The Performance Assessment Framework for Economic Regulators (PAFER) was developed by the OECD to help regulators assess their own performance. The PAFER structures the drivers of performance along an input-process-output-outcome framework. This chapter applies the framework to the governance of Peru’s energy and mining infrastructure regulator (Organismo Supervisor de la Inversión en Energía y Minería, Osinergmin) and reviews the opportunities and challenges faced by Osinergmin to strengthen its performance.
Driving Performance at Peru's Energy and Mining Regulator
The Governance of Regulators
Chapter 2. Governance of Peru’s energy and mining regulator
Abstract
Role and objectives
Osinergmin’s mandate
Osinergmin is the safety and economic regulator for energy and mining infrastructure in Peru. It was established in 1997 as Osinerg with a mandate to oversee infrastructure safety and compliance with environmental regulations and occupational health and safety in the energy sector.
However, the role of the regulator has changed substantially over time:
In 2000, tariff-setting powers for electricity prices previously carried out by the CTE (Comisión de Tarifas de Energia) were given to the regulator.
In 2007, responsibility for supervising the compliance with infrastructure security, occupational safety, and environmental standards for the mining sector were transferred from MEM to Osinerg.
In 2009, Congress (Law No. 29325) created an oversight body for environmental regulation, OEFA housed in the Ministry of Environment and in 2011 another body for occupational safety, SUNAFIL (Law No. 29783) housed in the Ministry of Labour and Employment Promotion. These bodies are tasked with overseeing a number of economic sectors in Peru.
Due to the large changes in responsibilities and some unclear allocation of functions, Congress passed Law No. 29901 to better define Osinergmin’s role as the safety and economic regulator for the sector while clarifying the roles of OEFA and SUNAFIL.
The executive has granted Osinergmin with additional mandates beyond its functions as the energy and mining regulator. As described above (see Box 1.3), MEM granted Osinergmin with the role of administering the Energy Social Inclusion Fund (FISE) under MEM’s direction. The mandate was initially temporary, but has been extended. Furthermore, by means of a Decree (Decreto de Urgencia) in 2017, the Executive granted Osinergmin the additional function of nominating an assets administrator of the South Peruvian Gas Pipeline (Gasoducto Sur Peruano) concession after the original contract with the designated concessionaire failed.
Functions and powers
Osinergmin is governed by general rules that apply to all Peruvian regulators, as well as specific rules. Law 27332, Framework Law on Regulatory Agencies for Private Investment in Public Utilities (Ley Marco de los Organismos Reguladores de la Inversión Privada en los Servicios Públicos, LMOR) and Supreme Decree No. 042-2005-PCM (LMOR regulations) establish characteristics, functions and main organisational rules for Peruvian regulators. For example, the LMOR defines regulators as entities with administrative, functional, technical, economic and financial autonomy. In addition, grants them with general functions such as supervising, establishing tariffs, issuing regulations, imposing sanctions, resolving controversies and users’ complaints (Figure 2.1). It also establishes the main Board of Directors and Users Councils (Consejo de Usuarios) rules.
Figure 2.1. Powers and functions of Peruvian regulators
Source: Law 27332, Framework Law on Regulatory Agencies for Private Investment in Public Utilities (Ley Marco de los Organismos Reguladores de la Inversión Privada en los Servicios Públicos, LMOR).
In 2017, a draft law was proposed for strengthening the regulators functions and autonomy (Proyecto de Ley de Fortalecimiento de Organismos Reguladores). It has been discussed in the Consumers Defence and Regulatory Agencies Committee of the Congress (Comisión de Defensa del Consumidor y Organismos Reguladores de Servicios Públicos del Congreso, CODECO). However, it has not been discussed in the plenary assembly of the Congress.
The main specific laws governing Osinergmin’s functions and powers are:
Law No. 26734 Law of the Supervisory Organism for the Investment in Energy (Osinerg)
Law No. 27699, Complementary Law of Institutional Strengthening of Osinerg
Law No. 28964, which transferred the powers for the supervision and inspection of mining activities to Osinerg, making them Osinergmin.
Law No. 29901, which specifies competences of Osinergmin
Supreme Decree No. 088-2013-PCM, which approves the full list of technical functions under the competency of Osinergmin
Supreme Decree No. 010-2016-PCM (Reglamento de Organización y Funciones – ROF), which approves its latest internal re-organisation and functions for regulation.
Board of directors resolution No. 690-2009-OS-GG, which approves internal organisation and functions manual (Manual de Organización y Funciones).
Supervision, enforcement and inspections
Osinergmin’s functions and powers are in regards to supervising the safety of infrastructure in the energy and mining sectors. As the supervision of environmental and labour issues is now the responsibility of OEFA and SUNAFIL, respectively, Osinergmin does not hold powers in these two areas.
In the hydrocarbons sector, Osinergmin supervises upstream activities related to the production and processing of oil and gas. For instance, natural gas activities include exploration, production and processing. The compliance with safety and technical standards for companies transporting natural gas is also supervised since 2018.1 They also supervise the sole contract and concession for natural gas (Camisea to Ica and Lima). In downstream energy markets, Osinergmin supervises the compliance with safety and technical standards storage of liquid petroleum gas (LPG).
In the mining sector, Osinergmin is responsible for ensuring that mining companies comply with safety norms for infrastructure, installations and the safety management of operations. For instance, inspections look at the state of geo-technical, ventilation and transport appliances.
In 2017, Osinergmin registered about 49 000 entities to be supervised. During this year, 40 663 actions were carried out to supervise the technical and legal aspects (see Table 2.1). This resulted in 1 844 sanctioning procedures being initiated. Sanctions include inter alia fines, suspension and/or cancellation of authorisation for operation.
Table 2.1. Supervisions carried out by Osinergmin, 2017
Source: Information provided by Osinergmin.
Tariff setting
Osinergmin sets wholesale tariffs for electricity generation, transmission and distribution activities, as well as natural gas pipeline network distribution. For hydrocarbon pipeline transportation activities, Osinergmin regulates only when the pipeline owners and the users do not reach an agreement. A competitive bidding process (auctions) is used to set prices for unregulated clients in the electricity market. Interconnection charges are also regulated.
According to the provisions of the sector law, the tariff setting process is carried out by first consulting with the regulated entities to request their estimation of the new tariff. Osinergmin takes these estimations into account and applies criteria and methodologies for determining the new draft tariff. This is then published for public consultation and adopted a tariff-fixing resolution, which is published along with the model for determining the tariff price.
In total, Osinergmin handles 108 different tariff processes. The tariff proposals contain relevant information on the historical and forecasted demand of the regulated service, the existing offer and future projects to cover the demand and the costs of investment, operation and maintenance of the infrastructure involved, among others.
Part of the tariff-setting process includes the requirement to consider return-on-investment (ROI) ratios to ensure the stability and performance of firms. Peruvian law established in 1992 requires the ROI ratio to be 12 percent, with a variation of plus or minus 4%. This was originally intended to provide stability for foreign entities to invest in Peru to expand significantly the energy system. Changes to this rate can only be made via legislative proposal by MEM, and only in 2% increments at any given time. The regulator has proposed reductions in the ROI, which have failed to advance due leadership changes at the executive level.
Cross-subsidies for energy affordability are also included in the tariff-setting process. The government created the social compensation fund FOSE as a cross-subsidy to reduce the bills of rural consumers so that they pay the same rates as urban consumers. Regulated entities have criticised both for transparency and ROI purposes, and in some cases have launched judicial reviews to re-examine the inclusion of cross-subsidies in tariffs. The Board of Directors handle second-instance appeals to tariff decisions.
In regards to infrastructure, Osinergmin has regulatory power in both electricity and hydrocarbon subsectors. In the electricity subsector, Osinergmin ensures the correct enforcement of the provisions of the Electricity Concessions Law (Decree Law No. 25844) and approves the procedure for setting the conditions of use and open access to the Electric Transmission and Distribution Systems so that it is in line with existing legislation and in order to avoid discriminatory conditions on the access and use of the transmission and distribution systems.2 The technical standards and procedures to regulate those connections are set by COES.
For non-regulated customers, generators, transmitters, distributors or any interested entity, Osinergmin also establishes the procedures to request or make use of the transmission and/or electrical distribution systems for the provision of the energy transport service (Resolution No. 091-2003-OS/CD). In the hydrocarbons sector, Osinergmin regulates downstream tariffs for transport services, set every two years, and the distribution tariffs, every four years.
Osinergmin also promotes competition and innovative technologies in accordance with policies set forth by MEM. For instance, a recent policy from MEM requires smart meters to be installed within an eight-year time period and Osinergmin is responsible for implementing this policy objective through modulating changes in the tariff setting process in order to appropriately reward companies for the additional investment (Supreme Decree No. 018-2016-EM).
Dispute resolution
Osinergmin resolve disputes in the energy sector in regards to consumer complaints against companies or concessionaires, inter-company disputes, and disputes against their own regulatory or supervisory decisions. Should the claimant not be satisfied with the appeals handled by Osinergmin, a judicial review can be launched in the Peruvian court system. Osinergmin does not have responsibility to resolve disputes in the mining sector except for appeals against sanctions.
In addition, Osinergmin can issue directives to resolve complaints between electricity transmission and distribution concessionaires and third parties who wish to use those networks. Peruvian law requires that these concessionaires allow third parties to use these networks in exchange for compensation (Law Decree No. 25844).
Furthermore, the Transmission Regulation allows Osinergmin to issue a Connection Mandate to owners of transmission systems who refuse to grant access. Osinergmin can also set forth the conditions of access to the networks of the transmission or electrical distribution concessionaire when the parties have not agreed to the terms and conditions.
Co-ordination
Osinergmin operates within a complex governance system that requires interactions with several government agencies and departments with jurisdiction in the energy and mining sectors. The regulator provides its technical advice on matters of its competence and participates in co-ordination meetings when invited or issues reports when consulted. There are no structured co-ordination mechanisms with other public administration bodies.
Table 2.2. Peruvian public bodies involved in the energy and mining sectors or the regulator
Source: Information provided by Osinergmin.
Each entity has its own functions according to general and specific laws. The relationship between these entities should be governed by the principle of effective collaboration through agreements of inter-institutional collaboration to facilitate activities of co-ordination and mutual co-operation (Law No. 27444) In the case of conflict, the Law establishes the resolution as follows:
Any controversy regarding competition between authorities of the same sector is resolved by the person responsible for it.
Conflicts between other authorities of the Executive Branch are resolved by the Presidency of the Council of Ministers.
Osinergmin can be called upon by request from Congress, MEM, or other entities of the Executive branch to issue a non-binding recommendation on issues within their scope of competency. Two permanent committees of Congress are involved in the work of the regulator, including the Energy and Mines Commission that oversees the sectors and the Consumer Defense and Regulatory Bodies Commission (CODECO) that oversees regulatory policy more generally.
Indecopi requests non-binding opinions from Osinergmin with regards to competition and co-ordinates consumer protection with all the independent regulatory authorities. Since Indecopi serves as the national consumer protection agency and Osinergmin protects consumers in the electricity market, the two authorities must co-ordinate so that consumers bring their complaint to the appropriate authority. Indecopi has produced a guide to understand which regulatory authority handles each type of complaint to promote for efficient processing of consumer complaints.
ProInversion requests Osinergmin for opinions on Public Private Partnerships (PPP) contracts in the energy sector. When modifying PPP contracts, Osinergmin, at the invitation of MEM, participates in the joint evaluation process of the modification proposal, and issues an opinion on the modifications. The opinions on new contracts and modifications are non-binding.
The Government transferred environmental and occupational health competencies from Osinergmin to OEFA and SUNAFIL. Due to this change of mandates, there are circumstances where these three agencies supervise the same areas, regulated companies, etc.
