His Excellency
The President of the Republic
1. I am submitting for your consideration the bill of law to be forwarded to the National Congress, which includes provisions on regulations applicable to the Regulatory Agencies with respect to their management, organization, and social control mechanisms and redefines their responsibilities and those of the respective Ministries, mainly in the sectors of petroleum and derivatives, natural gas, telecommunications, and transportation.
2. The proposed measures are, to a great extent, the result of recommendations made by the Inter-Ministerial Working Group created on March 2003, at the request of Your Excellency, in order to: (i) analyze the federal institutional regulatory framework; (ii) assess the role of the Regulatory Agencies; and (iii) propose corrective measures for the model presently in use.
3. I hereby inform you that the issues presented for the consideration of the Working Group were as follows: (a) the extent of the autonomy or level of independence that Agencies have from the Ministries; (b) the scope of action of Regulatory Agencies in both planning and granting permissions and concessions; (c) the need to strengthen the Ministries with respect to basic planning functions and public policy design within the context of restructuring the role that the State has played during the past ten years (from a Producer State to a Regulatory State); (d) the efficiency of Agencies in defending consumer interests and exercising their legal competencies; (e) the availability of resources so that Agencies can perform their duties successfully, including having qualified personnel, with prerogatives compatible with the implementation of its oversight and regulatory function—a measure that has already been taken by Your Excellency through the submission to the National Congress of Provisory Measure No. 155 of 23 December 2003; and (f) the lack of mechanisms which allow Agencies to render accounts to the National Congress, including matters related to the Congress’s ability to convene presidents and directors of these entities to clarify issues.
4. Although this last aspect is not addressed in this Bill of Law, given that its implementation would require promulgating a constitutional amendment, the lack of social control is certainly one of the major sources of concern and difficulties that need solutions requiring adjustments to the legal framework of Regulatory Agencies. Therefore, major improvements to the model in use are being proposed, including establishing a more thorough delimitation of responsibilities, thus ensuring that Congressional specialized entities exercise a more efficient control of procedures, and, lastly, assigning greater legitimacy to the implementation of the regulatory functions of the Agencies. These measures shall prevent that isolated Agencies be easily captured by stakeholders or lose track of their main objective, which is to address the needs of the general public and those of consumers and users.
5. The Working Group was coordinated by the Chief of Staff of the Presidency of the Republic and had representatives from all Ministries working with Regulatory Agencies (Mines and Energy, Communications, Health, Transportation, Environment, and Culture), and representatives from the Ministries of Finance; Defense; Justice; Planning, Budget, and Management; and the Office of the Attorney General. In addition to addressing issues related to the management of public sector policies, the Working Group took into consideration the views of parliamentary members and extensively consulted national and international literature on similar matters, both on the institutional structure of Regulatory Agencies in Brazil and the general design of regulatory institutions. The report of the Working Group was discussed within the scope of the Executive Committee of the Infrastructure Policy Commission and the Economic Policy Commission. The suggestions were analyzed and incorporated in the Group’s final report submitted for Your Excellency’s consideration on 2 September 2003.
6. In agreement with the recommendations contained in this document, two preliminary bills of law were prepared and are now included in this Bill of Law being submitted for your consideration. The first one included provisions on the management, organization, and social control of Regulatory Agencies, encompassing every “special decentralized agency” featured as such in their by-laws, namely, Electricity (ANEEL), Telecommunications (ANATEL), Petroleum (ANP), Health Surveillance (ANVISA), Health Regulation (ANS), Water (ANA), Waterways Transportation (ANTAC), Road Transportation (ANTT), and Film (ANCINE). The second one addressed amendments to provisions contained in the regency laws of each infrastructure agency, namely, ANEEL, ANATEL, ANP, ANTT, and ANTAQ. It basically restored to line Ministries the faculty to decide upon matters related to concessions and processing of bids for the exploitation of public utility services. These preliminary bills were submitted for public consultation by the Chief of Staff of the Presidency of the Republic (Federal Official Gazette of 23 September 2003, Section 1, pages 1-3) having received approximately seven hundred observations on a wide variety of significant topics. The comments received through the public consultation were shared and discussed with the Ministry of Finance, whose participation was essential for enhancing the measures in the proposed Bill of Law, which, as mentioned above, actually incorporates the two preliminary bills.
