INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships

1. INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships Tuesday 17-Thursday 19 March 2009

2. Regulatory Structure in Oman ABDULRAHMAN ALHARTHY Moscow March 2009

3. Presentation Schedule Introduction to Regulatory Structure in Oman Structure of Electricity Market in Oman and its Regulation Application of INTOSAI Guidelines in audit of Electricity Regulation Findings of audit of Electricity Regulation in Oman

4. Regulatory Structure in Oman Economic regulation Exercise of control by the Government over suppliers of services to consumers. Off-shoot of privatization process - Need to check monopolistic power of vital utilities now in private ownership Need for Arbitrator - Need to balance legitimate interests of the consumer against those of the supplier: how to secure a fair service for a fair price.

5. Mandate of State Audit Institution for audit of Regulatory Bodies Audit of Financial services regulation -Financial Services regulation through Capital Market Authority regulates issue and trading of securities as well as regulation of the insurance sector and Central Bank of Oman which regulates the Banking Institutions - SAI audits only Capital Market Authority

6. Mandate of State Audit Institution in audit of regulation of Telecommunications Telecom Regulatory Authority established in 2002 to liberalize and promote telecommunications services Objectives of TRA regulating telecom services promoting interest of telecommunications services providers and beneficiaries ensuring that consumers receive international standards of services with reasonable choices at affordable prices. Audited by State Audit Institution

7. Mandate of State Audit Institution in audit of Electricity Regulation All electricity related activities used to be run as government departments by Ministry of Electricity. Government notified a legal framework in 2005 and created Authority for Electricity Regulation. Authority for Electricity Regulation established as an independent entity responsible for public interest regulation of electricity sector under state law Audited by State Audit Institution

8. Functions of Authority for Electricity Regulation The Authority shall: Secure provision of electricity and related Water services in all parts of the Sultanate and protect interests of Customers Encourage promotion of competition in public interest in electricity and related Water sector Secure and develop safe, effective and economic operation of electricity and related Water sector and to enhance safety of the public Secure Security of Supply in the country

10. Structure of Electricity Sector Activities were unbundled into separate companies Generation, Transmission Distribution. Companies operate under licence issued by the Regulator and also under the Economic Regulation put in place by the Regulator Regulator is responsible for safeguarding interest of customer and investors.

12. Ownership of Firms in Electricity Sector As of now 6 out of 8 generation companies are in private sector Government owned Transmission Company is in process of being privatized Government owned Distribution & Supply Companies (three in number covering three geographical regions) are planned to be privatized in near future State Audit Institution audits the Government Owned Companies separately

13. Application of INTOSAI Guidelines in Audit of Electricity Regulation

14. Audit of Authority for Electricity Regulatory (AER) Audit of AER in Oman conducted in 2008 Audit conducted keeping in view INTOSAI Guidelines and the criteria developed

15. Findings of Audit of Electricity regulation Regulatory framework - AER found to be independent and autonomous Objectives, functions and power - Objectives clearly laid down in the Law Impartiality - Found to be functioning and perceived as impartial Information needs - Information systems exist and there is a system of validation Accountability - Accountable to Council of Ministers and the sector law provides for independent Audit by SAI, Oman

16. Supply of service Consumer access - Customer complaint handling mechanism exists. No instances of discrimination by any licensee till date. Supply to vulnerable consumers - Being safeguarded in the form of deferring disconnection, and waiver of arrears, if justified Dealing with customer complaints - Well publicized procedures exist and complaints are satisfactorily handled and documented

17. Price of service Controlling prices - Pricing regime is transparent and well devised with incentives to licencees. Linking price to quality - Standards found to exist Encouraging supplier efficiency - Improved dispatch procedures resulted in reduction in subsidy per unit. There is further scope for improvement in dispatch.