The landscape of interactions between the regulator and other authorities is complex and the bodies involved often rely on informal co-ordination mechanisms. Occasionally, ad hoc working groups are formed to harmonise efforts. For example, a working group on electricity sector reform was formed in 2017 to review and propose updates to the Law on Electric Concessions in light of technological advancements in the sector. The working group includes the Vice-Minister of Energy from MEM, the President of Osinergmin and the President of COES.
International co-operation
Osinergmin establishes strategic alliances of mutual collaboration and co-operation with national or international organisations. The main objective is to contribute to improving efficiency in the fulfilment of institutional functions and objectives, through the exchange of established and agreed-upon benefits between the parties involved, seeking to promote energy efficiency and technological innovation. To date, 36 agreements with public organisations and 6 agreements with international organisations have been signed.
The core reason for these agreements is to create synergies to improve the efficiency of the institutional functions and objectives of the regulator, and contribute to the growth of the organisation. Specifically, they engage in:
Information and experience exchanges in the energy sector;
Co-ordinate the execution of joint operations within the scope of competencies to supervise the energy sector;
Conduct bilateral training events to generate knowledge for each party;
Conduct technical visits and exchanges of human resources to contribute to the professional, technical and organisational development of each organisation;
Conduct joint studies and research in the energy field;
Provide assistance and/or mutual technical support to carry out the implementation and maintenance of the tools and/or information technology support necessary to carry out the exchange of information;
Optimise the use of both physical and virtual resources and contribute to eco‑efficiency, within the framework of an interoperability and information security policy; and
Contribute to the efficiency of both institutions by establishing co-ordination mechanisms to maximise human and infrastructure resources.
Osinergmin believes that these agreements have helped them to improve the use of good practices through the synergy of resources, implement professional development systems, and promote innovation through knowledge sharing.
Table 2.3. Agreements signed by OSINERGMIN with other agencies
Source: Information provided by Osinergmin, 2018.
With regards to international bodies and fora, Osinergmin held the presidency of ARIAE from 2015 to 2018 and the President of the Board of Osinergmin was recently elected Chairman of ICER for 2018-2021. Osinergmin contributes to these bodies more generally through its participation in working groups on energy-related topics. Additionally, as part of its commitment to ARIAE, Peru will co-host the Iberoamerican School of Regulation with Chile for two years. Osinergmin is also in charge of organising the World Forum on Energy Regulation to be held in Lima in 2021.
Osinergmin identified the benefits of participating in these international organisations and fora, as they provide an opportunity for them to exchange knowledge with other regulators. Osinergmin has also contributed to these organisations, including to a book on energy access in rural areas published by ARIAE.
Regulatory bodies do not have formal authority with regards to international agreements. Nevertheless, the Ministry of External Trade and Tourism (MINCETUR) who is in charge of negotiations sometimes invites Osinergmin to attend the relevant meetings and to comment on drafts of agreements.
Independence
The Peruvian regulatory framework grants Osinergmin, autonomy from the Executive. LMOR establishes Osinergmin as a public, decentralised organism attached to the PCM with legal status of internal public law and administrative, functional, technical, economic, and financial autonomy.
The Principle of Autonomy is further established by Supreme Decree No. 054-2001-PCM, which states that decisions of the regulator are not subject to mandatory instructions from any other body or institution of the State.
Osinergmin is a key player in the energy and mining markets, with a mandate to implement public policies, issue norms and supervise compliance with rules. Osinergmin mainly interacts with:
The executive and in particular MEM as the responsible ministry for developing policies in the regulated sectors, and
The regulated industries who need to comply with the decisions of Osinergmin and citizens, who are the ultimate beneficiaries of public policies and regulatory interventions.
The regulatory framework and the specific conduct of Osinergmin’s management and staff determine whether such interactions strengthen or undermine the regulator’s independence. Independence does not mean that regulators should operate in a vacuum, but rather ensures that its independent functions are carried out in connection and dialogue with other stakeholders.
Relations with the government
Osinergmin falls under the PCM who oversees all independent regulators in Peru. Any changes to the organisational structure, fees collected from industry, or communications with Congress must go through the PCM. In addition, the PCM reviews the PEI and POI of Osinergmin and appoints the members of the Board of Directors and of Tribunal de Solución de Controversias. Sectoral policies on energy and mining, however, are set by MEM, and Osinergmin is responsible for implementing them.
For budgeting purposes, the regulator obtains their funds directly from fees levied on the regulated entities and with additional no state budget. The funds are considered public funds despite being levied through private means. While the regulator considers itself to be adequately-resourced, Laws and Decrees passed by Congress and the Executive have an impact on Osinergmin’s operating budget.
For example, recent annual budget laws have required all public agencies to return unused budget to the Treasury at the end of each financial year. This requirement applies to independent regulators, who must then make requests to MEF to use their unused funds for future projects (carry-forward balance). Additionally, austerity measures put in place in 2018 have placed restrictions on how the regulator can use its budget in regards to inter alia international travel, training and communications (see Input section).
In October 2018, MEM issued a decree that aimed at reversing an ongoing tariff-setting process by Osinergmin. This led to a conflict between the regulator and the Ministry, which eventually withdrew its Decree. Osinergmin could set tariffs on a descending trajectory as initially proposed, though as part of the regular regulatory process, Osinergmin reviewed the comments and data that supported them. The final tariffs approved reduced the extent of the tariff decrease (see Box 2.1).
In June 2018, the Commission for the Defense of Consumers and Public Services Regulatory Bodies (Comisión de Defensa del Consumidor y Organismos Reguladores de los Servicios Publicos, CODECO) of Congress discussed and passed a draft law to enhance aspects of institutional independence for economic regulators in Peru. The draft, which was based in part on OECD research, included measures to strengthen the regulators’ administrative, functional, technical, economic and financial autonomy as well as their accountability mechanisms. As of November 2018, the draft law has not been proposed for discussion in Plenary.
Box 2.1. Osinergmin’s 2018-2022 tariff setting procedure and Decree No. 027-2018-MEM
On 4 October 2018, the Supreme Decree 27-2018-MEM, endorsed by the Ministry of Energy and Mines, aimed to modify the methodology for calculating the Distribution Added Value (DAV), established in the Electric Concessions Law. This regulation added new stages and requirements that were applicable to the ongoing DAV setting procedure. The DAV applies to a four-year period and determines the distribution services tariff. The DAV has a direct impact on final users’ monthly payments since represents around 30% of the final price for electricity services.
The DAV setting procedure starts by requesting the regulated companies for their new tariff estimation. Osinergmin considers these estimations to determine a new draft tariff, using the methodology provided by the Electric Concessions Law. Osinergmin publishes a draft determination and organises a public hearings for discussion.
Osinergmin published the draft tariff on 13 August, which implied a reduction of the current tariff. After this, Osinergmin carried out public hearings the 17 and 20 of August. During these stages, electricity distribution companies challenged the draft tariff arguing that Osinergmin did not take into account some necessary costs for providing the service. They stated that this tariff could reduce the companies’ income by up to 20%.
At the time of issuing this Decree, Osinergmin was conducting the final phase of the process to approve the new distribution tariffs for the 2018-22 period in Lima, Callao and Ica. The expected conclusion of the process was 16 October 2018, with new tariffs entering into force from 1st November.
On 5 October, Osinergmin issued a public statement rejecting the Decree arguing that it affected the independence of the regulator. Given the importance of the regulations, Osinergmin considered that the Decree should have been discussed or pre-published for comments. Osinergmin’s concerns were backed by the Iberoamerican Association of Energy Regulators (ARIAE) with a public statement deploring the interventionist approach of the Peruvian government.
On 4 October, the Supreme Decree 28-2018-EM revoked the original Decree whilst Osinergmin was finishing the ongoing DAV calculation procedure. On 16 October, Osinergmin published the new electricity tariffs for Lima, Callao and Ica, which will apply from 1st November 2018 to 31st October 2022. The final tariffs represent a 1.6% to 4.3% reduction.
Source: Information provided by Osinergmin, 2018.
Relations with the regulated sector
Market players, who trust the level of expertise and autonomy displayed by both senior and technical staff, regard Osinergmin as a highly technical institution.
Osinergmin carries out public consultations for draft regulations related to tariff-setting. Osinergmin publishes these drafts and organises public hearings for stakeholders For the purpose of transparency, a comments matrix is published with the final regulation that shows the comments made by stakeholders and the regulator’s response.
Early stage consultation is rarely used when developing new measures, particularly new technical norms and standards. LMOR requires Users Councils, including representatives from industrial associations. However, the regulator has not been able to rely on inputs from the Council in recent years. Other regulatory agencies have noted similar problems in their relationship with Users Councils in Peru.
In order to improve its communication with stakeholders, Osinergmin has set this as a priority in their strategic plan, while also fostering a culture of transparency on regulatory decisions through Regulatory Impact Analyses and adhering to international regulatory quality management standards (ISO 9001).
Independence and legitimacy in regulatory decisions is enhanced through the development of technical regulatory tools such as demand studies, incremental cost models, regulatory accounting systems, statistics processing systems, tariff registration systems and support from high-level consultancy firms. Osinergmin also actively publish and disseminates reports, including investigative reports, reports with academia, and issuing of periodic bulletins.
Strategic and operational objectives
The Government of Peru establishes the strategic goals for the energy sector and ensures an appropriate framework is in place to enable delivery. Two documents set out the government’s policy goals in relation to energy and mining: the National Energy Plan 2014-2025 and the National Energy Policy 2010-2040. The regulator plays a crucial role in ensuring that these objectives can be attained.
The Government requires the regulator to develop a Strategic Institutional Plan (Plan Estratégico Institucional, PEI) as the main reference framework for the management of its internal activities. Osinergmin’s current PEI runs from 2015 to 2021. Previously, four‑year plans were produced but the current PEI was extended to seven years for to incorporate the vision of the future for the Peruvian State for the year 2021.
The Planning, Budget and Modernisation Department (GPPM) is responsible for co‑ordinating and drafting the strategic objectives, which are developed in line with the main objectives, mission and vision of the organisation. Under the auspices of the General Manager, the GPPM then presents the PEI to the President of the Board of Directors for final approval before publication.
Box 2.2. Osinergmin’s mission
Osinergmin’s mission is currently defined as follows:
“To regulate, oversee and supervise the energy and mining sectors with autonomy, technical capacity, clear and predictable rules, in order for activities in these sectors to develop safely and with the goal of having a reliable and sustainable energy supply” (PEI 2015-2021, p.8).
The values of commitment, excellence, service, integrity and autonomy underpin the rest of the strategic plan and culminate in Osinergmin’s value proposition:
“Be proactive to ensure that Peru counts on adequate, reliable, accessibility and quality energy services covering the national territory. Ensure that companies working in the energy and mining sectors run their activities in a manner that is safe for the community, workers and the environment.
Provide to investors and funders a regulatory and a supervisory framework with clear and predictable rules that allows them to achieve adequate returns and incentivises further investment.
Implement or ensure the implementation of sectoral energy and mining policies, offering public institutions technical and foresight support, allowing them to promote sustainable sectoral policies and having adequate information to achieve their functions.
Create an innovative institution, built on competent and motivated employees, working in an attractive and challenging environment that promotes and strengthens their personal and professional development.”
Source: PEI 2015-2021, p. 8.
The PEI is developed in dialogue with both external stakeholders and internal teams. External stakeholders include citizens, regulated entities, and other government institutions, including the PCM, MEM, INDECOPI, the Ombudsman (Defensoría del Pueblo), National Institute of Quality (Inacal), and Congress. Participation is through a survey with each external community that asks how the regulator is perceived, how they are helping the sector, and how they are performing in the relationship with each relevant stakeholder.
