Report examines competition and regulation in network-based public services

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A report submitted in April 2000 by a working party of France's National Economic Planning Agency advocates various measures to combine the introduction of competition into the "network-based" public sector (eg transport and utilities) with the "fulfilment of a public service role". The report suggests setting up independent regulatory agencies, creating procedures and indicators to gauge efficiency gains and introducing new ways of managing public enterprises. The trade unions expressed certain misgivings over these recommendations.

Against a backdrop of the European Union-related introduction of competition in "network-based" public sector activities (such as transport and utilities), in 1998 the National Economic Planning Agency (Commissariat Général du Plan) set up a working party, chaired by Jean Bergougnoux (a former general manager at the EDF electricity company and former chair of the SNCF railway board) and made up of heads of public and private companies, academics and the social partners. The group was charged with coming up with proposals on new roles to be assumed by the government as both the regulator of public services and the largest shareholder in the major state-owned network-based companies. The mission of the working party was to pay special consideration to "the practical arrangements for the development of fair competition consistent with a commitment to the general interest and public service, as well as the role of the public sector shareholder and the review of regulatory reforms." The group's report was submitted on 20 April 2000.

A pragmatic report

The working party did not, in carrying out its mandate, apply "one across-the-board analysis model based on the example of that applied in the telecommunications sector". The group preferred to review the various sectors separately across the EU countries, since it considered that "the form of competition introduced should, in fact, vary from one sector to another." The report finds that:

• in the electricity sector, many countries have chosen to allow all consumers, or at least more consumers than required by the relevant EU Directive, to choose their provider;

• in terms of the development of competition and regulation, the characteristics of the gas sector are becoming increasingly similar to those of the electricity sector - ie diversification of sources of supply, a more tightly meshed network and less importance given to the issue of safety of supply. It is likely, however, that the momentum of introducing competition will be more gradual and more structured than is the case in the electricity industry. Indeed, the long-term contracts signed by former monopolies must be taken into consideration;

• the passenger and freight arms of the rail industry offer contrasting prospects for competition. Passenger transport does not really lend itself to direct competition between operators on the same routes, while freight transport requires a specific, independent approach. Efficiently organised competition between operators could stimulate a promising niche market of long-distance trans-Europe transportation of goods; and

• the postal services sector, which was the final industry looked at in detail by the report, has in the space of a few years evolved from a logic of coordination or even cooperation between the various national monopolies to one of competition. Given the ever-changing environment, regulation will have to address new challenges, such as the development of fair funding for universal services and the implementation of competition between the traditional Post Office and new providers from various sectors offering new services and new types of skills.

Over and above technical and economic differences, the report sets out two principles common to all sectors: "Above all, the advent of competition liberates industrial dynamics, ie sector boundaries fade, internationally-focused strategies become the order of the day, concentration takes place and new value-added generating services appear. Second, these dynamics operate especially on a Europe-wide scale. One of the major impacts of EU Directives - as intended by the EU authorities, which were keen to provide efficiency gains through cross-border competition - has been to unify the European public services market."

New regulations to be implemented

The report concludes with an analysis of the regulatory arrangements which should be implemented in the French context. The government is both the single or dominant shareholder in the former monopolies and the sponsor of the rules governing competition between these monopolies, other EU operators and new players. This is why the report advocates the creation of ad hoc, sector-specific, regulatory bodies. The gas and electricity sectors, however, in the light of the fact that they are closely linked, should be treated as one sector.

These new sector-based regulatory bodies should:

• take the form of commissions, with the chair of each playing a major role;

• guarantee their independence from the ministerial departments of the "shareholder-state";

• articulate their action with that of the Competition Council (Conseil de la concurrence); and

• set up parallel advisory committees made up of consumer representatives, sectoral employers, trade unions, licencing bodies etc.

The regulatory commissions should play a major role, including price-setting both in terms of access to infrastructure or the prices to be paid by "captive" markets. Potential legal suits should be filed with the appropriate judicial bodies, and supervision of regulators should be provided by parliament.

Indicators

In the view of the members of the working party, an appropriate number of impartial indicators will be needed to evaluate the efficiency of the delivery and quality of services, customer satisfaction, the extent to which the public service role is performed, the impact on the environment and so on

Some of the indicators will have to be designed to assist the new regulatory commissions to carry out their role, while other more comprehensive ones should be designed to give a general evaluation of performance patterns. Other indicators may be used in the appraisal of the overall reform policy or the regulatory process itself.

Modifying the behaviour of the shareholder-state

Prior to liberalisation, the state's stewardship of public services included a variety of roles and objectives, such as industrial policy, the maintenance of macroeconomic balances, sector-specific policy (as in energy and transport), price monitoring, or the preservation of state assets. Therefore, the management of state-owned monopolies was quite different from normal industrial practices.

Henceforth, states the report, the state must adopt an "industrial governance" (gouvernance industrielle) approach. This will be all the easier given that the state is to delegate its role as a day-to-day regulator to sector-specific, impartial bodies. However, the fact remains that a whole gamut of practices, relating to administrative boards and more generally the control of state-owned companies, will have to be re-examined in detail.

Trade union reaction

The major trade union confederations were involved in the drafting of the report and have aired their views on its content. CFE-CGC is the most satisfied, considering that "the work done by the Bergougnoux working party should limit the negative impact of the policies for the 'deregulation' of French public services imposed by the European Union executive." CFDT stated that it was in favour of setting up regulatory bodies, and that while the "opening up of public services to competition requires regulation", this regulation "should not exist solely to develop competition, but also to accommodate the role of public services and to prevent market forces and competition operating alone." CGT firstly reiterated that it "challenges the general principle of the opening of the public services' major areas of operation to competition". While applauding the working party's "wide-scale and dynamic debate", the union criticises the report for being "quick to accept the dismantling of the major public services, while new demands are being placed on them". As for CGT-FO, it condemned a "particularly disappointing report," which, far from "attempting to come up with regulations that would uphold the values of public service, actually espouses the principles of the market economy and is fully and wholeheartedly in keeping with the most pro-free market theories."

Commentary

The Bergougnoux report addresses, to an extent, two contradictory imperatives:

• demands from European Union institutions, which were reiterated by the March 2000 special European Council meeting in Lisbon (EU0004241F) whereby Member States are called on "to speed up liberalisation in areas such as gas, electricity, postal services and transport ... The aim is to achieve a fully operational internal market in these areas"; and

• the role of government, as assumed by the left and right wing of the French political spectrum alike. In the view of the political community and the trade unions, it is the responsibility of the state, through the government, to define the role of public services and to guarantee its implementation. It should be pointed out that, during discussions on structural reforms in Lisbon, the French President and government rejected any rapid opening up of specific EU markets, such as energy and transport, to competition. The French stood alone in this.

By proposing a withdrawal of the state, which is not a synonym for privatisation of publicly-owned companies, the Bergougnoux report attempts to reconcile these two imperatives. However, this is likely to upset long-established traditions, based on "privileged" relationships between the managers of state-owned companies and the political and administrative and political heads of the relevant state bodies.

Privatisation was, in a way, at the heart of the working party's debates, but was not dealt with as such. The report's conclusion stresses the major differences in point of view within the group: "For some members, only a sale of capital which opens a company to the discipline of the market will allow a move towards an industrial governance model. Others were of the opinion that managerial difficulties could be overcome in a different way and that only a well-thought out industrial strategy could warrant the advent of private shareholders. It was not within the report's objectives to settle this debate."

The trade unions have stated that they are determined to prevent competition and market liberalisation from prevailing over their idea of "French-style" public service. (Alexandre Bilous, IRES)