18. Developing Competition Reducing monopoly and market domination - Only Generation market is liberalized. Conditions are conducive to new entrants Promoting consumer choice - AER is working to introduce competition in Supply in the near future Combating anti-competitive practices - Systems exist to enforce market share and economic interest restrictions to prevent monopoly

19. Thank You

20. INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships Tuesday 17-Thursday 19 March 2009

21.  Modernization Project for External Control of Regulation 

22. Modernization Project for External Control of Regulation  Why? The need for a specific project in the area of regulation control arose after identifying opportunities for advancing the work that was being carried out, not only in areas already under TCU’s oversight but also regarding new objects of external control of state regulatory activities in the field of infrastructure. The need for perfecting the planning, organization, and management models of external control regulation; Uncertainty regarding the ideal structure for efficient and effective regulation control; Difficult access to data bases and to the information available within the scope of the regulating agencies; Lack of a clear definition of the role and scope of TCU control over regulating agencies; Difficult access to information sources regarding doctrines, theories, and practices on privatization, regulatory reform and state regulation. Lack of consolidated knowledge on regulatory reform and state regulation, especially in national literature; Scarcity of regulation control methods and techniques. Need to consolidate and systematize the methods and techniques that have been employed by TCU when performing regulation control. Lack of a communication and dissemination strategy regarding control of regulatory activities to meet the needs of different target audiences who are on the receiving end of control information, determinations and recommendations. Insufficient interaction with the public linked to the privatization and regulation processes. Why? The need for a specific project in the area of regulation control arose after identifying opportunities for advancing the work that was being carried out, not only in areas already under TCU’s oversight but also regarding new objects of external control of state regulatory activities in the field of infrastructure. The need for perfecting the planning, organization, and management models of external control regulation; Uncertainty regarding the ideal structure for efficient and effective regulation control; Difficult access to data bases and to the information available within the scope of the regulating agencies; Lack of a clear definition of the role and scope of TCU control over regulating agencies; Difficult access to information sources regarding doctrines, theories, and practices on privatization, regulatory reform and state regulation. Lack of consolidated knowledge on regulatory reform and state regulation, especially in national literature; Scarcity of regulation control methods and techniques. Need to consolidate and systematize the methods and techniques that have been employed by TCU when performing regulation control. Lack of a communication and dissemination strategy regarding control of regulatory activities to meet the needs of different target audiences who are on the receiving end of control information, determinations and recommendations. Insufficient interaction with the public linked to the privatization and regulation processes.

