
agency would be capable of resolving conicts,
setting taris, monitoring activities, and imposing
sanctions, if necessary, all while maintaining
neutrality. This body would engage in dialogue with
various stakeholders, including the government,
unions, customers, the media, and the community,
while remaining impartial and unbiased towards the
interests of all parties involved, including business.
The description of the preceding paragraph
represents an “ideal type” in the Weberian sense.
However, things can be somewhat dierent in the
developing world and Latin America because of
dierent reasons, such as institutional fragility, a
lack of political and nancial independence, limited
human capital, and challenges in attracting high-
quality regulators facing well-paid professional
managers. Depending on the country, none of these
reasons can be present
5
. Reforms in these regions
were coupled with the need to build reputation
Table 1: The classical and the new roles of independent regulators.
Source: Roitman et al. (2021).
3. Which specic features appeared in developing countries?
and credibility. Often, the groups that acquired
or were awarded concessions for infrastructure
services operated across multiple jurisdictions, with
dierent levels of expertise, regulatory traditions,
development/maturity of regulatory frameworks,
and experience, beneting from signicant
information and knowledge asymmetries. For
example, experienced and global groups such as
Suez, Repsol, Endesa, British Gas, Fenosa, etc.,
participated in several privatizations in the regions
during the 1990s in Latin American countries.
On the other hand, regulators were sometimes
appointed by former public servants, politicians, or
inexperienced (because the regulatory activity was
completely new) managers.
In the British experience, for instance, regulators
were granted the authority to issue (or revoke)
licenses, whereas in some Latin American
countries, such functions were sometimes retained
by the government (e.g., Argentina). Similarly, an
independent body functioned as an appellate court
of regulatory decisions in Britain, whereas in Latin
America, conicts between regulators and regulated
entities often required resolution by a ministry or
5.- For example, Querbach & Arndt (2017) identify deciencies, challenges, and opportunities for improvement in regulatory policy in seven
Latin American countries (in 2016) according to OECD regulatory governance standards.
34
secretary (e.g., Argentina). This administrative
channel (to appeal Regulatory agency’s decisions)
usually involves the executive branch, which, as
one of the parties to the concession contract, may
act as both judge and party in administrative appeal
resolutions. In parallel, countries such as Argentina
have a judiciary channel available to protect the
contract and, in addition, a foreign arbitrage court
(e.g., CIADI) when foreign investors participate to
be part of the process.
Regulators in developing countries are more
prone to political inuence, citizen pressures,
media scrutiny, and union activism. Concessions
have been suspended after unrest and protests
in Bolivia and Argentina (Ducci, 2007), while
regulatory agencies have been subject to “political
intervention”, including complete replacement with
new agencies in some cases (e.g., Bolivia).
Therefore, in Latin American countries, regulators
are not expected to enjoy the same level of
independence (both political and nancial) as
depicted in the textbook model. Instead, the
regulator’s independence must be intentionally
guaranteed by design and have a certain degree of
“antifragility” to withstand the signicant shocks of
political and economic instability typical in the Latin
American region and other developing countries.
Taleb (2014) denes antifragility as follows:
“Some things benet from shocks; … there is no
word for the exact opposite of fragile. Let us call
it antifragile. Antifragility is beyond resilience or
robustness. …. The antifragile loves randomness
and uncertainty, which also means— crucially— a
love of errors, a certain class of errors. Antifragility
has a singular property of allowing us to deal with
the unknown, to do things without understanding
them— and do them well…”. Taleb and Douly
(2012), in turn, have dened fragility and antifragility
technically as follows: “In short, fragility is related
to how a system suers from the variability of its
environment beyond a certain preset threshold …
while antifragility refers to when it benets from this
variability … that is, its sensitivity to volatility or some
similar measure of [the] scale of a distribution...
what has exposure to tail events suers from
uncertainty; typically, when systems … are made
robust to a certain level of variability and stress but
may fail or collapse if this level is exceeded, then
they are particularly fragile to uncertainty about
the distribution of the stressor, hence, to model
error, as this uncertainty increases the probability
of dipping below the robustness level, bringing a
higher probability of collapse. In the opposite case,
the natural selection of an evolutionary process
is particularly antifragile, indeed, a more volatile
environment increases the survival rate of robust
species and eliminates those whose superiority over
other species is highly dependent on environmental
parameters.”