7. Your Excellency’s concern regarding the performance of the Agencies has permitted to clarify a number of contradictions on the role and operation of these entities within the current institutional framework of the infrastructure regulatory bodies. The Working Group concluded that the model of independent Agencies—regardless of the need to improve its existing framework—is essential for the successful performance of most sectors that provide public services and would bring about positive impacts on other areas of the economy. Therefore, the role of the Agencies is strengthened both conceptually and in terms of national legislation, so that consumers receive quality, diverse, and affordable services, ensuring the financial viability of the business and a good return on the investment. The discussions held within the government concluded that the participation of the Regulatory Agencies is indispensable for attracting private investments, reducing the so called “risk of capture” of the regulatory process by stakeholders, and strengthening the Agencies, as also evidenced by Your Excellency through the issuance of the previously mentioned Provisional Measure No. 155 of 2003.
8. However, the diagnostic assessment that resulted from the discussions pointed out deficiencies in the Agencies’ current performance. While some of the deficiencies have been present for a long time—at times addressed during the past administration—and may still be rectified in the current institutional framework (for example, recurring difficulties encountered in coordinating efforts between the direct administration and the autonomous bodies) others require timely legislative measures, which is the driving force behind this Bill of Law.
9. One of the main distortions of the Regulatory Agencies’ role was performing governmental functions, such as public policy design and public service concessions. Such distortions can be found in all of the regency laws (No. 9427/96, No. 9472/97, No. 9478/97, and No. 10233/01) mentioned above. It is important to clarify that, in the case of Law No. 9427/96 for the electricity sector, these issues have already been implemented through the Provisional Measure No. 144 of 11 December 2003 (already converted into Law No. 10848 of 15 March 2004) and, therefore, are not contemplated in this bill.
10. The incorporation of the policy design role, Mr. President, generally results from a lack of structure in line Ministries responsible for policy design in performing their legal competencies. Thus, in some cases, the Agencies’ responsibilities not only included sector regulation and oversight but also active participation in sector policy design. The Bill of Law seeks to draw a line between sector policy design and economic regulation. This objective, however, does not imply that regulatory actions undertaken by the Agencies and policy design actions implemented by the Ministries are incompatible. On the contrary, both Regulatory Agencies and Ministries can work in harmony and, from an institutional point of view, in a collaborative manner. This Bill is submitted on behalf of those Ministers of State that actively participated in the discussions and preparation of the proposals under discussion. It seeks to ensure that society understands that sector policy planning and design fall under the scope of regulated direct administrative bodies. Regulatory Agencies have the responsibility to regulate and oversee activities by implementing sector policy activities within their field of action.
11. As stipulated in the Federal Constitution, in the case of concessions, permissions, and authorizations, it is understood that the State holds ownership to the rights to exploit public services, either directly or through concessions or permissions. Therefore, the State has the right to grant or deny concessions to third parties to exploit and provide services or perform economic activities through concessions or permissions. Thus, the authority to enter into concession contracts, conferred to Regulatory Agencies in their by-laws, is seen as a prerogative of the legislator, since the proposed Bill of Law contemplates the transfer of these faculties to the respective Ministries. However, although this Bill of Law purposefully stipulates that the competency of awarding concessions and entering into the corresponding contracts and permissions falls under the scope of the Executive Branch, each Ministry is free to delegate this authority to the Agency (Articles 21, 22 and 27). Notwithstanding the above, the faculty to promote bidding procedures remains part of the Regulatory Agencies’ scope of action, in order to benefit from the lessons learned and comply with the technical aspects that directly affect the regulatory and oversight functions under their responsibility.
12. In the transportation area, the Bill of Law also transfers from ANTAQ to the Ministry of Transportation the power to appoint the president of the Ports Authority Council, referred to in item “a”, subsection I, Article 31, of Law No. 8630 of 25 February 1993, until which time the president is the representative of the Agency in each organized port.