23. Modernization Project for External Control of Regulation Schematic diagram

24. Modernization Project for External Control of RegulationDiagnosis Products INTERNAL DIAGNOSIS Mapping of Sefid organizational processes Comprehends an inventory of the organizational processes of Sefid as well as defining and documenting these processes; Mapping a total of 47 organizational processes and subprocesses; Suggestions for implementation and improvement of the mapped processes; Publication of the processes registration on the Intranet. Mapping of Sefid methods and techniques Comprehends making an inventory of the methods used in regulation control and documenting them. Inventory and documentation of 24 methods and techniques; Publication of the methods and techniques on the Intranet; EXTERNAL DIAGNOSIS Mapping of processes and risks in the regulating agencies In order to draft a performance strategy, the SAI should understand how the regulated sectors operate and how the regulating agencies are structured. The resources allotted to audits are always limited in a way and this makes selection of the areas and agencies to be audited an essential issue. Following INTOSAI guidelines, TCU attempted to have its technical staff identify and master the essential knowledge regarding the regulating agency, complementing this with the support of external specialists. With the purpose of creating a map of the regulated sectors and of the effect of this risk on regulatory activities, we observed the importance of taking into consideration the perceptions of risk of the technicians of the agencies. From this point on, a methodology for identifying risk, based on COSO II, was developed. Created together with the Getulio Vargas Foundation – FGV, the methodology for making an inventory and analyzing the risk enabled us to identify, for each one of the regulated sectors, which are the risk events that could interfere in the activities of the regulating agencies that are under TCU’s jurisdiction, classifying these activities according to the dimension of the risk associated to them and according to the criteria of materiality, relevance and probability of occurrence. The outcome of this effort resulted in a diagram in which it is possible to identify the level of risk to which the regulating agencies are exposed by macro process, by process, and by regulatory objective. This information is important for control because it enables us to direct our audits to the areas that have greater impact. Mapping of computer systems of regulating agencies under Sefid’s jurisdiction. Mapping of approximately 400 computer systems in 8 regulating entities (National Oil, Natural Gas, and Biofuels Agency - ANP, National Ground Transportation Agency - ANTT, National Water Transportation Agency - Antaq, National Telecommunications Agency - Anatel, National Electricity Agency - Aneel, Electronic Communication Secretariat of the Ministry of Communication - SCE/MC, Undersecretariat of Postal Services of the Ministry of Communication - SSPO/MC and Brazilian Postal Service - ECT); Identification of information relevant to regulation control; Identification of technical requirements and proposal of a model for electronic exchange of information; INTERNAL DIAGNOSIS Mapping of Sefid organizational processes Comprehends an inventory of the organizational processes of Sefid as well as defining and documenting these processes; Mapping a total of 47 organizational processes and subprocesses; Suggestions for implementation and improvement of the mapped processes; Publication of the processes registration on the Intranet. Mapping of Sefid methods and techniques Comprehends making an inventory of the methods used in regulation control and documenting them. Inventory and documentation of 24 methods and techniques; Publication of the methods and techniques on the Intranet; EXTERNAL DIAGNOSIS Mapping of processes and risks in the regulating agencies In order to draft a performance strategy, the SAI should understand how the regulated sectors operate and how the regulating agencies are structured. The resources allotted to audits are always limited in a way and this makes selection of the areas and agencies to be audited an essential issue. Following INTOSAI guidelines, TCU attempted to have its technical staff identify and master the essential knowledge regarding the regulating agency, complementing this with the support of external specialists. With the purpose of creating a map of the regulated sectors and of the effect of this risk on regulatory activities, we observed the importance of taking into consideration the perceptions of risk of the technicians of the agencies. From this point on, a methodology for identifying risk, based on COSO II, was developed. Created together with the Getulio Vargas Foundation – FGV, the methodology for making an inventory and analyzing the risk enabled us to identify, for each one of the regulated sectors, which are the risk events that could interfere in the activities of the regulating agencies that are under TCU’s jurisdiction, classifying these activities according to the dimension of the risk associated to them and according to the criteria of materiality, relevance and probability of occurrence. The outcome of this effort resulted in a diagram in which it is possible to identify the level of risk to which the regulating agencies are exposed by macro process, by process, and by regulatory objective. This information is important for control because it enables us to direct our audits to the areas that have greater impact. Mapping of computer systems of regulating agencies under Sefid’s jurisdiction. Mapping of approximately 400 computer systems in 8 regulating entities (National Oil, Natural Gas, and Biofuels Agency - ANP, National Ground Transportation Agency - ANTT, National Water Transportation Agency - Antaq, National Telecommunications Agency - Anatel, National Electricity Agency - Aneel, Electronic Communication Secretariat of the Ministry of Communication - SCE/MC, Undersecretariat of Postal Services of the Ministry of Communication - SSPO/MC and Brazilian Postal Service - ECT); Identification of information relevant to regulation control; Identification of technical requirements and proposal of a model for electronic exchange of information;

