World Dialogue on Regulation

Regulatory Design for Disaster Preparedness and Recovery by Infrastructure Providers: South Asian Experience - The Missing Link

The dramatic impact of the Tsunami on the shores of the Indian Ocean demonstrates the crucial importance of effective, all-embracing communication systems and very soon after the disaster hit articles began to appear arguing that many people could have saved their lives, if they had received a timely warning, via telephone, email or radio… Most of these focused on the technical aspects, ignoring the manner in which communication infrastructures are embedded within public policy frameworks and economic regulation. In his review of a study by Leena Srivastava and Rohan Samarajiva, Aad Correljé examines the missing link.

Download the Srivastava & Samarajiva paper (Word)

The Missing Link: A Review of Regulatory Design for Disaster Preparedness and Recovery by Infrastructure Providers: South Asian Experience. By L. Srivastava, R. Samarajiva, in: Critical infrastructures:  State of the art in research and application, eds. W. A. H. Thissen & P. M. Herder, pp. 103-120.  Boston: Kluwer Academic Publishers, 2003.

Review by Aad Correljé, Section Economics of Infrastructure, Faculty Technology, Policy and Management, Delft University of Technology

The dramatic impact of the Tsunami on the shores of the Indian Ocean demonstrates the crucial importance of effective, all-embracing communication systems. Not long after the disaster had hit, publications began to appear in which it was argued that many people could have saved their lives, if they had received a timely warning, via telephone, email or radio… Indeed, many shores were not flooded until hours after the earth quake took place. In the next stage of disaster management, widespread malfunctioning of networks and connections for fixed and mobile telephone, local radio systems and other communication facilities delayed immediate emergence responses to take-off. Hence, it was rather difficult to locate the places most affected, to evacuate survivors from the most awkward areas and to allocate the necessary means of first aid support to other places. Only very gradually, it came through how astonishing the effect of the Tsunami had been as the number of victims kept on growing for days. Obviously, in the current stage of immediate post-disaster recovery, emergence communication systems are being put in place by foreign and national operators and aid agencies. In later stages the provisional restoration of the systems will need to accompany the rebuilding of villages and tourist resorts. Most publications on such issues stress the need for large-scale, effective systems for general purpose and emergence communication.

Yet, they all focus on technical aspects, like the failure of current facilities to act as effective warning systems or disaster-proof local communication networks. Or, at best, they deal with the lack of integration between the technical networks and the social systems in place. It is not effective to notify locals and tourists that a Tsunami will be arriving soon, if nobody is aware of the consequences and when there are no ways to escape from it. It is obvious that system(s) of communication only have an effect when they are connected to institutional, organizational and social structures that set authorities and people in motion, according to the right routines and with adequate means. The warning systems for tornados, for earthquakes, for volcanoes and other vicious forms of nature elsewhere in the world are often brought in as examples.

An element that is commonly ignored, however, is the manner in which communication infrastructures are embedded within public policy frameworks and economic regulation. This recent study by Srivastava and Samarajiva (S&S) covers this ground, dealing with the impact of regulation on the degree of disaster preparedness of network operators and the recovery of the infrastructure after a disaster has hit. Their analysis draws on two case studies, namely, the impact of a cyclone on the power supply system of the Indian state of Orissa and the consequences of bombings on the restructured Sri Lanka telephone system. The study identifies the main issues at stake and lists a set of solutions in respect of the regulatory design of systems. They also observe that disaster management does not appear as a regulatory priority either in telecom or in energy. In the current context, in which many countries around the Indian Ocean are confronted with the immediate need to react to the disaster and to attract new investment to reconstruct their infrastructural systems, a review of these issues and the conclusions presented will be useful as a basis for further thoughts. The larger problem S&S identify in the analysis of regulatory responses to disaster preparedness and recovery is similar to the general problem of regulation in the context of poor governance: how can one implement effective disaster responses in an environment pervaded by bad governance?

S&S observe that the Orissa crisis in India has raised awareness among policymakers to take disaster preparedness and recovery in the liberalised environment seriously. A principal issue to regulators is how to deal with the perception of equity and fairness, particularly in respect of tariffs. Consumers protest against tariff increases, as these are viewed as a penalty being imposed on the paying consumer, to recover costs imposed by the non-paying consumers and inefficient management. An increase in tariffs on account of disaster related expenses would only add to this burden and should therefore be addressed carefully. Amortisation was adopted as the principal short-term solution while insurance is considered the preferred long-term solution.

