The development of sound regulatory regimes that comprise rules and institutions is critical to the effective and sustainable delivery of infrastructure services. Investors expect a regulatory system to ensure a fair rate of return, given the perceived risks and the opportunities to be earned elsewhere. Consumers expect a regulator to provide protection from market power abuse, and governments expect a regulatory regime to ensure the efficient development of a sector, as well as social and political goals. Regulatory regimes need to strike a balance between the interests of consumers and investors in a fair, transparent, and sustainable way, while providing incentives for efficiency.

In order to understand how institutions in charge of utility regulation can be improved to ensure regulatory effectiveness, the World Bank initiated a study in 2004 to evaluate regulatory transparency.

The World Bank commissioned a NERA team led by Dr. Richard Hern to conduct an international assessment of strategies utilized by policymakers and regulators to foster regulatory transparency. This assessment entailed a review of literature and analytical work in this area, six in-depth case studies, and a global survey of regulators designed and administered by NERA. The survey investigated strategies used by policymakers and regulators to pursue regulatory transparency, including:

• Ex-ante clarification of regulatory procedures, including guiding principles and due process for taking discretionary decision
• Provision of open access to information regarding the development and enforcement of regulatory decisions
• Involvement of stakeholders in the regulatory process
  

The case studies analyzed practical applications of regulatory transparency strategies and reviewed the perspectives of regulators, policymakers, and other stakeholders in more detail.

NERA prepared a synthesized report on emerging lessons in this area and developed basic best practices and guidelines for regulators and policymakers.

The results of the study were presented by Dr. Hern at an African Forum for Utility Regulators conference in Uganda in March 2005. Effective and sustainable delivery of infrastructure services is critical for economic development and improvements to the quality of life for African countries plagued by poverty. Therefore, the World Bank decided to commission an extension to NERA's original regulatory transparency work to focus on sub-Saharan Africa.

As part of this additional work, NERA developed a set of key regulatory transparency principles required for different institutional environments, identified a number of key institutional characteristics of sub-Saharan Africa (such as post-independence colonial heritage, dependence on volatile income from primary products, high-debt burden, and legacy of unsuccessful interest rate policies), and investigated their impact on investment.