In particular, in response to the practical challenges
faced by regulators in several Latin American
countries, Roitman & Valdez (2022) suggest the
following measures: a) implementing a second-
generation reform to allow greater competition in
the last mile of public services; b) clarifying of the
federal nature of regulators and a reducing the
proliferation of sectoral agencies (where applicable)
a better delimitation of jurisdiction; c) ensuring
an optimal sta adaptation with strict suitability
requirements (competitive exams) and stability of
the positions resulting from these competitions;
d) amending regulatory laws to require formal
approval by Congress for the appointment and
removal of board members, providing autonomy
but with certain exibility for coordination in the face
of political changes; e) empowering regulators to
act as competition prosecutors; f) modifying the
nancing mechanism of regulatory organizations to
ensure independence from the Executive Branch;
g) streamlining administrative processes and
accelerating digitization eorts; and h) establishing
the administrative career of national regulators.
The regulator’s independence is also more complex
when regulation involves state-owned enterprises,
an issue discussed in the next section.
35
In Latin America, there are subsets of countries that
re-nationalized (originally state-owned companies,
privatized, and nationalized again) privatized
enterprises and regulatory agencies (aimed to
regulate private rms) that continue operating (such
as in Argentina). Conversely, there are other cases
where regulatory agencies were established before
privatization; however, privatization never happened
(e.g., Uruguay and Paraguay).
Does it make sense? What arguments can be
raised, in pro or opposition, for the coexistence of
regulatory agencies regulating public enterprises?
We argue that there are compelling reasons to
justify the separation of the regulatory and the
operational activities. An autonomous regulator
has the potential to accumulate highly specialized
technical knowledge and expertise on the sector,
distancing itself from current political debates
and focusing on long-term considerations. This is
essential for preserving infrastructure, which has a
lifespan spanning decades and requires signicant
resources, particularly in countries where capital is
relatively scarce.
Consider tari setting, one essential objective of an
independent regulator is to set taris that reasonably
recover opportunity costs while balancing current
customers’ interests (who demand aordable and
high-quality services) with future customers (who
demand infrastructure longevity until they utilize
the service). The infrastructure can only endure
through regulated maintenance, which demands
reasonable taris. Opting for cheap services in the
short run may result in inadequate infrastructure (or
none) in the future. Politicians typically operate with
short-term perspectives in developing and unstable
countries. Regulators are intended to advise on the
risks of myopia on infrastructure.
On the other hand, the regulators must resist
pressures of all types. While technical expertise and
4. WHAT HAPPENED WITH REGULATORY AGENCIES WHEN
PRIVATIZED FIRMS WERE RENATIONALIZED OR
STATE-OWNED?
independence criteria are crucial, some political
expertise is helpful. As Berg (2008) highlighted,
independent regulators are established to reduce
the power/inuence of the infrastructure ministries
on providers and partially depoliticize planning and
control processes.
However, are there any guarantees of achieving
some independence once a rm is renationalized
(or never privatized)?
The regulated (state-owned) rm may wield
signicantly more power than the regulator.
Examples may include water companies ESSAP
(Paraguay), OSE (Uruguay), and AYSA (Argentina)
in comparison to their respective regulators.
The recommendations remain consistent whether
private enterprises or state-owned rms provide
the service: independence can be formally granted
if the agency is created by law, regulators are
appointed by due process, ideally with terms not
synchronized with political cycles, granting some
degree of nancial autonomy or independence,
and ensuring the decision process is professional
and transparent. While all these conditions are
necessary, they are not sucient on their own.