S&S infer from disaster management in the Sri Lankan telecom sector how difficult it is to properly implement such policies, if the system of regulation is weak as a consequence of the ambiguous obligations to licensees. In the implementation of restoration plans, the operator retains ample leeway through provisions like  "in so far as it is reasonable and practicable to do so" Yet, such phrases are rather common in many other telecom laws. Cost-recovery provisions are another issue. The operator will have the best information on costs of implementation (as well as of alternative and less costly methods) and it will be extremely difficult to prevent extortion of emergency organisations by an opportunistic operator.

Whereas the disaster itself cannot be prevented, it is possible to mitigate the effects of disasters via predictions and warnings. In respect of the infrastructure, measures can be taken to reduce their vulnerability, to minimise the damage and to build in redundancy, so that services can be restored quickly. As long as infrastructure service is in the domain of government monopoly provision, the government issues directives to the management to intervene in management functions under "emergency" conditions, and assumes the bulk of disaster recovery costs. Here, of course, the traditional principal-agent problem between governments and self-interested public infrastructure operators applies. In a liberalised systems with independent regulatory agencies, decisions in respect of distaster management are managerial and outside the scope of the regulator, as a principle. The authors strongly emphasize the need for a regulatory framework that provides incentives to achieve the desired robustness of the system at reasonable cost, without infringing on the managerial autonomy of the operators.

To this end, disaster preparedness should be internalized in the license conditions of service providers. Long-term regulatory aspects of disaster recovery involve a proper allocation of risk before new investors enter the market, so that incentives are properly aligned. Obviously, the investor has to bear some part of the costs of recovery, to retain an incentive to build and maintain robust systems. Because the investor in a regulated market does not have an easy option of exit, it is also reasonable for the consumers to bear part of the risk. Because government and the general population has an interest in prompt restoration of vital services it is also reasonable to allocate part of the risk to government. Before the disaster occurs and before investments take place, government should inform potential investors of its expectations, including specified levels of disaster preparedness and recovery capabilities. If all competitors are obligated to meet more or less similar standards, disaster-preparedness and recovery costs become part of the conditions of that market, via the licenses awarded.

The tariff approach is among the main factors that influence the response to disaster situations. In most South Asian countries telecom and energy are (cross) subsidized, as tariffs are set on depreciated historical costs, so considerable tariff increases are required to restore the infrastructure. Such shocks, which may be politically unpalatable and thus discourage private investments, can be avoided when tariffs are based on long-run marginal cost. In absence of such principles, the regulator has to clearly specify the nature of allowable costs in relation to disasters and the procedures for monitoring.

S&S maintain, however, that disaster preparedness and recovery by private operators can not be ensured fully through licenses or concessions alone, as it is impossible to address all possible contingencies, particularly regarding disaster-related provisions. Therefore, concessions should only provide general statements regarding disaster preparedness and recovery by private operators. The regulatory agency should then interpret and apply those principles to specific circumstances. It should, of course, adhere to regulatory best practice that includes reliance on expertise, transparency, the public interest and the communication thereof “as much as possible”, given the exigencies of disaster management.

A chief element of short-term disaster management is an effective contingency plan, based on detailed disaster vulnerability mapping and reporting from service providers on
preparedness, commensurate with vulnerability. Declaring the state of emergency then seems a very useful mechanism to trigger and channel the required exceptional responses on the part of the operator, the regulatory agency and other parties. Such a clearly demarcated “period of exception” would allow quick and flexible responses without, however, having to abandon the normal procedural safeguards across the board.

Particularly relevant today seems the authors’ warning that the costs of disaster recovery should not be incurred totally by the international aid agencies and donor countries, or eventually the consumers. In the light of the currently large inflow of foreign support, this may seem an attractive solution, but eventually it will undermine the disaster preparedness of the private operators in place and their commitment to providing robust services and quick restoration. This touches, of course, upon the credibility of the disaster management by the government and the regulatory agency, which is critical in gaining the required legitimacy and regulatory commitment. As argued by S&S, disaster management is a prime area for regulatory intervention that extends beyond the relatively privileged minorities with access to telecom and energy networks.

In the light of the universal call for extensive systems for general purpose and emergence communication, S&S provide insight into a core element to their establishment which is all too often forgotten; the political economy of social and economic sector regulation. The paper sketches this missing link between the need for such systems and their materialization. This also makes clear that the pure economists' focus on economic regulation, while doing away with the social component, is untenable in the real world. By drawing main lines regarding the relationship between the regulation of reformed markets, the construction of robust systems and disaster preparedness, a basis is provided for, on the one hand, policy-making in the slipstream of the Tsunami. On the other, a set of clues is offered for further analysis in this field, undoubtedly, benefiting from the Tsunami experience.

Aad Correljé, Section Economics of Infrastructure, Faculty Technology, Policy and Management, Delft University of Technology, Postbus 5015, 2600 GA Delft, NL < This e-mail address is being protected from spam bots, you need JavaScript enabled to view it >