13. The development of the social control instruments Agencies is an indispensable step towards the successful implementation of the model, since the control as such is a legitimate and efficient component in terms of regulatory action. In that sense, international experience shows that the development of independent regulators should be balanced by more efficient social control and account rendering mechanisms. The enhancement of such instruments constitutes the most innovative element of the Bill of Law. The control, accountability, and transparency mechanisms are instituted, extended, or improved, and they include public consultations, presentation of annual reports to the line Ministry and two National Houses of Congress, mandatory management contract between the Ministry and the Agency, and creation of Ombudsman Offices in all Regulatory Agencies. Accordingly, the Bill of Law reserves Chapter I for the decision-making process of Agencies and provides for: (a) a collegial decision, in general, as a form to support the decisions made by the regulator (Article 3); (b) public consultation events, mandatory for all Agencies, as well as to widely disseminate the consultation and public hearing results (Articles 4 and 7); and (c) the right granted to consumer/user protection associations to appoint up to three specialized representatives to accompany the public consultation processes, using the budgetary resources available in the Agency itself (Article 4 and §5).
14. The Bill of Law requires, in general terms, that all Agencies enter into a management and performance contract with the representative of the pertinent Ministry under the provisions of §8 of Article 37 of the Federal Constitution. This measure aims at improving and enhancing the use of instruments so that means and goals are better adjusted during the administrative and end-of-period activities of the public administration bodies and entities. The increased level of autonomy conferred by legislation further requires engaging in an administrative planning process that addresses the need to achieve greater public administration efficiency, transparency and accountability. Consequently, the four Regulatory Agencies that are already required to sign management contracts with the respective Ministries will join other agencies so that the management and performance contract becomes an essential mediation instrument in the relationship between the Agencies and the Public Sector.
15. The management and performance contract will be negotiated and entered into between the Governing Board or Management Council and the respective Ministry representative, taking into consideration the views of the State Minister of Finance and the State Minister of Planning, Budget and Management within a period of one hundred and twenty days after appointing the Director-General, the Director-President or the President, and shall be submitted, for approval, to the consideration of the sector policy council of the respective area within the Regulatory Agency or one of the Government Council Chambers in compliance with the regulations. The contract shall serve as an instrument to monitor the administrative procedures of the autonomous government and evaluate its performance, having as objectives to improve management monitoring, promote greater social control and transparency, and enhance cooperation between the Agency and the Public Sector, particularly in the compliance of public policies as defined in the legislation. In addition to establishing benchmarks for the internal administration of the Regulatory Agency, the performance and management contract should specify, as a minimum, the administrative and oversight performance goals to be attained, timeframes and respective indicators, and the evaluation mechanisms that will be used to objectively quantify its scope, estimate budgetary resources, establish the disbursement schedule of the financial resources required to achieve the established goals, and define the obligations and responsibilities of the parties with respect to the goals defined and the monitoring and evaluation system, including criteria, benchmarks, and terms, as well as the measures to be adopted if the goals and obligations agreed upon are not complied with for unjustified reasons. The contract shall have a minimum duration of one year, be evaluated on a regular basis, and, if necessary, revised when a partial reshuffling of Agency directors occurs, without prejudice to the joint and several liabilities among its members. The by‑laws should regulate the monitoring and evaluation instruments of the management and performance contract, as well as the procedures to be followed for its signature and the periodic issuing of monitoring and evaluation reports on the performance of the Regulatory Agency. Each Agency must present these reports on a semiannual basis through a wide and permanent dissemination plan, and be submitted to the supervising body, the Ministry of Planning, Budget and Management, and the Federal Audit Court.
16. In the area of social control and transparency enhancement, the Bill of Law strengthens and standardizes the Ombudsman mechanism in the Agencies, all of which must have an Ombudsman with a fixed mandate who will perform his/her duties without hierarchal subordination nor increase in responsibilities, as established in Article 13 of the project. For this purpose, there is a proposal to create these positions in the Agencies that require them (ANEEL, ANP, and ANA), as well as their respective assistants (Article 30).
17. On the other hand, international practice has proved that there is a need to actively exchange information and experiences between the sectors in charge of sector regulation and the competition protection bodies—Economic Law Enforcement of the Ministry of Justice, Secretariat for Economic Monitoring of the Ministry of Finance, and the Administrative Council for Economic Defense (CADE)—with the purpose of promoting actions that increase competition wherever possible. In addition, experience shows that the competition policy may contribute to the successful implementation of regulated activities, by promoting competition in the design of the regulatory framework. Thus, the Bill of Law devotes various provisions to the operational interaction between the Regulatory Agencies and the competition protection bodies (Articles 15 to 18), further developing those inter‑institutional relations necessary to increase the effectiveness of both regulatory and competition protection policies in the regulated sectors.