As for sucient conditions, the regulator design
should incorporate “antifragile” features that
permit exibility to adapt its direction in response
to political changes in the executive branch. These
exible design characteristics may prevent a
compromise of independence and, simultaneously,
recognize the importance of maintaining continuity
in the regulator’s authority to develop and sustain
infrastructure.
To further enhance the regulator’s “antifragility” in
the face of political changes, one approach could
involve ensuring that when appointing members to
the board of directors, there is political consensus
36
from Congress (while still appointing them based
on meritocratic principles), akin to the directors of
central banks. Additionally, the board president
could be subject to replacement by two-thirds
of the chamber’s votes in an extraordinary but
regulated manner each time there is a change in
the head of the executive power.
What were the practices in the region during the
pre-privatization age?
They were highly diverse. For instance, in Uruguay,
taris typically covered opportunity costs, with
natural gas distribution being an exception.
Moreover, public enterprises often generated
surpluses that were sent to the Treasury. In contrast,
Argentina followed a dierent approach, with
politically determined taris being the norm (with
some exceptions in specic periods). The country
has a long history of ination, and the Treasury
often had to provide subsidies to state-owned
enterprises (and private ones in recent years).
The experience in the rest of the region varies.
For instance, Chile, which enjoyed well-nanced
privatized infrastructure before 1990, exhibited
practices like Argentina’s in the early 1970s, which
were considered risky.
Public-owned enterprises are complex entities,
with multiple “principal” stakeholders setting goals
and objectives, making it challenging to dene a
clear objective function such as prot maximization,
as seen in private corporations. Politicizing and
patronizing can pose signicant threats to the
function of public enterprises. Much of the economic
analysis on regulatory processes within contexts of
multi-principal-agent models was predominantly
regulatory. Studies by Bernheim & Whinston (1986)
and Martimort (1996) are notable examples.
A dierent perspective of the problem arises
from approaching the regulatory process through
positive analysis, viewing it as the outcome of
constrained optimization and motivated by the
bid of various interest groups for government
intervention. Peltzman (1976), Stigler (1971),
Becker (1983), Rees (1984), Piano (1989),
Baron (1988), Spiller (1990), Navajas (1992) and
Estache & Martimort (1999) have contributed
to this eld by emphasizing the importance of
modeling the political inuence of economic
agents participating in the regulatory process.
Fiscal and, in general, macroeconomic constraints
often loom over public enterprises, as suggested
by Canitrot (1983), Heymann & Canavese (1988),
and González (1990). State-owned enterprises
may rely on the Treasury to cover OPEX and often
require government funding for CAPEX (as noted
by Rozas Balbontín & Bonifaz, 2014).
Adhering to sound practices is crucial for public
enterprises, including accountancy practices that
separate their nancial activities from those of
the Administration, ensuring competition where
possible, providing open access to essential facilities
in competitive stages, practicing transparent cross-
subsidies among activities, and accurately costing
all activities attributed by the government that no
private enterprise would develop otherwise as
advocated by Baztarrica & Irrazábal (2020).
37
When the regulatory reforms began, the initial
regulators were designed to replicate the formal
structure of British regulators, committed to
eciency gains (Durand & Pietikäinen, 2020).
However, economic and political challenges unique
to the region conditioned the results, leading to the
evolution of regulatory bodies from a normative
approach of regulators to a “positive” model
regulator (Roitman et al., 2021). The eectiveness
of these regulators is often contingent upon their
institutional autonomy, the federalism dimension,
the degree of transparency, and public participation.
The literature on the governance of regulatory
agencies acknowledges several approaches.
Drawing from new economic institutionalism,
the Principal-Agent framework addresses why
independent regulators should be established.
The consensus is that such regulators protect
investments before political risk or government
opportunism (Cubbin & Stern, 2006; Brown et
al., 2006). The delegation occurs to improve the
credibility of policy (Gilardi, 2002; Stern & Trillas,
2003; Thatcher, 2005; Montoya & Trillas, 2007).
The central questions from the political science and
public administration literature are: Why did the
independent regulator’s model spread? And why
are there variants of the model?