Internally, a variety of participants are included via the Strategic Planning Committee, composed of 23 individuals, members of the Board of Directors (including the President), the General Manager, and working groups for each sector composed of, on average, seven individuals each. In addition, Osinergmin organises group workshops, one with Osinergmin employees and two with supervisors to understand their perception of Osinergmin development with respect to various aspects of its mandate.
The 2015-21 PEI includes 15 strategic objectives based on four perspectives: stakeholders; internal processes; human sources development, learning and technology; and financial resources (see Table 2.4). This is accompanied by 40 initiatives and 30 indicators (the full breakdown of the PEI can be found in Annex 2.A). The PEI is implemented through yearly operational plans (Plan Operativo Instituciónal, POI) and underpinned by a three-year budget. Each year, the budget is reviewed and projections are revised and re-approved. A management model is built based on these indicators and used each year to communicate to the staff the results of the prior year, the strategic objectives for the new year and assign resources and responsibilities to achieve these goals (see Output and outcome section).
Table 2.4. Osinergmin Strategic Institutional Objectives 2014-21
Source: Information provided by Osinergmin, 2018.
The PEI 2015-21 was developed based on the Modelo Iberoamericano de Excelencia en la Gestion developed by the Fundibeq as an international standard. A Balance Scorecard Methodology was used to develop strategic objectives and measures. Since 2015, CEPLAN (the central authority responsible for overseeing the National Development Plan) have established a common methodology for public sector entities and the new plans by Osinergmin after 2021 will need to reflect CEPLAN’s indications. This will provide an incentive to review and update the current performance measures. For example, CEPLAN requires that indicators be developed to measure progress towards objectives and ensure that these indicators are properly justified; CEPLAN also issued new guidelines for developing institutional plans that require more information regarding the impacts on the population and geographic effects, i.e. urban versus rural affects.
Input
Financial resources
The contribution rate from industry is approved by the Executive through a Supreme Decree endorsed by the President of the Council of Ministers and MEF3 and cannot exceed 1% of the total annual income of regulated firms after taxes4 of each firm, minus GST and MPT. For mining, the contribution rate is limited to large- and medium-scale mining entities, as defined according to the economic impact of all mining operations under one firm.
Contributions constitute 90% of Osinergmin’s total budget. Additional revenue can be collected from (OECD, 2016[1]):
Payments from administrative procedures enlisted in their Single Text of Administrative Processes (Texto Único de Procedimientos Administrativos, TUPA)
Donations, contributions or transfers made by natural or legal, national or international persons. Interests or late fees derived from the regulatory contribution
Financial interests generated by their own resources
Sources from fines
The regulatory contribution rate is determined ex ante based on revenue projections of the regulated sectors rather than determined in accordance with a cost recovery principle. Since 2013, Osinergmin proposes three-year period rates for the energy and mining sectors. Table 2.5 provides an overview of regulatory contributions for 2017-19. These decrease marginally to respond to industry concerns that rates are too high.
Table 2.5. Rate of regulatory contributions to Osinergmin, 2017-19
Source: Information provided by Osinergmin, 2018.
Funds collected from fines and sanctions, as well as some annual contributions, are transferred in various rates to national development funds. In the case of the energy sector, monthly collections are transferred entirely to the Rural Electrification Fund managed by MEM. For the Mining Sector, 30% of annual revenue is transferred to the Regional Directorates of Energy and Mines (DREMs) which supervise small-scale mining in Peru.
Osinergmin considers funds are enough to meet its needs. However, recent changes to budget laws have imposed limits on regulators to fully use its budget. Since the regulator is funded solely through contributions collected directly from regulated entities, their funds are classified as “directly collected resources” (RDR), and not “ordinary resources” (OR) collected from taxes that mostly fund the operation of regular government entities. Some government entities can also have RDR funds, i.e. police who collect fines.
National budget law previously allowed agencies with RDR funds to keep surplus funds and carry them forward to future spending, while agencies with OR funds were required to return surpluses to the Treasury each year. For the 2017 fiscal year, MEF issued the Law of Financial Equilibrium (Ley de Equilibrio Financiero), which required that surplus RDR funds to also be forwarded to the Treasury in order to promote higher budget execution across public entities. Exceptions are made for natural disaster financing, sanitary measures, or funds committed to multi-year investment processes.
To date, Osinergmin surpluses have been forwarded to the national treasury to finance public expenditures not related to the regulated industries. This provision must be renewed yearly with the national budget law. Forwarding surpluses was renewed for the 2018 fiscal year and is expected to be renewed for 2019. Table 2.6 provides an overview of Osinergmin’s annual budget, as well as its execution annual percentage over the last four years.
Table 2.6. Osinergmin annual budget and execution, 2015-18
Note: Budget execution for 2018 is as of May 2018.
Source: Information provided by Osinergmin, 2018.
Managing financial resources
Osinergmin produces a three-year budget that aligns technical analysis and decision-making on the priorities indicated in the PEI/POI, their initiatives and goals, which are expected to be carried out for the achievement of the objectives. This is implemented through annual budgets that include the Annual Supervision Plan and various elements of the Process Management. Osinergmin produces a strategic map to align these objectives and performance measures with the budget. These initiatives, which in some cases are multiannual, are carried out over shorter periods to facilitate the monitoring and evaluation of the results. The multi-annual budget is reviewed yearly to allow for updates and corrections as needed and renewed for a further three-year period.
The PCM, through Supreme Decree, established the guidelines and methodology for the Process Management to elaborate the competencies and responsibilities assigned to each entity. The Process Management specifically elaborates three levels of documents that must be established: Process Map (PM), Processes and Procedures Manual (MGPP), and specific procedures (MAPROS).
The Process Map of the institution identifies the strategic, operational and support processes for the electricity, natural gas, liquid hydrocarbon and mining sectors. Process management includes the identification of the needs and expectations of the stakeholders, the implementation, the measurement of satisfaction and feedback. One of the key requirements for the processes is the allocation of budget to cover the operating costs and achieve compliance with their strategic objectives. The budget process is co-ordinated with the national government digitally through a system linked with MEF, which is the same system for all government agencies.
The process for creating the budget is accomplished through five stages:
Planning: Osinergmin estimate revenues to be collected, and forecasts costs and investments to be executed based on the PEI and POI. Rules are set by MEF.
Formulation: Osinergmin prioritise goals and aligns them with functions and financing. MEF establishes the rules. Planning and formulation is completed by May each year, and defended to the MEF by July to begin the approvals process.
Approval: Osinergmin approve the Opening Institutional Budget, according to the amounts authorised in the Budget Law by 31 December. MEF establishes the rules, receives budget proposals and schedules meetings to review supporting information. MEF consolidates proposals, which is approved by the Council of Ministers and sent to Congress by 30 August of each year. Congress Budget Commission scrutinises the budgets with MEF and the Ministers, including calling on the heads of public entities to ask questions. The Congress approves the Budget Law by 30 November and sends it to the Executive. The Executive must publish the Budget Law no later than 15 days after Congress signs off.
Execution: Osinergmin execute the budget between 1 January and 31 December each year. MEF establishes the rules for implementation and receives the approval resolutions of institutional budgets that each entity has to issue within five days of the approval of the institutional budget. Congress oversees the budget execution, also receiving the approval resolutions of the institutional budgets within five days of approval.
Evaluation: Osinergmin evaluate the budget execution at the level of goals achieved, tracking what goals have been achieved and using how much of the budget. MEF establishes the rules of semi-annual and annual evaluation. Evaluations occur in April and June each year.
Managers carry out reviews of their budgetary balances. The digital management system (SAI) produces a Funds Control Consultation report that allows Managers to visualise their expenses by level and phases (Commitment, Pre Commitment, Accrued and Revolved). To determine budgetary modifications, they can make budgetary transfers through the SAI that are approved according to the procedures. The GPPM is responsible for updating manually the information that is not automatically interfaced with SIA system.
In 2015, the Government of Peru implemented a performance budgeting system for all government entities and managed by MEF. MEF requires budgets to be aligned with the goals and objectives established by the institution in their PEI and POIs. The goal is to ensure agencies consider the problems they are trying to solve and have measurable indicators of success towards solving these problems. MEF works with the various government agencies to help design better indicators by encouraging them to follow the methodology and develop indicators that show how institutional actions are leading to positive improvements in the sector and for society. MEF does not comment on the appropriateness of the indicators, simply the process.
Osinergmin has begun implementing the performance budgeting system over the last two years (see Figure 2.2).
Figure 2.2. Osinergmin results-based budget process
Source: Information provided by Osinergmin
Performance budgeting is implemented through budget programmes, performance monitoring actions based on indicators, evaluations and management incentives determined by MEF. The general rules for the budgeting process are issued by MEF, to which all the entities that make up the public sector are subject, from the three levels of government: national, regional and local. Osinergmin is part of the national government entities.
Human resources
Osinergmin employs 687 staff as of June 2018. The increase in staff in recent years is mainly the result of new tasks given to Osinergmin and the decision to strengthen the decentralisation of activities in the regional offices. New recruits for the dispute resolution bodies and to support the roll out of RIA have also joined.
Osinergmin has an Organisation and Functions Manual (Manuel de Organización y Funciones), which outlines the main functions and responsibilities of the positions within the organisation and describes the professional profile required for each position. The posts are approved by the President of the Board. A full breakdown by job family of the professional staff can be found in Table 2.8.
Table 2.7. Osinergmin staff by category, 2014-18
Source: Information provided by Osinergmin, 2018.
Table 2.8. Osinergmin professional staff by category, 2018
Note: All categories of staff other than support staff are considered professional staff.
Source: Information provided by Osinergmin, 2018.
Table 2.9. Female/Male staff by category, 2018
Source: Information provided by Osinergmin, 2018.
Osinergmin’s public servants work under two different employment regimes. Some employees (37%) work under labour regulations for the private sector, not commonly offered in public entities (Law 728 regime), and other employees (63%) work under non-permanent positions (Law 1057 or CAS5 regime). The 728 regime offers open-ended contract duration and applies to a smaller number of staff members. The number of positions under 728 is capped, meaning that recruitments can only occur when an existing position becomes vacant. On the other hand, the CAS regime offers six-month contracts with fewer employment benefits, such as insurance or pensions, than the 728 regime. Temporary contracts under the CAS regime can be renewed without limits and are becoming the main way to hire new staff, extending beyond their intended temporary use across all Peruvian public entities. In the long run, this can reduce Osinergmin’s attractiveness compared to the private sector
In 2013, the Peruvian government launched an employment public sector reform to be gradually implemented and overseen under the National Civil Service Authority (SERVIR). This reform is based on the provisions of Law No. 30057 (SERVIR law) that aims at implementing a single labour regime for public entities.
This would replace the 728 and CAS regimes currently in place and apply to all employees. Migration to the new regime is optional for existing staff, but staff under Law 728 would need to re-apply for their job to migrate. If they are not successful, they remain in their old post, under the old regime. CAS staff members will be required to transition to the new regime as CAS regime will cease to exist. To date, 412 have started the process to implement SERVIR law, but no public entity has fully migrated.
The 2016 OECD Public Governance Review of Peru, conducted as part of the OECD Country Programme for Peru, assessed, amongst other topics, the management of Peru’s professional civil service and public administration reform agenda through the SERVIR law (see Box 2.3).
Box 2.3. Findings of the OECD Public Governance Review of Peru (2016) on building a stable and professional civil service in Peru
Peru’s civil servants are currently under multiple labour regimes and complex employment regulations. This translates into a public labour system highly difficult to manage. For example, over 2000 government agencies established over 500 public employment regulations and over 400 different wage criteria.
In 2013, the Peruvian government issued the new Civil Service Law (30057) for implementing an ambitious civil service reform. The law has an implementation horizon of six years and SERVIR is charged with overseeing this implementation.