25. Modernization Project for External Control of RegulationExternal Diagnosis Products

26. Modernization Project for External Control of RegulationExternal Diagnosis Products – Main Results

27. Modernization Project for External Control of RegulationDevelopment Products Example: In relation to the National Electricity Agency - Aneel, the most critical finalístico process that was detected by the risk mapping was the economic financial regulation process, due to risk events related to tariff modesty and efficiency. Particularly it was found that the highest risks reside in the market regulation and tariff regulation processes according to the criteria of probability of occurrence, materiality, and relevance. The type of event that presented the most risks to the activities of the agency was “data and information”, followed by “legal instability” and “institutional coordination”. Based on this result, TCU initiated studies aimed at improving its knowledge of the economic-financial aspects of the agency and, with this in mind, developed a new model of control designed to mitigate the risks related to the most critical processes and to the risk events associated to “data and information”. This model covered issues related to the impact of information asymmetry on regulation activities, focusing on the problem of measuring assets that are the remuneration base of the companies that distribute electricity. In 2009, TCU expects to start an audit to investigate the existence of problems resulting from the asymmetry of accounting information among the electricity distributors and Aneel, concerning the measurement of the remuneration base. To achieve this, we will use the audit planning matrix created within the scope of the control model developed.Example: In relation to the National Electricity Agency - Aneel, the most critical finalístico process that was detected by the risk mapping was the economic financial regulation process, due to risk events related to tariff modesty and efficiency. Particularly it was found that the highest risks reside in the market regulation and tariff regulation processes according to the criteria of probability of occurrence, materiality, and relevance. The type of event that presented the most risks to the activities of the agency was “data and information”, followed by “legal instability” and “institutional coordination”. Based on this result, TCU initiated studies aimed at improving its knowledge of the economic-financial aspects of the agency and, with this in mind, developed a new model of control designed to mitigate the risks related to the most critical processes and to the risk events associated to “data and information”. This model covered issues related to the impact of information asymmetry on regulation activities, focusing on the problem of measuring assets that are the remuneration base of the companies that distribute electricity. In 2009, TCU expects to start an audit to investigate the existence of problems resulting from the asymmetry of accounting information among the electricity distributors and Aneel, concerning the measurement of the remuneration base. To achieve this, we will use the audit planning matrix created within the scope of the control model developed.

28. Modernization Project for External Control of RegulationDevelopment Products

29. Modernization Project for External Control of RegulationDevelopment Products

30. Modernization Project for External Control of RegulationSustainability Products The sustainability of actions of the Project must be achieved by strengthening TCU’s relations with the target audiences who have an interest in the field of regulation, as well as in the strategy of collection and treatment of the data necessary for the external control of the regulating agencies. With this purpose, a diagnosis of the target audiences was carried out and the Center for Studies on Regulation and Control - Cerc was implemented The second sustainability product is the Center for Studies on Regulation and Control - Cerc, defined as a forum for organizing information designed to support the activities developed by Sefid/TCU and for fomenting and disseminating the knowledge associated with control and regulation of delegated public services. The sustainability of actions of the Project must be achieved by strengthening TCU’s relations with the target audiences who have an interest in the field of regulation, as well as in the strategy of collection and treatment of the data necessary for the external control of the regulating agencies. With this purpose, a diagnosis of the target audiences was carried out and the Center for Studies on Regulation and Control - Cerc was implemented The second sustainability product is the Center for Studies on Regulation and Control - Cerc, defined as a forum for organizing information designed to support the activities developed by Sefid/TCU and for fomenting and disseminating the knowledge associated with control and regulation of delegated public services.

31. Modernization Project for External Control of RegulationImpact for the SAI

33. INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships Tuesday 17-Thursday 19 March 2009

34. TCU’s Action Strategy and Main Results in Overseeing Power Sector Regulation

35. TCU’s external government auditing and its work with regulatory bodiesStrategy Map of the Brazilian Court of Audit (TCU)

36. TCU’s external government auditing and its work with regulatory bodies Strategy Map of the Brazilian Court of Audit (TCU)

37. TCU’s external government auditing and its work with regulatory bodies Strategy Map of the Brazilian Court of Audit (TCU)

38. TCU’s external government auditing and its work with regulatory bodies Strategy Map of the Brazilian Court of Audit (TCU)

39. TCU’s external government auditing and its work with regulatory bodies TCU’s work

40. TCU’s external government auditing and its work with regulatory bodies TCU’s Role in Overseeing Regulation

41. Successes and challenges of Brazilian regulation Regulation in Brazil

42. Successes and challenges of Brazilian regulation Separation of Roles and Inter-Institutional Coordination

43. Successes and challenges of Brazilian regulationLower Rates

44. Successes and challenges of Brazilian regulation Quality

45. Successes and challenges of Brazilian regulation Universal Access and Expansion of Supply

46. Successes and challenges of Brazilian regulation Increased Competition

47. Successes and challenges of Brazilian regulation Continuity of Service

48. Successes and challenges of Brazilian regulation Fair Rate of Return

49. Successes and challenges of Brazilian regulation Environmental Sustainability

50. Conclusion

52. INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships Tuesday 17-Thursday 19 March 2009