In the rst case, the response is the need to protect
overseas investments in a time of globalization
(Jordana & Levy-Faur, 2005 and 2006; Gilardi et
al., 2006); while in the second one, variations of
regulatory agencies are explained by domestic
congurations (Murillo & Martínez, 2007 and 2011).
The infrastructure literature concerning good
international practices answers the question: How
should independent regulators function? Bringing
primary conditions for good regulatory governance
(Brown et al., 2006; OECD, 2005, 2011, 2012,
2014, 2016).
Empirical economic studies and qualitative
political science literature also ask: How is the
practice of independent regulators? The answer
5. WHICH ISSUES ARE THE MOST LAGGED?
shows evidence of the positive role of independent
regulators in the regulated sectors (Cubbin &
Stern, 2004; Pratt & Berg, 2014; Pérez & Pérez,
2016). Conversely, it shows the unfavorable
eects of the absence of good governance (Pratt
& Berg, 2014; Singh et al., 2016). Additionally,
some authors discuss the credibility and
legitimacy of the regulators (Jordana & Ramió,
2009; Parrado & Salvador, 2011), while others
observe the discrepancy between formal and
“de facto” autonomy (Jordana & Ramió, 2010;
Groenleer, 2014). In recent years, the regulatory
reality of some Latin American countries shows
that “de jure” does not necessarily imply “de facto”
autonomy, and vice versa.
Political interference and lack of nancial resources
are universally discussed. In some cases, the
regulatory agencies are nanced with resources that
are part of the national budgets, while in other cases,
with resources directly collected or contributed
by regulated entities. However, in both cases,
regulators often lack control over their revenues,
expenditures, and execution, as they ultimately
depend on central government authorization by
public sector nancial management regulations.
Despite having their sources of nancing, they are
still integrated into the National Budget, subjecting
them to the budgetary management aected by
the decit levels and the goals to be achieved by
the central economic management due to public
accounting criteria (Roitman & Valdez, 2022).
Human resources present another concern: the
impossibility of remunerating them at the levels of
private industry, threatening talent acquisition and
retention, and the potential for former regulators
to transition into industry roles (López Azumendi,
2016). Additionally, temporary appointments
lacking the legal shielding to destitution bypass
formal conditions for appointing directors.
Independence and autonomy in regulatory
agencies usually require to be completed with
accountability to prevent the perils of excessive
autonomy and independence, which can hinder
the due equilibria of interests the regulator should
38
respect. Accountability entails transparency in
regulatory actions, including the public disclosure
of information to the public and the stakeholders,
and, in general, making explicit the arguments
behind each decision (Baldwin et al., 2012).
Many Latin American countries have enacted
legislation promoting transparency and access
to public information. However, the quality and
quantity of information disclosed on regulators’
websites in this region often lag behind those of
developed countries. Chile, Brazil, Colombia, and
Mexico show similar results to OECD members
(Mexico and Chile belong to the organization), and
the rest of the countries are behind developed
Alongside the 1990s discussion on independent
regulators, new challenges arise from technological
advances and evolving regulatory practices that
add to regulators’ functions. These developments
underscore the need to modernize, merge,
transform, or change regulatory practices and
responsibilities. One sound addition to regulatory
functions is the analysis of the regulatory impact
(RIA), along with new channels to promote the
participation of the stakeholders and transparency
(Roitman et al., 2021).
RIA analysis originated in the OECD in 1997, which
denes it as a method for systematically evaluating
regulatory impacts. Harrington & Morgenstern
(2004) propose three tests to be applied to regulatory
measures on an ex-post basis, while OECD (2004)
provides a manual for several practical situations.
