Light Handed Regulation?

Henry Ergas, 14 June, 2006

2 Ergas at BTRE Forum

Structure

• Is light handed regulation feasible?– The UK background

– Australia: the Hilmer architecture

• Where to from Hilmer?

• Some current transport issues

3 Ergas at BTRE Forum

The UK approach

• The promise of CPI-X regulation• No need for intrusive and expensive cost studies!• Reality – regulation has become ever more intrusive

and costly…

4 Ergas at BTRE Forum

Australia – the Hilmer reforms

• Aimed at a single, nationally unified system.. • Has yielded efficiency gains.. But:

– “Slice and dice” approach to industry structure complicates investment decisions, especially in activities where there are substantial complementarities between vertical layers

– Far from being a single uniform system, proliferation of regulators and regimes

– Distinction between policy and regulation has become blurred, provoking a reaction that threatens to re-politicise the process

– Extends risk of being caught in the regulatory net to activities that bear no relation to those that motivated the Hilmer reforms

• Addressing these issues will require significant changes to the post-Hilmer regulatory arrangements: few signs of progress as of yet

5 Ergas at BTRE Forum

The road network

• Inherently requires regulation• Current lack of clear principles underlying structure

and mix of private and public• Gives rise to difficulties exemplified by Cross City

Tunnel• Need for Commonwealth to play more of a leadership

role

6 Ergas at BTRE Forum

• Best way to achieve light handed regulation is not to regulate where you don’t need to

• However, there are areas where regulation is inevitable

• In those areas, and especially the road network, there is considerable scope to improve on our current regulatory arrangements

Conclusions