Access to Regulated Infrastructure Utilities

The current regulations and their enforcement across the eight South Eastern European countries (SEE8) that are the focus of this study do not appear to reflect recent international trends toward rules that increasingly support competition, the unbundling of services, and more open entry and exit. The SEE8 need to create appropriate incentives for innovation both by service providers and by business users. Thus, clear priorities for these governments are to break up monopolies, to privatize the existing infrastructure networks, and to introduce competitive forces where "natural" monopoly conditions no longer exist. Regulation should be restricted to those areas where competition alone is not likely to generate desirable outcomes.

Ensuring the appropriateness of the regulatory rules matters enormously. Achieving this goal will remove one significant obstacle to the development and expansion of business as well as to regional trade and integration. Barriers related to infrastructure are particularly relevant for the SEE8 because those countries are in the process of overcoming the severe infrastructure bottlenecks caused by conflict and by inadequate maintenance. Developing predictable and transparent regulatory frameworks would ensure users' access to competitively priced, high-quality services and would engender investment in the infrastructure sectors.

This chapter discusses the state of regulated infrastructure utilities in the SEE8. Using evidence from two Business Environment and Enterprise Performance Survey (BEEPS) reports (EBRD and World Bank 1999, 2002) and from case studies, we discuss the assessment by the enterprises of the accessibility and quality of infrastructure service. We then explore the relevance of broader regulatory reforms, including private sector involvement and independence of rulemaking. Next, we analyze the role of infrastructure development in fostering investment in the real sector and in fostering regional integration. We thus explore the links between the providing of infrastructure services at more competitive terms and greater competitiveness in the real sector (particularly among intensive users of infrastructure sectors). Finally, we present some policy recommendations.

Tariffs, Access, and Quality of Service across Countries

To better understand the extent to which infrastructure represents a significant obstacle to the development and growth of enterprises, we must consider the current condition of provision of infrastructure services themselves, related to terms of access, tariffs, and quality.

Infrastructure as Barriers to Entry

Uneven access to infrastructure services can act as a powerful barrier to entry for all enterprises, but particularly for smaller ones, which are more vulnerable to anticompetitive practices that are in many cases related to the uneven delivery of infrastructure services. Complaints by business users to competition and regulatory agencies about the price and quality of the infrastructure services, as well as about discriminatory access, are well documented. In turn, there have also been several cases of anticompetitive acts by dominant infrastructure service providers toward smaller alternative providers. Thus, clear evidence exists of the lack of a competitive environment in the providing of infrastructure services. Some of the SEE8 competition and regulatory authorities have been handling an increasing number of complaints. Over the past few years, some of the top fines imposed by the competition agencies related to severe abuse of dominant position by infrastructure providers at the expenses of smaller providers and business and residential users.1

The results of the European Bank for Reconstruction and Development (EBRD) and World Bank Business Environment and Enterprise Performance Surveys (BEEPS1 and BEEPS2, carried out in 1999 in 2002, respectively) allow us to analyze the assessment of infrastructure services in terms of quality and responsiveness to enterprises' needs, both across time and across countries. As reported in chapters 2 and 3, one of the key messages arising from a comparison of data across time is that enterprise perceptions have significantly improved over time in all of the SEE8. With the notable exceptions of Albania and the former Yugoslav Republic of Macedonia, where progress appears to be minor, the countries report a major improvement in infrastructure services (see figure 2.5 in chapter 2). This improvement also reflects the success of the major reconstruction efforts under the concerted efforts of the Stability Pact. Despite such progress, however, Albania remains the country where infrastructure is the most problematic barrier to entry and expansion. Official data confirm the progress across the main infrastructure sectors according to some performance indicators, including telecommunication fixed-line penetration rates, railway produ...

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