RIA studies have been conducted in Colombia,
Brazil, Chile, and Peru, among other Latin American
countries. In Colombia, decree 2696/2004
established a framework for evaluating the impact
of regulation, verifying whether the results adjusted
to regulatory objectives. For Brazil, de Carvalho
et al. (2019) propose RIA to evaluate the potential
specic eects of a regulatory measure on water
and sanitation services. Additionally, in Brazil, the
power regulator (Agência Nacional de Energia
Eléctrica, ANEEL) employs RIA to determine if the
potential benets of a regulatory measure outweigh
countries (Durand & Pietikäinen, 2020). Some
regulators’ websites may lack updated information
or provide insucient details. Critical information
such as budgetary issues, procurement details, and
audit results may also be missing. Moreover, the
presentation of information on these websites may
not be user-friendly, making analysis challenging
(Roitman et al., 2021).
6. WHAT’S NEW IN INFRASTRUCTURE REGULATION?
the estimated costs. In 2021, ANEEL issued a
guide for RIA assessment (Ministério de Economia
do Brasil, 2022). Chile has also developed RIA by
Law 20199/2017 for natural gas, while Peru has
enacted Law 25844/1992 for the electric industry.
Estache & Serebrisky (2020) highlight the potential
of new information technologies and big data as
valuable tools for regulatory task improvement
while cautioning about the necessary regulatory
changes needed to reap their fruits. They
also discuss the possibilities yielded by new
developments in experimental economics for
behavioral studies and the use of “nudges” to
achieve regulatory objectives. These issues are
essential before the new challenges in terms of
scarcity of resources, environmental damages that
hinder the infrastructure and the services, and the
governance of regulated sectors.
Even when new functions and possibilities
emerge for regulators, no new body of knowledge
consolidates all the theory, the experience learned,
and the new challenges. Roitman et al., 2021)
outline several new challenges in a non-exhaustive
list, including:1) reduction and simplication of
regulations to improve productivity, 2) regulation
based on data and digital transformation of the
regulator, 3) regulation of innovation, 4) regulation
based on evidence, 5) customer-centric regulation,
39
and 6) new institutional communication and
reputational management of the regulator. The
common thread among these challenges is the
centrality of information in the digital era.
Georgieva et al. (2021) also discuss the roles and
attributions of reform committees in improving
productivity, nding that, in most cases, the
executive power is involved in appointing
committees’ members, raising concerns about
their independence from politics and that in most of
the committees, the private sector is represented.
They also report some variability of practices among
countries.
The common thread among these challenges
is the centrality of information. Querbach & Arnt
(2017) emphasize substantive issues, such as the
requisites of mandatory revision of regulations,
threshold tests to allocate resources eectively,
and analyzing the cumulative eects of regulations
in specic sectors.
Concerning digitalization, the discussion is
embedded in a broader debate related to the fourth
industrial revolution, on the one hand, and digital
government, on the other. The characterization of
the technologies in each industrial revolution (IR) is
as follows: 1) The First IR used water and steam
power for mechanization. 2) The Second IR applied
electricity to create mass production. 3) The Third IR
employed electronics and information technology
for automation. 4) The Fourth IR combined physical,
digital, and biological technologies in disruptive
ways (Ferro, 2021).
OECD/IEA (2017) describes the current state of
digitalization in energy sectors and tries to delve
into its possible future evolution, analyzing its
impact on public policy, rms, and consumers. The
study recommends that governments focus on
developing a digital experience among their sta,
ensuring access to opportune, solid, and veriable
data, adding exibility to their policies to adapt to
new technologies and innovations, experimenting
with new information technologies, fostering
debates on digitalization, researching digitalization,
promoting equitable access to digitalization, and
learning from the experience.
Regulation based on experience is one goal the
RIA allows and is enthusiastically endorsed by
international agencies as good practice. This
mechanism permits transparent regulator activity,
encourages participation and discussion, and, in
the end, fosters regulatory improvement. Peacock
et al. (2018) outline the advantages and barriers
regarding internal procedures, nancial resources,
and complexities of transforming raw data into
valuable information, and the utility and importance
of planning, evaluation, and prediction. They
recommend entitling experts to the study of an ideal
regulation process based on evidence, providing
access to all data available for the regulator,
setting norms of eective mandatory enforcement,
incentivizing competition between regulators
for innovative solutions, and giving exibility for
experimenting with new solutions, among others.