The purpose of the Civil Service Law is to establish a single and exclusive scheme for civil servants at national, regional and local levels. A new pay system will be implemented for those in the new regime, with the intent to improve transparency and equity across public entities. In addition, it articulates a strategic policy rationale for the civil service reform, emphasising merit and professionalism.
The new Civil Service Law was designed based on best practice across OECD countries, and, once implemented, is expected to create a lasting impact by significantly improving the organisation, capacity, professionalism and stability of the civil service.
Nonetheless, the transition to the new regime will likely take much longer as the transition is not automatic. Civil servants can choose between transitioning to the new regime and remaining in their previous regime. Furthermore, existing civil servants will need to apply to posts in the new regime and go through a competitive process to be appointed. If they are not successful, they remain in their old post, under the old regime. It should be noted that all temporary staff (CAS) will be required to transition to the new regime.
Source: (OECD, 2016[2]), OECD Public Governance Reviews: Peru: Integrated Governance for Inclusive Growth, OECD Public Governance Reviews, https://dx.doi.org/10.1787/9789264265172-en.
Recruitment
The selection process for staff is publicly advertised and handled by a Recruitment Committee with full autonomy to render their decision. The process is competency-based on a set of criteria (i.e. education, skills, experience) for each position (i.e. candidate profile). Each specific criterion has a score and the successful candidate is the person who achieves the highest score. Results are published on Osinergmin’s website.
The selection process is carried out by the Committee who represents the areas where the positions are located, the general management and the Human Resource Management (HRM). When the internal invitation finishes without result, then a process open to the public is broadcast through different means (web page, Facebook, newspaper notices). For each invitation, the characteristics and requirements of the position are assessed. This consists of several stages: review of the resume, knowledge test and interview with the applicant.
In some special circumstances designated by the Board of Directors, different recruitment processes apply, for example, members of the Administrative Tribunal of Energy and Mines Sanctions (TASTEM) and Appeals Board of User Claims (JARU) who are selected by the Board of Directors. Members of the Tribunal for the Solution of Controversies are selected by the PCM. Recruitment is competitive for Osinergmin. Recruitment processes normally attract more than one hundred applicants, especially for junior positions which are comparative in nature to the private sector in terms of remuneration.
Post-employment restrictions are governed by Law 27588, which establishes prohibitions for civil servants such as Board members, senior officials, advisors and members of administrative tribunals, as well as officers or public servants that have had access to privileged information or whose opinion has been determinant in decision-making, are subject to a one-year post‑employment restriction. This includes providing services under contractual arrangement, accepting remuneration, being part of the Board of Directors, directly or indirectly acquiring shares of a company associated with the sector, signing contracts with companies, or participating in employment with companies.
Staff members subject to post-employment restrictions have to sign a legal document committing not to violate the terms and conditions of the policy. There has been no instance of a supervision of the application of these provisions. Osinergmin has stated that these provisions do cause some difficulty recruiting new personnel.
To avoid conflict of interest, any person who owns more than 1% of shares of a company related to the competency of the regulator cannot be appointed as a member of the board or hired as a director, legal representative, entity, employee or consultant of a regulatory agency.
Senior management recruitment
The President of the Board is appointed for a five-year term by the Presidency of the Council of Ministers. The General Manager is appointed by the President of the Board of Directors, taking into account the profile and requirements for the position. The General Manager reports directly to the President of the Board. Some senior management positions are appointed by the President of the Board without term limits as “puestos de confianza” or “trusted positions”. These positions include the General Manager, Administration and Finance Manager, Corporate Communications and Legal Advisor. These trusted positions can be dismissed by the President at any period in time. The new SERVIR labour regime limits puestos de confianza to 5% of total staff. While SERVIR is not fully implemented, Supreme Decree 084-2016-PCM establishes that the 5% rule is in full effect until the implementation of SERVIR. Osinergmin currently only has 2.7% of staff as puestos de confianza.
The other managers are recruited through a public selection process which ensures the hiring of personnel according to professional or technical merit. For this purpose, there are established internal procedures and mechanisms regarding the means and systems for issuing a call for applications, recruiting, evaluating and selecting candidates.
The members of the Board of Directors are appointed to staggering terms, described in more detail in Box 2.4.
The transition to the new SERVIR labour regime also modifies the regulations governing senior management. For example, senior managers will need to go through the formal recruitment process and all dismissals shall require proper justification, such as failing to accomplish individual goals. Term limits will also be introduced for all senior managers, which will be for three years and can be renewed for another two terms. After three terms, the official must leave the organisation.
Remuneration
Staff members of Osinergmin are remunerated according to limits ascribed by Supreme Decree and endorsed by the Chairman of the Council of Ministers and the Minister of Economy and Finances.6 The current salaries were established in 2006 and are not indexed to inflation (see Table 2.10).
At the more junior level, the regulator believes these salaries are competitive with private industry. As result of this, between 20% and 30% of public merit contests to fill the positions are occupied by staff members who are already working at Osinergmin, as they believe that there is a career line within the entity.
However, recruiting and retaining senior managers is more difficult, mainly because their salary scales are not competitive vis-à-vis industry. In partial response, the government issued Supreme Decree No. 024-2018-EF in 2018, raising the President of the Board of Directors salary to PEN 28 000 (USD 7 692, approximately) to be more competitive with industry.
Table 2.10. Remuneration scales at regulatory agencies in Peru (in PEN)
Note: By Supreme Decree No. 172-2013-EF of 15 July 2013.
Source: Information provided by Osinergmin, 2018.
As stated above (Box 2.3), the SERVIR reform aims at gradually achieving a consolidated single employment framework, harmonising not only the employment terms, but also the remuneration of civil servants. Osinergmin has not fully migrated to the regime but has been implementing some of the law’s provisions. Migration to the civil service regime may further reduce Osinergmin’s competitiveness to attract and maintain qualified professionals, exacerbated by the post-employment restrictions in place.
Talent recruitment, retention and training
Osinergmin offers a full compensation package to attract and retain staff, based on three essential elements:
Benefits: 100% health care coverage for staff employed under the 728 regime, including for their beneficiaries that is defined as children and parents. This can be maintained at a low cost when retiring from the organisation. Also includes life insurance offered immediately upon employment. All staff have access to low-cost catering at the office and well-being programmes that can be also used by family members, flexible summer hours, and a free day for birthdays. They also strike deals for corporate discounts for items such as cinema, gyms, education centres, medical centre, etc.
Growth: Osinergmin offers training programmes and a corporate university programme to help employees gain the tools and skills to improve their performance in line with institutional objectives (Plan de Capacitación de Osinergmin). This also includes links with foreign training organisations and international co-operation to promote high-quality training in other countries on issues related to the sector. Internal recognition is given to teams who achieve strategic cross-cutting objectives.
Team building: Osinergmin is developing a project of cultural alignment to promote behaviours that enhance the achievement of strategic objectives. The project will be mandatory for employees to participate. Osinergmin also promotes team building through celebration of important special dates, such as Christmas or summer courses, which includes families.
Osinergmin has further focused on increasing employees professional capacities using training and strategic partnerships.
For more 16 years, Osinergmin has been operating a national programme aimed at recruiting young graduates from engineering, economics and law. Called the University Extension Course, the admission test attracts over 2 500 applicants, 90 of which are admitted. After two months of training, the top 30 are selected to do an internship at Osinergmin until the end of the year. They can then apply to vacancies or provide supervision services for the regulator.
Osinergmin is the first public entity to have its Human Resources Internship certified by the Good Employers Association, contributing to its brand as an employer. In addition, an annual event to which all staff are invited provides a forum to reward good performance publicly.
Osinergmin’s staff turnover rate has been stable around 16% between 2015 and 2017. Moreover, according to the bi-annual “Great Places to Work Survey”, staff satisfaction reached a 10-year high in 2017 with a 75% satisfaction rate.
Performance assessment and training
The performance of staff is managed through an online system allows staff to enter their individual goals programmed every quarter. The goals have been previously agreed between the managers and the staff. This system also enables entering the indicator on which the fulfilment of each goal is assessed. Each of Osinergmin’s officers and staff conducts a quarterly evaluation of their goals in the System.
Each of the management instruments has its own set of specific indicators, whose purpose is to measure the progress of Osinergmin in their implementation. Each instrument also has its own control cycle, the most far-reaching being the Indicator-Based Management Model and the Management Report, which are announced to all personnel and the Board respectively.
Osinergmin has a staff training committee made up of HRM staff and elected staff members nominated through an open invitation to al staff. This Commission defines the general guidelines of the training that is carried out each year, which is distributed and published through the intranet of the Institution.
Code of ethics
Osinergmin does not have an institutional code of conduct, but rather is governed by the Civil Service Ethics Code (Law 27815) that establishes ethical principles for civil servants. These regulations govern relations between Osinergmin staff and the regulated sector. Osinergmin also obtained certification ISO 37001:2016, which specifies requirements and provides guidance for establishing and improving an anti-bribery management system.
When new staff are hired, they should follow an induction course where they learn, amongst other topics, the definition of Osinergmin`s values (commitment, excellency, service, integrity and autonomy) and the Civil Service Ethics Code. The process for any fault, including those established in the Law of the Code of Ethics of the public function, is governed by the Civil Service Law and its regulations. This has been included in the Internal Regulation of Civil Servants (Reglamento Interno de los Servidores Civiles) of Osinergmin.
Article 8 of the Civil Service Ethics Code sets public servants ethical prohibitions. One of these prohibitions is to maintain relationships or accept situations, in which context, personal, business, economic or financial interests might conflict with the fulfilment of the duties and functions performed by the employee. Another prohibition for staff members is to obtain or to try benefits or illegal advantages, for himself or others, by means of the use of its charge or influences. Likewise, the General Regulations of Osinergmin provide that Board members should disclose potential conflict of interests and ultimately abstain from participating in decisions related to the conflict.
With respect to disciplinary administrative procedures, sanctions are proposed by the Human Resources Manager and approved by the President of the Board. Any appeals are resolved by the Civil Service Court managed by SERVIR. If a manager is declared responsible for a crime, Osinergmin terminates the labour contract.
Process
As stated above, Osinergmin was created in the late-1990s towards the end of the macroeconomic and structural reforms era. Its organisational structure and processes reflect both the original efforts to establish autonomous regulators in key economic sectors, as well as the evolution of the regulator over time in a political environment that added new roles and responsibilities.
Osinergmin is headed by a Board of Directors and President of the Board who set the strategic direction of the regulator. Its General Management conducts the technical functions in regards to tariff regulation, energy supervision, and mining supervision. This is supported by horizontal functions carried out by various departments, including support and analytical functions.
The regulator supports the use of regulatory quality tools, such as RIA, stakeholder engagement and ex post evaluation, to varying degrees to improve the decision-making process.
Decision making and governance structure
The Board of Directors is the highest authority in the regulatory agency and members are appointed by the Executive. It is a non-executive body composed of six members appointed to five-year terms by a commission designated by the central government and can be re-appointed for one additional term (see Box 2.4).
In the event of a Board member leaving before the end of their term, the new member is only appointed for the remaining amount of time. Vacancies must be filled within 30 days of the expiration of a member’s term.
To maintain the independence of the Board, the only interaction between the Board and staff of the regulator is through sessions of the Board and with respect to the issues being addressed in those sessions. The decision making process is as follows:
The Board adopts its decisions in the sessions, for which an Agenda is proposed.
The divisions of the General Management are responsible for proposing and sustaining specific sectoral issues entered into the agenda of the session of the Board, which must have the approval of the General Manager.
The topics and their support proposed in the agenda are made available to the members of the Board with at least two days prior to the date of the session.