18. The fixed mandate of the directors (President, Director-General, Director-President and other directors) is the most prominent characteristic of Regulatory Agencies, classified by the respective laws that define them as “special decentralized agencies.” This prerogative illustrates the autonomous nature of the Regulatory Agency and is essential for the fulfillment of its mission. Thus, it was decided to maintain the current time-phased appointment system for the directors and to make sure that these mandates do not coincide with that of the President of the Republic. Also still valid are the conditions established with respect to the resignation and substitution of such directors, who cannot resign ad nutum, as this rule would contradict the model to be implemented in Brazil. Consequently, the Bill of Law only intends to standardize the four-year mandate duration and the one-time reelection term, and this was attained by means of Article 25 with the amendment of the corresponding provision in Law No. 9986 of 18 July 2000. It is further amended through the establishment of a new regulation for the appointment of the Presidents or Directors-General of Regulatory Agencies so that, upon entering into force, this Law guarantees a four-year mandate and job stability in their respective positions. They shall be terminated only in the case of resignation, prosecution by a tribunal, or due to disciplinary administrative processes.
19. Nevertheless, acknowledging the relevance of securing the prerogative of the President of the Republic to choose the Presidents of the Regulatory Agencies, a regulation is established to keep the Presidents’ and Directors-General’s tenure within the period that runs from the thirteenth to the eighteenth month of the President of the Republic’s mandate. In such case, and by respecting the duration of current mandates, the Presidents and Directors-General to be designated for the first tenures, once this new regulation enters into force, may, as an exception, have mandates under the four-year threshold allowing the adjustment of such mandates to the general principle established.
20. Lastly, it proposes to amend the current regulation defined in Article 17, II, of Law 9986 of 2000 in order to guarantee equality of treatment with respect to all other bodies and entities of the administration, by increasing from forty to sixty five percent the salaries earned in positions held in the Administration, Executive Management, Advisory Services, and Support offices, for civil servants who at the present hold permanent positions. In addition, the regulation contained in §4 of Article 16 of the same Law is also amended, thereby lifting restrictions that currently apply only to Regulatory Agencies when exercising the legal prerogative to request the reassignment of civil servants that work for other federal government bodies and entities, with respect to compensation of the respective remunerations paid by the originating bodies. In the proposed amendment salary compensation shall be provided according to the general rule defined in Law No. 8112 of 11 December 1990, article 93.
21. Provisions in articles 16 and 17 of Supplementary Law No. 101 of 4 May 2000, (Fiscal Accountability Law (LRF)), have been fully acknowledged. In compliance with the provisions contained in the Bill of Law and implemented as of 1 October 2004, expenses for the year 2004 in the amount of R$2.2 million are already contemplated in the Annual Budget Act and have been itemized for each Agency. These are being absorbed by the marginal net expansion for recurring expenses, estimated and described in the attachment of the Budget Guidelines Act. From the year 2004 onward, projected expenses amounted to R$7.2 million, showing an increase with respect to 2003, of approximately R$5 million when compared to 2004 projections. This amount will reduce the marginal net expansion for recurring expenses corresponding to those years and is compatible with the increase in revenues in the economy’s projected real growth, as shown in historical records on the expansion of the tax base in recent years.
22. This proposal intends to establish a homogeneous and solid set of rules to guide the management and performance of Regulatory Agencies. To a certain degree, it is a “General Law” for Regulatory Agencies that allows them to overcome their existing unjustifiable differences—notwithstanding clear stipulations contained in the laws that created them—and allow them to achieve a more transparent, efficient, socially controlled, and legitimate implementation of their regulatory role. It refers to the need to make major improvements to enhance the Agencies’ performance, improving the regulatory quality indices in the federal government, thus addressing the concerns of society as a whole, and of consumers and users of public services in regulated sectors, in particular.
This is, Mr. President, a summary of the reasons that motivate me to submit the attached Bill of Law for your consideration.
Yours sincerely,
José Dirceu de Oliveira e Silva
Minister-Chief of Staff to the President of the Republic