The interests and desires of the customers are
cumbersome in the new reality. Government
and regulators should pay special attention to
consumers’ needs, expectations, and opinions
when designing policies and actively involve them
in the regulatory process (Roitman et al., 2021).
Customers would demand (and pressure for) more
integrated services than in the past and would rest
on more proactive management from governments
and regulators (OECD, 2019). World Bank (2020)
oers examples of regulatory governance with
Integrated Service Delivery, which combines
multiple services in a location to be centered on the
usuaries. Beyond the single-window approach, one
single agency can centralize the services before the
clients by organizing, integrating, and simplifying
registration, licensing, and inspection made by
all the regulators involved, bridging front-oce
and back-oce, and the technology to integrate
them. The aimed results are an improvement in
the service, government eciency, supervision,
regulatory enforcement, and the addition of tools
against corruption.
In an era of more digital relations with consumers,
a not negligible challenge is the regulator’s
institutional communication and reputational
management. Part of this is the horizontalization
of communication because social networks can
directly aect the regulated rms’ and regulators’
reputations. Eective communication becomes
40
critical, and damage control should be considered.
Carpenter (2010) suggests that “…when trying
to account for a regulator’s behavior, look at the
audience… and the threats”. Busuioc & Rimkutè
(2020) add that reputation is multidimensional
and implies good technical records, capacities,
procedures, and ethical image.
Conceptually, bureaucratic reputation is made of
1) a particular vision indicating the contribution
of the agency to the public good, 2) the
multifaceted nature of reputation, 3) the existence
of multiple audiences (consumers) with disparate
expectations, and 4) the context of the knowledge
society and the tendency to blame a responsible.
Thus, the reputation is always in danger. Thus, the
regulators’ responses before the public condemn
the selective use of communication. Reputation is
an asset, a valuable resource to gain and preserve
independence. An agency can be closed if its
reputation deteriorates, and conicts can escalate
to levels that justify the former. Lewis (2002) nds
that almost two-thirds of American agencies
created between 1946 and 1997 had been
canceled, primarily because of political reasons.
On the other hand, the reputation management of
the agency can move toward a very strategic use
of communication (Bach et al., 2021).
After the globalization wave of capitalism in the
1990s, infrastructure sectors were reset in most
of the developing world. From state-owned
enterprises, energy and water sectors were
privatized in numerous countries, and regulation of
these activities was delegated to new, technically
oriented, politically independent, and nancially
autonomous agencies. Those bodies used the
accumulated experience of Britain, which had
undergone recent privatizations, and the US,
which had a long tradition of regulatory agencies
at the federal and state levels.
This paper aimed to discuss the 1990s
regulatory agencies’ design and their specics
in developing countries, with a focus on Latin
America. It sought to explore how these agencies
adapted to challenges, such as the reversal of
some privatizations, and to anticipate the new
challenges that infrastructure regulation will face
due to ongoing technical advancements. It tries to
understand the premises under which regulatory
agencies were designed in the developing world in
the 1990s. One fundamental premise was to shield
these agencies from undue political interference
7. CONCLUSIONS
and to preserve a double role to the regulator: a
mimic of competition (inducing some conducts by
controlling structure and monitoring performance)
and an impartial referee between interests.
The tools were political insulation, technical
endowment, and nancial autarky. However,
circumstances and practices in developing
countries sometimes threaten or impede the new
regulators’ expected functioning (or performance).
Political and economic pressures and long-
established patronizing practices jeopardized
the textbook agencies. They must adapt to local
conditions. Some countries with more mature
institutions survived and produced good results; in
others, their functioning has sometimes interfered,
and in a third group, they were even eliminated.
It was suggested that the regulator’s independence
must be guaranteed by design and have a
certain “antifragility” (as dened by Taleb, 2014)
to overcome the strong political and economic
instability shocks typical of countries in the Latin
American region and others in the developing
world, giving a degree of exibility to institutions
that are “work in progress.” These institutional
41
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A group of countries privatized and renationalized
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