During the session, if necessary, those responsible for the proposed topic briefly explain the content of the proposal and answer the questions of the members of the Governing Council.
As of October 2018, the composition of the Board was two lawyers, two engineers, and one economist. One position was vacant at the time of writing. Osinergmin believes this diversity is important so that its decisions can be taken evaluating economic, legal and technical aspects of the corresponding sector. However, there have been no women on the Board in the last ten years. Historically, there have also been a number of Board members resignations (Table 2.11), which shortened the effective duration of some members’ mandates. This can disrupt continuity and limit the Board’s ability to provide sound advice.
The Board is responsible for the administration and supervision of contracts and other generic processes; overseeing the stakeholder engagement process; and setting a clear process for executing the mandate of the organisation. The Board exerts both normative and regulatory functions via resolutions, and issues non-binding technical opinions on concession contracts organised by the Government. The Board also appoints and removes members of the Collegiate Bodies, as well as a sanction function in the second instance.
Table 2.11. 10-year history of Osinergmin board members
Notes: 1. finished his term in August 2018 and PCM’s appointment of a new member is pending at the time of writing. 2. received an extension according to Supreme Decree No. 082-2018-PCM. 3, 4, 5 resigned.
Source: Information provided by Osinergmin, 2018.
Box 2.4. Board of Directors selection process
Criteria for selection as a Board member are:
Be a professional with no less than ten (10) years of practice;
Have recognised professional solvency and suitability, by way of no less than three years of experience in a position of executive management, with understanding of the decision making in public or private companies; or five years of experience in matters related to the competence of the regulatory body; and,
Having completed studies at the Master's level in subjects related to the competence of the regulatory body.
All members of the Board are selected by:
Review of candidates by a selection committee composed of one member proposed by the PCM, one member proposed by Indecopi, one member proposed by MEF and one member proposed by the sectorial ministry related to regulator activities;
The President of the Council of Ministers submits to the President of the Republic the final list of selected candidates; and
The President of the Republic appoints the member of the Board by Supreme Resolution, which will be endorsed by the President of the Council of Ministers, the Minister of Economy and Finance and the sectorial ministry related to the regulator activities.
Board Members can be dismissed due to legal impediments supervening the appointment, unjustified absences from two consecutive sessions unless authorised, or in the case of serious misconduct. The same one-year restriction on post-employment for employees of the regulator applies to board members.
Source: Law No. 27332; Supreme Decree 103-2012-PCM; Supreme Decree No. 014-2008-PCM; (OECD, 2016[1]), Regulatory Policy in Peru: Assembling the Framework for Regulatory Quality, OECD Reviews of Regulatory Reform, http://dx.doi.org/10.1787/9789264260054-en.
Board members are remunerated PEN 3 000 (approximately USD 900) per month, with the requirement to attend two meetings each month. However, the President or a majority of Board members can request to meet more times. Regulations forbid Osinergmin to pay Board members for additional sessions. The President is the only member with a monthly remuneration. Changes to these limits require amendment to regulations issued by the Executive.
Votes are determined by a simple majority of the members attending. The agenda and minutes of Board meetings are posted on the Osinergmin website.
Information to support Board meetings are usually sent a few days before the meeting. The technical staff of the regulator compiles a “supporting report” for the Board, which includes an analysis of the market, problem, and a proposal of options and a resolution. Technical teams are invited to Board meetings to present their analysis.
President of the Board of Directors
The President of the Board of Directors performs the regulator executive functions. The President is responsible for setting the strategic direction and functions of the Board; exerts executive and administrative functions; and reports on behalf of the regulator to the PCM and MEF.
The President is selected through public contest. A Selection Committee composed of two members from the PCM, one member proposed by MEF and one by the MEM proposes a list of applicants to the President of the Council of Ministers, who submits to the President of the Republic the proposed selected candidate. The President of the Board of Directors is then appointed via a Supreme Decree
The President presides over the Board, implement the decisions of the Board, and represent Osinergmin before public authorities and at national or foreign institutions. As stated above, the President also appoints or removes the General Manager and approves, at the proposal of the General Manager, the hiring of line managers and management level officials, as well as their promotion, suspension and removal. Finally, the President approves the institutional budget, balance sheets and financial statements as well as the Institutional Management Plan and administrative policies.
General Manager
The General Manager is responsible for the legal and administrative responsibilities of Osinergmin. Appointed by the President, the General Manager plans, organises, manages, executes and supervises the administrative, operational, economic and financial activities of Osinergmin.
The General Manager also attends sessions of the Board, but does not have a voting function. For discussions pertaining to appeals of decisions made by the General Management, the General Manager must withdraw from the session.
According to Osinergmin’s Organisation and Functions manual (Manual de Organización y Funciones-MOF), both the President of the Board and the General Manager can hire technical advisors. The other members of the Board have no supporting staff and their internal information requests can take a long time before they are processed. At the time of writing, the President of the Board of Directors has five advisors, and the General Manager has four.
Organisational structure
Osinergmin is organised into five sections (see Figure 2.3 for full organigram):
Strategic bodies: Board of Directors, President of the Board and the General Manager, described above.
Line bodies: Responsible for developing regulations and conducting supervisions according to their specific duties.
Advisory bodies: Responsible for developing and proposing advice and initiatives to the General Manager on issues related to Legal Advice, Planning, Budget and Modernisation, and Policy and Economic Analysis.
Support bodies: Provide the General Management with human and financial resource management, IT services, and communications and international relations.
Dispute resolution bodies: Responsible for handling complaints and appeals to the decisions of the regulator, and is supported by a technical secretariat.
Figure 2.3. Osinergmin’s organisational structure
Seven departments are directly accountable to the General Manager. In addition, the Regional Offices Department reports both to the Energy Supervision Department and the GM.
The Finance and Administration Department manages resources and collects the contributions from the industry. It is also charged with procurement, accounting, document management, this department produces the financial statements that are sent to MEF and verified by the Contraloria de la Republica.
The Human Resources Department manages staff recruitment, training, procurement of external intellectual services and monitors compliance with labour conditions and standards. The Systems and Technology Department is in charge of all matters related to IT, platforms and digitalisation.
The Communications and Inter-institutional Relations Department handles all media requests and the relationship with the national press, engages in outreach activities with companies, public bodies and citizens, produces the annual report and is in charge of all the internal communication.
The Department aims to increase Osinergmin’s visibility and recognition in line with the PEI’s objectives. For instance, they engaged in media campaigns through press releases, interviews and press conferences in order to advertise the new LPG requirements among consumers. These requirements meant that each LPG gas filling plant has to place a label with the exact information of gas cylinders. Eighteen months after the introduction of the regulation, compliance was high and 66% of plants placed labels on their gas cylinders.
The Legal Department ensures that all of Osinergmin’s norms and actions are in accordance with the law and provides guidelines on horizontal issues affecting all technical departments. In addition, specialised lawyers are present across all those departments. In the absence of a nominated Procurador, the work of the Department also stretches to representing Osinergmin in public court cases (although litigation is contracted out and supervised by the Department). The Department also engages with legislators and government officials by issuing proposals for changing laws and procedures. For instance, Osinergmin recently proposed that judicial review cases should be limited to assessing the legality and not the merit of Osinergmin’s decisions.
The Planning and Budgeting Department has wide-ranging responsibilities related to long-term plans, operational planning, and annual budgeting. The Department also supervises processes such as the Quality Management System (QMS), health and safety, information security, the service charter and the adherence to international quality standards (ISO).
The Policy and Economic Analysis Department (GPAE), performs a mix of internal and external functions. Internally, amongst other functions, the GPAE participate to the budgeting and planning processes; promote the development and adoption of regulatory quality tools such as RIA; and support the Board in developing internal recommendations and guidelines. Externally, GPAE monitors key policy and market developments in the energy and mining sectors, produces Sectoral Economic Reports (Reportes de Análisis Económico Sectorial) and working papers on regulatory policy issues. It is also in charge of designing, distributing and analysing the responses to the questionnaire measuring Osinergmin’s reputation (EPERS).
The role of the Tariff Departments, the Energy Supervision Department and the Mining Supervision Department are detailed in the section on Roles and objectives. The structure of these Departments is largely a legacy of the building blocks that have composed the regulator over time. Some co-operation across Departments takes place thanks to the good personal relationship between staff members, but official co-ordination meetings on technical matters are not part of the weekly routine and most Departments have sufficient in-house expertise.
User protection
In addition to regulatory and supervision functions, Osinergmin facilitate consumer protection in the energy sector by allowing users to complain via the administrative courts about the quality of service and access in the sector. This can be accomplished by visiting one of the 25 regional offices and 15 decentralised offices across Peru, by telephone through a Call Centre open during business hours, or online by filling in a form on the regulator’s web portal.
The Communications and Inter-Institutional Relations Department develops campaigns to empower consumers, such as educational programmes for students, as well as for disabled and blind consumers. In addition, Osinergmin has developed mobile applications to help users with the support they need. These include:
Facilito Electricidad: Enables the user to report problems to the electricity company that provides the service. The information reported is sent to the electricity company to solve the problem, and Osinergmin supervise compliance of the service.
Facilito Combustible: Enables users to find fuel service stations near their location and compare prices.
Tukuy Rikuy: Meaning “Who sees and hears everything” in the local Quechuan language, this SMS-based service implemented nationwide allows users to submit complaints and requests for service for energy on any mobile device, regardless of the technology. Messages arrive in real time to the electricity company in the area and to Osinergmin. This allows for immediate action, eliminating barriers to access, mobilisation costs, and time.
Most complaints and claims are made in writing and personally at Osinergmin’s offices. Osinergmin is noticing that since the implementation of the mobile applications and the “Tukuy Rikuy” system, the number of complaints through technological means has increased.
Regulatory quality
In 2016, the PCM issued Law Decree No. 1310 on Regulatory Quality Assessment (RQA), with draft rulings and guidelines in July 2017. The full rulings and guidelines are expected in 2018. The RQA is a procedure to assess regulations that establish administrative procedures to identify, reduce and/or eliminate unnecessary, unjustified, disproportionate, or redundant procedures (Ministerial Resolution No. 196-PCM-2017). The rulings and guidelines apply to all public entities of the Executive branch.
The Decree and support documents require all government entities to perform RQAs on all regulations that establish administrative procedures. The Decree establishes three actions: requiring an ex ante assessment of impacts for new procedures, a review of the regulatory stock, and a revision to the regulatory stock every three years to reduce burdens. The decree limits this to procedural changes related to administrative processes and not for all regulatory measures.
A Multi-Sectoral Commission on Regulatory Quality (MCRQ) was also establish as a permanent body that reports to the Presidency of the Council of Ministers. The MCRQ serves to assess and validate the RQAs conducted by public entities of the executive branch according to four principles: legality, necessity, effectiveness, and proportionality. The MCRQ issues its observations and proposals for improving the measure, which is sent to the public entity for correction or acceptance and then back to the MCRQ for validation. The MCRQ can also propose the dismissal of an administrative procedure if it does not meet the principles of legality or necessity.
Independently and in parallel to the development of the PCM RQA, three regulators – Osinergmin, OSIPTEL and OSITRAN – developed manuals and guidelines for assessing the impacts of regulatory decisions. These manuals extend the scope of analysis and application of assessments to include a wider scope of regulatory decisions, and not just those affecting administrative procedures. Osinergmin rolled out their own RIA process in co-operation with the OECD in 2017. The regulator also uses stakeholder engagement and, to a lesser degree, some ex post evaluation to improve the quality of regulatory decisions.
Regulatory impact assessments
As of October 2018, one full RIA was completed,7 a second RIA is underway, 16 mini‑RIAs have been completed and a further 18 are underway (as of the end of 2017). Mini-RIAs are an abridged version of the full RIAs, which are intended for the institution to learn the process and the analysis that goes into the ex ante evaluations. Table 2.12 explains the difference instances where a full or mini-RIA is required.
