Government roles in Energy sector, and lessons for Regulators

1. Government roles in Energy sector, and lessons for Regulators Victor Parlicov, General Director (Chairman), ANRE, Moldova vparlicov@anre.md Quebec, May 14, 2012

2. The market perspective… Government Often holds large stakes in companies and gets involved with their activity… Government Is one of the largest consumer itself, and is responsible for social security... Governmentas policy setter and exponent of political will Governments have multiple, and often conflicting roles. As Regulators we need to acknowledge them and understand how priorities are set among them, even when those are not explicit…

3. Regulator – Gov’t as Policy-maker.Challenges • Division between policies and specific projects is often very vague, especially in small countries • Policies often change faster than investment payback periods, sometimes following a situational and even contradictory pattern, e.g.: • Fukushima => German nuclear moratorium • RES FiTs, CHPs “must run”, Long-term PPAs don’t stack with a competitive market in generation • Energy policies and strategies are rarely established within a participative process and after accurate calculations, e.g. 20/20/20. • Energy policies are often subject to larger “geopolitical” considerations • Policy making can be politically sensitive on consumers opinion (especially households)

4. Regulator – Gov’t as Owner.Challenges • Generally Governments are less efficient owners compared to private sector • Sometimes it’s a matter of capacity to properly assess efficiency of their companies / assets use. • Sometimes Government, unlike a private owner, is not pursuing maximization of profit • Management of SOEs could be confused, as Government and Regulators have contradictory opinions, e.g. regarding investment programs • Sometimes Government uses its influence in large generators to manipulate fragile markets

5. Regulator – Gov’t as Consumer and Social Security. Challenges • Government is one of the largest consumers: • In some cases pays its bills and doesn’t get involved with Regulator as a consumer • In other cases uses energy sector as a source of credit (not paying in time) and puts pressure on Regulator • Government is responsible for protecting vulnerable consumers (social security) • Affordability becomes an increasingly sensitive issue • While big consumers develop their own lobby, small consumers (households) are rarely represented professionally before Regulators or Government

6. Suggestions for Regulators • Communication with all “hats” of Government: • Once independent, avoid repeating / insisting on it… • Stability in regulation builds trust of investors over time. It is very difficult to build trust, and easy to undermine it. • When Government interferes with tariffs, it associates with tariff, and the next time tariffs raise, Politicians also take the blame • Partner for the strategy development process: be the Government’s eyes and ears in the sector, provide data • Beware! Regulators are not The Holy Truth either! • Communication with the public • Develop relations with media to informing the public on the agenda in the energy sector, as well as potential costs and benefits • Surveys of consumer expectations, especially households • Why Regulators? Because it is in their best interest!

7. Thank You For Your Attention Q & A Victor Parlicov, General Director (Chairman), ANRE, Moldova vparlicov@anre.md Quebec, May 14, 2012