Table 2.12. Methodological differences between Osinergmin’s full and mini-RIA
Source: Information provided by Osinergmin, 2018.
The main differences are that the full RIA includes a quantification of the costs and benefits, whereas in a mini RIA these are described qualitatively. The full RIA also requires more rigorous analysis of the mechanisms of implementation, compliance and monitoring as well as a public stakeholder consultation.
Guidance for full RIAs are contained in the Guidance on Regulatory Policy No. 1 and in various memoranda published by the regulator. In addition to these publications, Osinergmin has hosted workshops on the RIA process conducted by the OECD as well as by its own staff familiar with the methodology.
The departments proposing the regulation are the ones responsible for initiating and preparing the RIAs with extensive support and guidance from the Policy and Economic Analysis department and legal specialists within Osinergmin.
RIAs are submitted to the Board, which can return the RIA to the relevant department and resubmit after the comments from the Board have been addressed.
Methodologies for the calculation of costs and benefits have been implemented since 2001 (article 7 of Supreme Decree No. 054-2001-PCM).
The GPAE and Legal departments review and formally approve the assessments to ensure quality, provide comments, and provide support to the relevant departments responsible for the assessments before they go to the Board. If either department has comments, the RIA is returned to the line manager to incorporate recommendations. The revised RIAs are then sent to the Board for their review, in accordance with the guidelines.
Stakeholder engagement
Public consultations are not mandatory in Peru. The only form of consultation required by law is to publish new laws and regulations in the Official Gazette, web page or other instrument at least 30 days before its entry into force to receive comments and make necessary modifications.
According to the Regulatory Policy Review of Peru (OECD, 2016[1]), all economic regulators do prepare a matrix of comments that assembles stakeholders’ comments on regulatory proposals with an evaluation from the regulator regarding whether and how the comment will be considered.
Osinergmin’s stakeholder engagement process includes the publication of all the information of the process, the pre-publication of the tariff-fixing resolution and the support of the decisions adopted by the regulatory agency in the public consultations. Most of these efforts are conducted via the regulator’s website, with public consultations used when necessary (normally in regards to important issues). The RIA, where applicable, is also published with the draft proposal for comments.
Stakeholders do not submit comments on ex post evaluations but, in certain cases, may provide input into the impact evaluation process. For FOSE, internal stakeholders, specifically Osinergmin’s Board and the tariff regulation department that administers the subsidy, comment on the report. For FISE evaluation being conducted this year,
Osinergmin is considering using surveys and interviews with beneficiaries and focus groups. Additionally, a large quantity of data is collected on LPG distribution and beneficiaries of the LPG subsidy. Though data analysis and monitoring that is part of the LPG program, FISE is able to identify potential problems and improve the design of the programme.
Furthermore, the LMOR requires regulators to have one or more User Councils for stakeholder participation, However, Osinergmin’s Users Council does not engage on practices on consultation (see Box 2.5).
Box 2.5. User Councils
According to the LMOR, economic regulators are also required to have one or more User Councils for stakeholder participation on each sector. Council members are appointed by the Board for a two-year period. These councils can be local, regional or national depending on the characteristics of the markets. Regulators publish a call for potential candidates to the council, as well as a provisional list of candidates and a final list of elected members. Member councils come from consumer associations, universities, professional colleges, non-profit organisations and business organisations not related with the regulated entities. The LMOR provides that the positions on the Councils are unpaid. However, it also states that the regulators must finance their activities.
The financial resources assigned to the Council’s functioning should be included in the institutional budget of the regulators. Board of Directors Resolution No. 152-2015-OS/CD (Resolución de Consejo Directivo 152-2015-OS/CD), states that Osinergmin has one national Users Council comprising five members. Three members are selected from a list of candidates proposed by consumers and users associations. Two members are from a list of candidates proposed by energy and hydrocarbons professional bodies, universities that offer professional careers related to energy, natural gas or hydrocarbons, non-profit organisations related to the same sectors, and by business organisations not related to the regulated entities. The members are elected for a two‑year period and do not receive a salary.
For the 2017-19 period, the Users Council comprises one member of each of the following institutions:
Caudal (institute of consumer protection).
Equidad (centre of citizen protection).
Asociación San Francisco (association for the defence of consumers rights).
Asociación de Pequeños y Medianos Industriales del Perú- Región Piura (association of small and medium industrial businesses of Peru, Piura region).
Colegio de Economistas de Piura (professional body of economists of Piura).
Despite this requirement, Osinergmin does not consult with the Users Council on proposed initiatives. There are no legal consequences of not having well-functioning Users Councils.
Source: Information provided by Osinergmin and complemented by an analysis of current regulations.
Ex post reviews
In accordance with the PCM RQA, economic regulators in Peru are only required to undertake stock reviews and ex post evaluations for regulations that add administrative procedures. Osinergmin does voluntarily undertake some ex post evaluation on its funds and some regulations that are not covered by the PCM RQA. The GPAE department is responsible for all evaluations. The methodologies were developed for each case and noted below, though FISE methodology was an MEF guide on results-based evaluation.
In 2017, Osinergmin reviewed the stock of procedures according to RQA initiative of the PCM and presented it on 29 September of 2017. Since that date each new procedure has its RQA evaluation.
Osinergmin’s Electric Social Compensation Fund (FOSE) is a cross-subsidy programme on the tariffs paid by consumers who consume less than 100kWh per month and targets low-income households. An annual evaluation is conducted to see whether the program correctly targets the population. The analysis is quantitative and includes a calculation of inclusion and exclusion errors (percentage) as well as the distribution of subsidies by income level. This is subsequently compared to the previous years’ data. If the errors are found to be increasing, Osinergmin looks for ways to improve the targeting of the subsidy.
FOSE evaluation is conducted annually after the results of the General Household Survey conducted by Osinergmin become available.
FISE has several different programmes associated with it. In 2015/16, it was subjected to an intermediate evaluation by the OECD in collaboration with Osinergmin to evaluate the impact of the LPG subsidy.
In 2018, FISE will undergo two additional impact evaluations. The first will evaluate the LPG subsidy to provide targeted cross-subsidies for the use of LPG. It will focus on health indicators and the extent to which the program successfully encouraged switching among low-income households from biomass to LPG. The second is an intermediate impact evaluation that will look at the residential natural gas installation program, which provides partial or full financing for connecting homes to the natural gas network. This intermediate impact evaluation will measure impact in terms of savings to the consumer and the quantity of gas used. A guide was produced on how to focus subsidies and the relevant indicators.
Seven impact evaluations have also been conducted on regulatory policies. These were ad hoc, so the criteria varied for each evaluation but focused on social and economic dimensions. These impact evaluations are:
Supervision of street lighting: evaluated the cost-benefit ratio of the change in the supervision process using consumer’s willingness to pay.
Energy losses evaluation: evaluated the impact of a regulatory change aimed at reducing energy losses by measuring savings to consumers
Safety and accident prevention: evaluated the impact of a change in supervision practices in terms of deaths avoided.
Metrological control: evaluated the impact of a change in metrological control supervision in terms of social costs and benefits.
Supervision of mining activities: evaluated the impact of a change in supervision practices in terms of deaths avoided.
Supervision of electricity meters: measured the impact of supervision practices in savings to consumers.
Supervision of gasoline and diesel quality: evaluated the impact of a reduction in the number of low quality gas stations in terms benefits to consumers.
Regional offices
Osinergmin operates 25 regional offices in charge of supervising services provided to customers in the downstream part of the electricity, gas and hydrocarbon sectors. They employ 170 staff members nation-wide, including seven people in each regional office and six in the Lima headquarters. Most of the growth in the regulator’s staff has taken place in the regional offices in recent years and a large share of the budget (more than 20% in 2016) is allocated to these offices.
The main line of action for these offices is to empower consumers by receiving complaints either in person or through their call centre. They also receive and process the SMS complaints received through the Tukuy Rikuy system. Where necessary, complaints are then forwarded to the Lima office.
The Regional Offices also support local efforts to ensure the consistency and security of services and infrastructure with the regulated entities, particularly where power outages are frequent. For gas, they focus on the security of the service as well as expanding the system. They also co-ordinate the transportation of hydrocarbons through maintaining a list of registered carriers that are validated at the national level.
Finally, the offices work to identify gaps in the legal framework that require a fix from Osinergmin headquarters or MEM.
To promote co-ordination, they work closely with the Lima headquarters as well as both regulated entities and consumers. With regulated entities, they meet with electricity companies to identify areas where investment is most needed, especially in areas where companies are state owned. With consumers, they run regional assemblies that offer another pathway to offer complaints and work to understand issues to inform supervisions and foster a preventative approach with companies.
Enforcement and inspections
Osinergmin is charged with supervising the safety of infrastructure in the energy and mining sectors. Supervision powers include the ability to inspect operators and infrastructure managers, and impose sanctions on regulated entities. Starting with a supervision report, which identifies evidence of non-compliance, the sanctioning process continues with the communication and levying of a fine onto the regulated entity. The procedure needs to be approved by the General Manager of Osinergmin. The Administrative Court of Appeals for Sanctions on Energy and Mining Issues (TASTEM) serves as the appeals body in the second instance. After the second instance decision, the regulated entity can file a judicial review. Table 2.13 summarises the cumulative amount of sanctions levied on all sectors since Osinergmin began its work.
Due to Osinergmin’s change of mandate (see Role and Objectives section above), inspection functions are no longer related to the supervision of environmental and labour issues. OEFA and SUNAFIL are the Peruvian agencies that conduct inspections on these issues respectively. In addition, MEM, and other regional and national authorities can carry out inspections mainly on environmental issues.
There are circumstances in which inspectors from the different agencies conduct their inspections at the same time as Osinergmin (i.e. oil spills, large mining accidents). Regulated companies perceive that the various agencies face overlapping requests or duplicated reports. Moreover, companies perceive that the complexity of technical standards and regulations makes difficult to comply with all requests.
Table 2.13. Administrative fines issued and pending, by stage from 1998-2017
Source: Information provided by Osinergmin, 2018.
The diverse agencies carry out ad hoc and informal co-ordination when inspecting the same sites. There is no evidence of formal and institutional co-ordination between agencies. On a case-by-case basis, entities such OEFA and Osinergmin share certain information about the common inspections. Each organisation then publishes web portal the results of inspections related to events with large social and environmental impact.
Osinergmin, OEFA and SUNAFIL recognise the importance of making their mandate clear for the energy and mining sectors. In that sense, these agencies and MEM issued a List of Technical Functions that defines the legal competences of Osinergmin, OEFA and SUNAFIL. However, there is no evidence of a joint supervision strategy.
Osinergmin also recognises the importance of fostering a safety culture. For example, the regulator has conducted impact evaluations of Osinergmin’s supervisions in the number of deaths avoided. However, there is no evidence of an integrated strategy to improve prevention.
Appeals
Osinergmin has four administrative dispute resolution bodies (órganos resolutivos) governed by its internal regulations (Reglamento de los órganos resolutivos de Osinergmin, Resolución de Consejo Directivo 044-2018) see Table 2.14:
Collegiate Bodies (Cuerpos Colegiados de Solución de Controversias).
Controversies Settlement Court (Tribunal de Solución de Controversias).
Appeal Board of Users Claims (Junta de Apelaciones de Reclamos de Usuarios – JARU).
Administrative Tribunal of Energy and Mines Sanctions (TASTEM).
Table 2.14. Osinergmin’s administrative dispute resolution bodies
Source: Information provided by Osinergmin, 2018.
Cuerpos Colegiados de Solución de Controversias are first instance and non-permanent administrative bodies that resolve controversies between regulated companies. These may involve, for instance, controversies between transmission and distribution companies. When a dispute arises, the President appoints three members ad-hoc from an internal registry of candidates. However, the President can decide to appoint a permanent Cuerpo Colegiado.
Tribunal de Solución de Controversias resolves in second instance the appeals against the decisions issued by Cuerpos Colegiados. According to the LMOR, their members are appointed by Supreme Decree issued by the PCM. Since 2015, there have been delays in the PCM nominating the members of the Tribunal. This has resulted in the body not being able to meet given the lack of a legal number of members and, as a result, large delays have been accumulated. Businesses perceive this as being an issue with Osinergmin’s efficiency rather than the result of delayed decisions by the Executive.
User complaints are filed to energy companies in first instance. The Osinergmin body JARU serves as the second instance. In some cases, JARU will also hear complaints of smaller regulated entities against the larger ones. The Board appoints the members of JARU for a three-year period.
Finally, TASTEM serves as the second instance administrative body for appealing sanctions in the energy and mining sector after companies have appealed to the Department that imposed those sanctions in the first instance. The Board also appoints their members for a three-year period.
Until 2008, the Board of Directors was ultimately responsible for adjudicating fines. Since the new TASTEM was created, appeals are addressed through this technical appellate body. The Board only retains ultimate responsibility for decisions on tariffs, including in the case of appeals by the companies.
A significant rise in the number of appeals is raising the toll of unresolved cases in all tribunals, including the JARU (1 522 unresolved cases in 2016 and 2 339 in 2017) and the TASTEM (407 unresolved cases in 2016 and 274 in 2017). Osinergmin is addressing this issue by hiring extra resources in 2018, leading to a 20% increase in personnel working across tribunals.
The second instance decisions (Tribunal de Solución de Controversias, JARU and TASTEM) can be appealed before administrative courts (proceso contencioso administrativo). Companies can also appeal Osinergmin’s tariff setting decisions after asking for reconsideration of the Board of Directors.
Judicial reviews can be expensive and often take several years to complete. Users and regulated entities may use judicial review as a method to delay paying sanctions or being subjected to changes in tariffs. Regarding users, the payment of energy bills is suspended during a litigation process.
The Judiciary can decide the case both on the merit and on the process undertaken by Osinergmin. Most cases are decided in favour of Osinergmin. Nevertheless, the number of judicial reviews is rising (see Table 2.15).
Table 2.15. Osinergmin decisions appealed in courts and outcomes
Source: Information provided by Osinergmin, 2018.
The number of appeals is rising both in the administrative dispute resolution bodies and the judiciary. Osinergmin is also considering the reason behind the growth in appeals. The following four areas have been identified, and deserve further analysis leading to remedial action by the responsible departments:
Delays in nominating some of the TSC (Tribunal por la resolución de controversias) members by the PCM
Complexity of the regulatory framework and a large number of new rules and norms issued each year leading to non-compliance
A punitive supervision approach leading to a growing number of fines levied
The increase in activities in more remote areas raising awareness about consumer rights and ways to complain
The “procurador” serves as the lawyer and public servant charged with the legal defence of public entities. This function is recognised in the Peruvian National Constitution (article 47) and in the State’s Legal Defence System Law (Ley del Sistema de Defensa Jurídica del Estado). Procuradores are proposed and overseen by the Ministry of Justice. Osinergmin’s procurador is currently a vacant position. In the interim, lawyers from the Legal Department exercise the defence of the entity.
Transparency and accountability
Transparency
Relations between Osinergmin staff and the regulated sector are governed by the Civil Service Ethics Code (Law 27815) that establishes ethical principles for civil servants. Based on these principles, Osinergmin employees are prohibited from obtaining personal or financial benefits from regulated industries.
All decisions made by Osinergmin are published on their website and, for regulatory decisions, in the Official Gazette El Peruano. Osinergmin also makes use of their website to publish the results from stakeholder engagements and information on sanctions, data, and outreach activities. Furthermore a variety of media, including social media, is used to communicate these outputs with the public. Osinergmin runs LinkedIn, Facebook, Twitter accounts and has developed an app available for both Android and iOS smartphones.
This is supported by the Communications and Inter-Institutional Relations Department (GCI), which has eight staff members supporting communications through social media, traditional media, and online. GCI also employs educational projects to inform users of their rights, programmes in schools to teach them how to prevent accidents, advertising campaigns, and facilitates co-ordination efforts with stakeholders and other government bodies. Their communication in inclusive, utilising methods to communicate with disabled persons as well as non-Spanish speaking communities, such as the Quechuan population.
Osinergmin has been proactive in adhering to international standards and gaining independent certification of their management processes. These certifications add to the credibility and transparency of institutional decisions and show Osinergmin’s commitment to following international standards. The following systems have already been certified:
Quality management systems (ISO 9001:2015)
Environmental management systems (ISO 14001:2015)
Occupation health and safety (OHSAS 18001:2008)
Information security management (ISO 27001:2013)
Anti-bribery management systems (ISO 37001:2016)
Service Commitment Charter (UNE 93200)
The regulator is also in the process of obtaining an updated occupational health and safety certification.
Accountability to Congress
Osinergmin is accountable to Congress, while being overseen by the PCM and potentially called upon by MEM or other relevant government departments to provide information or opinions. Although Osinergmin publishes an annual report on their website, there is no requirement to officially share and present this with any State entities nor to present it before Congress. The PCM and MEF do require the regulator to report on certain indicators and meet reporting requirements; however, these are often fragmented.
However, it is common for the parliamentary commissions related to Osinergmin’s work to invite the regulator annually to explain the results of its work, scope of jurisdiction, and actions to be carried out in the future. In the Congress of the Republic, there are two ordinary committees that study, monitor and carry out the political control of the Energy and Mines sector and the regulatory agency that has jurisdiction in said sector. These are the Energy and Mines Commission and the Consumer Defence Commission and Public Services Regulatory Agencies. Hearings usually take place in each Annual Session Period, as a new Executive Committee assumes the presidency of the commissions.
Regulatory authorities can also be called by the Plenary of Congress or the ordinary committees to report on issues under their jurisdiction that are being considered by the Congress, such as in the case of sector reforms.
In addition to the annual report on their results, both commissions invite Osinergmin to give a presentation on follow-up issues by the Executive Committee and/or members of the commission, which generally are related to a problem of regional or local nature. For instance, Table 2.16 outlines some of the main topics for which Osinergmin is summoned by the committees.
Table 2.16. Topics discussed by Osinergmin with the Ordinary Commissions of Congress
Source: Information provided by Osinergmin, 2018.
Other ordinary commissions also invite Osinergmin, based on specific issues and situations that arise at the regional or local level to report and discuss on this topic. Among these commissions are the:
Commission of Andean, Amazonian and Afro-Peruvian Peoples, Environment and Ecology;
Commission for Decentralisation, Regionalisation, Local Governments and Modernisation of State Management;
Labour and Social Security Commission.
The Congress can also initiate investigations on any matter of public interest, being mandatory to appear, by request, before the commissions in charge of said investigations. The commissions will promote an investigation procedure that guarantees the clarification of the facts and the formulation of conclusions and recommendations aimed at correcting standards and policies and/or sanctioning the behaviour of those responsible.
In the 2016-17 Annual Session Period, three investigation commissions were created related to sector issues and in which Osinergmin, according to its functions and jurisdiction, participated. These include:
Special Multiparty Commission responsible for investigating and determining the responsibilities of officials and individuals and public and private institutions responsible for the oil spills in the North Peruvian Pipeline; whose purpose was to investigate and determine the causes and factors of business management, officials, individuals and public and private institutions that are liable for oil spills in the North Peruvian Pipeline, consequently determining liability for property damage, losses by the State, and also from the point of view of environmental damage, establishing environmental liabilities related to oil spills. For its investigation and report, the Investigating Commission sent Osinergmin six Requests for Information and invited it to a reserved session to answer the questions related to the actions that Osinergmin carried out, with respect to the operations of the North Peruvian Pipeline.
Investigating Commission in charge of investigating the alleged acts of corruption and any other type of crime in the bidding processes and concession agreements, including their execution during the 2011-16 government period (government of former president Ollanta Humala Tasso), referred to Line 2 and Branch of Ave. Faucett, Ave. Gambeta, of the basic network of the Metro of Lima and Callao, of the concession agreement of the project, Improvement of the Energy Security of the country, Development of the South Peruvian Gas Pipeline, and of the contracts for the exploitation of Camisea Gas and the Talara Refinery; whose objectives were to determine the alleged irregular events within the normal functioning and management of public affairs. For its investigation and report, the Investigating Commission requested two reports from Osinergmin and invited it to the session in order to give a presentation on topics related to the investigation.
Special Multiparty Commission in charge of Investigating the Alleged Bribes and Illegal Benefits that public officials of the different levels of government had received, in relation to the concessions, works and projects that have been awarded to the Brazilian companies Odebrecht, Camargo Correa, OAS, Andrade Gutiérrez, Queiroz Galvao and others, from the beginning of their activities to date by any form of contracting with the Peruvian State; whose lines of action are to identify Peruvian companies that, in joint ventures with Brazilian companies, participated and/or participate in bidding processes with the Peruvian State, signing contracts and modifications that may have meant or mean harmful acts to the State; to determine the alleged bribes and illegal benefits that public officials who intervened in the cases investigated have received; establishing functional and political, administrative and/or criminal responsibilities, among others.
These commissions, through an extension on their term, continue to be active in this 2017 – 2018 Annual Session Period, except for the first one that concluded its report, which was approved by the members of the Commission and is waiting to be brought to debate and taken to vote, for approval or rejection, in the Plenary Session of the Congress.
More generally, according to article 96 of the Political Constitution of Peru, any representative of the Congress may request the Government bodies and the Administration in general, all the information they deem necessary, carrying out the request in writing and in accordance with the Regulations of the Congress, causing legal liabilities in case of lack of response.
The First Vice-Presidency of the Congress of the Republic is responsible for overseeing the compliance of public entities and carries out its annual balance. Also, quarterly compliance reports are prepared and submitted to the Presidency of the Ministers Cabinet for evaluation.
During the 2011-16 parliamentary period, the Congress made an average of 226 requests for Information per annual session period. These include requests from congressmen and/or ordinary or investigating commissions. This number increased in 2016-17 and decreased in 2017-18 (see Table 2.17)
Table 2.17. Requests for information and opinion by Congress per parliamentary period
Note: Periods run from August to July each year.
Source: Information provided by Osinergmin, 2018.
There is a procedure to answer requests by the Congress of the Republic (PI31, approved in November 2013) that defines response deadlines to the areas involved in order to meet the response deadline established by the Congress itself. A system keeps a record of all the entries from the Congress in order to follow-up the response, within the term established by the Service Procedure.
Another type of information request is the Request for Opinion on a specific bill that an ordinary commissions or a congressman requests as part of a commission so that a technical report by from Osinergmin provides feedback to the opinion on the bill prepared by said commission. During the 2011-16 parliamentary period Congress made an average of 27 Requests for Opinion per annual session period. In the current parliamentary period, which includes the 2016-17 and 2017-18 (until April) annual session period, the Congress has made an average of 36 annual Requests for Opinion.
Output and outcome
Measuring and assessing the performance of regulated entities
Osinergmin collects a vast amount of data from regulated entities across the energy and mining sectors. The majority of the data collected feeds into regulatory and supervision processes. In some cases, Osinergmin departments use the data to measure and report the performance of regulated sectors. The annual report (Memoria Institucional) presents a selection of performance indicators. Sector-specific reports and bulletins provide more in‑depth information on each market and, in some cases, carry out an assessment of future needs. For example, indicators tracking capacity and natural gas processing plants are used to assess the need to expand and modernise infrastructure as well as maintenance schedules.
However, a holistic, organisation-wide approach to both data management and performance monitoring is lacking. The following paragraphs provide more detail on Osinergmin’s current approach to data management and performance reporting, including some recent notable advancements.
Data collection requirements vary across sectors and industries. With respect to infrastructure supervision, Osinergmin tracks the number of accidents, incidents, injuries and fatalities. These figures are reported on a monthly basis in the hydrocarbon and mining sectors. Data is used to rank facilities based on their level of risk and hence prioritise supervisions. The regulator also publishes those statistics online and streams live statistics on TV screens across the offices, drawing attention of the staff operating in those sectors. With respect to service quality, regulated companies in the electricity sector must submit monthly reports on the quality of service. Street lighting statistics are instead collected twice a year.
Operators do not generally perceive the data requests from Osinergmin to be too onerous. However, the different authorities with some responsibility for sector regulation (MEM, Osinergmin, OEFA, and SUNAFIL) tend to make several data requests at the same time, making it difficult for companies to reply on time. Osinergmin often receives data after the deadline and some companies have not complied with data obligations in the past. Against non-compliance, Osinergmin usually sets up meetings with the company in question to discuss potential issues and improve future communication. The regulator can also initiate sanctioning procedures.
Most statistics are presented nationally. In some cases, Osinergmin uses some of the data collected to analyse and report on the performance of regulated sectors. For instance, in the electricity sector, the privately-owned companies operating in and around Lima have a much stronger performance compared to the public companies operating in the regions. Private companies tend to have better technical and financial means to achieve higher efficiency and quality of service; they also benefit from lower marginal costs. Conversely public companies face very strict borrowing constraints that reduce their ability to invest in innovation. Similarly in the mining sector, safety and performance issues are typically local in nature. Several extractive activities are currently on hold due to force majeure episodes. These mainly involve local protests and blockades resulting from the local residents opposing large-scale infrastructure projects. Both issues point to the need to continue monitoring performance at the sub-national level.
The analysis of performance that emerges from the wealth and breadth of data collected by Osinergmin does not systematically lead to remedial action to tackle the issues identified. The use of capacity data in natural gas processing plants described above is an example of monitoring based on regular data feeds. Another notable initiative is the collaboration between Osinergmin and the public electricity distribution companies under the National Fund for Financing Public Enterprise Activity (FONAFE). Since 2012, the regulator holds regular working group with those ten companies in order to tackle issues of service quality in the regions, especially around interruptions to electric services caused by disconnections in the infrastructure they operate. These meetings have resulted in detailed action plans that Osinergmin monitors in order to evaluate progress and prepare follow-up actions. In parallel, Osinergmin is involved in monitoring problems associated with operational conflicts in facilities at the border of different jurisdictions.
Osinergmin also uses some performance data as input for regulatory activities such as tariff-setting and benchmarking. For example, since 2015, tariff setting for the electricity distribution charges includes an adjustment factor to promote improvements in the quality of service (see Box 2.6).
A number of ongoing initiatives aim at strengthening data collection and use practices. The recently created Energy and Mining Observatory (OEM) represents a sizeable step forward in the provision of integrated, accessible data and analysis for the electricity, hydrocarbons and mining sectors. The OEM supports regulatory and supervisory processes and can be freely accessed both by the regulated companies and the wider public. In addition, a Data Warehouse is being developed (using the Agile methodology) to provide all employees with comprehensive information and unbiased access to data.
Box 2.6. Using performance data across regulatory functions
Performance measures also feed directly into the economic regulation functions of Osinergmin. The process of setting electricity distribution tariffs takes into account the Distribution Added Value (DAV). The DAV is the remuneration each electricity distribution company is allowed to attain considering investment, operation and maintenance costs of providing distribution services.
Since 2015, the definition and methodology for accounting for the DAV includes an adjustment factor to promote improvements in the quality of service. The adjustment factors are applied as an incentive or penalty on the compliance with annual goals. The latest modifications of this adjustment factor included a requirement that the quality of supply should be evaluated based on global performance indicators related to interruptions:
Average Interruption Frequency per user (SAIFI)
Average Total Time (in hours) of Interruption per user (SAIDI)
The methodology for the calculation of the SAIFI and the SAIDI of an electric system within a certain period is defined in the “Procedure for the Supervision of the Operation of the Electric Systems”, approved by Board of Directors Resolution No. 074-2004-OS/CD. Both indicators provide a measure of the extent to which supply is affected by interruptions caused by failures, manoeuvres and unavailability in the generation, transmission or distribution electrical installations.
The adjustment factor that acts as an incentive above the DAV is granted at the beginning of the tariff period (1 November each year), and cannot exceed more than 5% of the DAV. The adjustment factor that acts as a penalty corresponds to the refund of the additional income granted following the DAV tariff setting process.
The introduction of these two indicators for the evaluation of the quality of the electric service provided by each distribution company is a very important step forward in linking performance evaluation and tariff-setting.
Source: Information provided by Osinergmin.
Last, Osinergmin collects data on the number of fines and sanctions administered – and appealed – as well as the number of user complaints collected – and addressed. These figures appear in annual reports and are communicated to other entities (e.g. Osinergmin shares data on user complaints with Indecopi) but the regulator does not explicitly include them among performance measures.
Assessing the performance of the regulator
Osinergmin assesses its performance through a variety of instruments that evaluate the regulator’s ability to deliver its strategic objectives, the satisfaction and expectations of its employees, the regulator’s reputation among stakeholders and their satisfaction with Osinergmin’s processes and decisions.
Measuring Osinergmin’s performance requires a balanced assessment of both the performance of the regulated entities and the performance of the regulator itself. This is a challenging task given the different markets that Osinergmin supervises and regulates, as reflected in the regulator’s organisational structure. The large number of strategic goals adds additional complexity to the monitoring of outputs.
Osinergmin’s strategic framework is based on the overarching Strategic Institutional Plan 2014-2021 (PEI) which sets out 15 strategic objectives based on four perspectives: stakeholders; internal processes; human sources development, learning and technology; and financial resources. This is accompanied with 40 strategic initiatives and 30 indicators (the full breakdown of the PEI can be found in Annex 2.A).
Every year, Osinergmin produces a detailed report (Evaluación del Plan Estratégico 2015-21) monitoring the timeliness with which the strategic initiatives are being implemented. The report, prepared by the GPPM under the supervision of the General Manager, includes quantitative indicators about the number of initiatives completed (15 in 2014, 11 in 2015 and 14 in 2016) out of those that were planned. The overall objective is to implement all the 40 strategic initiatives by 2021.
However, the report does not follow up specifically on the quantitative indicator laid out in the PEI. For example, the credibility, trust, autonomy and transparency indices are not regularly reported on with follow up actions. Instead, the report presents the overall results for the Global Reputation Index of Osinergmin. In 2016, the Index had a score of 641 out of 1 000. In addition, the report includes a comprehensive description of the action taken across all Departments to meet the goals of each specific strategic initiative.
In parallel, at the beginning of the year Osinergmin produces a Strategic Operational Plan (POI) which assigns direct responsibilities and budgets to the various Departments. The plan is devised on a 3-year basis, as is the budget, but it is updated annually to reflect changing circumstances. The overall POI is evaluated quarterly and the Policy and Economic Analysis Department (GPPM) produces the monthly performance assessments that are submitted to the Board. Each year, Osinergmin must also report indirectly on the POI by sending the underlying financial data to MEF. In addition, the PCM and Congress request a presentation of indicators. The OCI also produces an audit of the POI. Hence the financial performance of Osinergmin is assessed externally by different government bodies, using different indicators.
Osinergmin uses the budget execution indicator to measure its effectiveness in terms of its use of financial resources and this is also used to prepare the next planning phase. Osinergmin´s budgetary process involves the stages of: programming, formulation, approval, execution, and budgetary evaluation. At the beginning of each planning period, all Departments set out the resources needed to fulfill their functions. In parallel, GPAE forecasts the energy and mining industry revenues in order to calculate the rates of regulatory contributions for the next three-year period. After that, GPPM assesses the available budget for the coming year(s). During execution, when deviations from historical spending occur in any given Department, such Department needs to justify the increase or decrease and the impact on the process indicators that they are in charge of. In 2015 and 2016, over 90% of the budget was executed; in 2017, the figure declined below 80%.
Besides figures on the performance of the regulated sector, Osinergmin’s Annual Reports also contain some assessment of the regulator’s performance. For instance, worker satisfaction is tracked through bi-annual surveys “Great Place to Work”. Overall satisfaction reached a 10-year high in 2017 with a 75% satisfaction rate, compared to 71% in 2015 and 68% in 2013. A very large share of employees felt “pride” of working at Osinergmin, whereas a below-average number of employees identified with “respect” and “impartiality”. Osinergmin also monitors staff turnover which has been stable around 16% between 2015 and 2017. However the turnover among permanent staff is much lower at around 3-5%.
Last, Osinergmin collects data on the number of fines and sanctions administered – and appealed – as well as the number of user complaints collected – and addressed. These figures appear in annual reports and are communicated to other entities (e.g. Osinergmin shares data on user complaints with Indecopi) but the regulator does not explicitly include them among performance measures.
References
[2] OECD (2016), OECD Public Governance Reviews: Peru: Integrated Governance for Inclusive Growth, OECD Public Governance Reviews, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264265172-en.
[1] OECD (2016), Regulatory Policy in Peru: Assembling the Framework for Regulatory Quality, OECD Reviews of Regulatory Reform, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264260054-en.
Annex 2.A. Strategic Plan and Indicators
Notes: The letters correspond to the four main perspectives: stakeholders (G); internal processes (P); human sources development, learning and technology (D); and financial resources (F).
Source: Material provided by Osinergmin, 2018.
Annex 2.B. Perception Survey of Regulated Companies
Osinergmin distributes the Survey of Perception of Regulated and Supervised Companies (EPERS) survey to regulated entities annually, which seeks to measure their perceptions of Osinergmin.
The EPERS survey of firms in the regulated sectors and other stakeholders, such as Congress, includes a question on their satisfaction with the services provided by Osinergmin. The questions ask for opinion on aspects such as trust, impartiality, transparency, predictability of decisions and quality of services provided. It also solicits the opinion of the regulated entities on the way in which Osinergmin carries out supervision activities and other duties. See below a summary of the categories of questions asked by the EPERS survey for the hydrocarbon and mining sectors.
Table 2.B.1. Summary of categories of questions asked in the EPERS survey
Source: EPERS reports for Liquid Hydrocarbons and Mining, 2016.
Notes
← 1. Hydrocarbons Transport Regulation, approved by Supreme Decree No. 081-2007-EM, and the Natural Gas Pipelines Distribution Regulation, whose Single Unified Text was approved by Supreme Decree N ° 040-2008-EM, contains provisions related to access to infrastructure.
← 2. The free market conditions are established the “Procedure to set the conditions of use access free to the Electric Transmission and Distribution Systems”, approved by Resolution of the Osinergmin Board No. 091-2003-OS/CD.
← 3. See article 10 of Law No. 27588, Framework Law on Regulatory Agencies for Private Investment in Public Utilities.
← 4. After Value Added Tax (VAT) and Municipal Promotion Taxes.
← 5. “Administrative Service Contracting” (Contratos Administrativos de Servicios, CAS).
← 6. Law No. 28212, in accordance with Supreme Decree No. 046-2006-PCM, approved new remuneration caps for the public sector. Emergency Decree 038-2006, which modified Law 28121, reduced the remuneration for the President and Managers of regulatory bodies.
← 7. Osinergmin’s Board of Directors approved regulations related to safety measures for GLP cylinders following a full Regulatory Impact Assessment.