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ArmInfo’s interview with ex-minister of economy of Armenia Armen Yeghiazaryan
The National Center for Legislative Regulation under the Government of Armenia started taking shape in the second half of 2012 and has already come out with a number of serious initiatives on reduction of administrative barriers and improvement of the business environment. The first topic of 2012 was the sphere of information and communication, where the “regulatory guillotine” studied the situation in the market and offered the Government to seriously reform the license system and to cancel the licenses for internet provision, voice communication and network construction. Below is ArmInfo News Agency’s interview with Armen Yeghiazaryan, Head of the National Center for Legislative Regulation, ex-minister of economy of Armenia.
Mr. Yeghiazaryan, when will a governmental decision on the sphere of telecommunications be taken?
It has already been taken. As a result, the economic entities will no longer receive licenses authorizing them to provide data transmission services and voice communication services. There are also licenses authorizing entities to build networks, but it is planned to cancel them in a year, after relevant amendments to the by-laws. The matter also concerns regulation of the services quality.
Can one suppose that the Center is inclined to depart from the licensing processes in the sphere of information and communication?
We advocate giving up this practice. For instance, in the case of Beeline we deal with the license for provision of fixed telephony services. I think it is inexpedient to license this activity. While the advocates of licensing think that licensing is needed for creation of premises for telephone penetration into remote villages, we believe that this problem is quite resolvable by means of mobile communication: now the number of subscribers of various mobile operators is higher in Armenia than the population of the country. Only the usable radio frequencies and the initial codes of the operators’ phone communication numbers are to be subject to licensing.
Do the departments cling to the regulation?
Certainly, there may be a disputed situation. However, in this case we have reached almost full mutual understanding with the Public Services Regulatory Commission and all our decisions were coordinated with it. So, our experience of work with the Public Services Regulatory Commission shows that it will be possible to avoid a conflict, even if the departments are deprived of power levers.
What other structures do you want to “offend”?
The next sphere is electric power supply. Here the construction and exploitation of generating capacities and water consumption should be licensed.
But it is the field of natural monopolies, isn’t it?
It is not so, as a matter of fact. Only the distribution and transportation networks are the objects of monopolies. As regards the licensing of electric power generation activity, it will remain, but here it is necessary to reduce “bureaucratism”, as one and the same entity is to receive the license for construction of a power plant, then for its exploitation and then it is to apply to the Public Services Regulatory Commission to approve the tariff of the generated electric power within 15 years of payback period. Afterwards this tariff is to be reduced. The companies exploiting small hydropower plants are to prolong the license upon expiry of 15 years. It is necessary to relieve the license burden for power generating companies with due regard for the fact that now nearly 120 projects on construction of small HPPs are underway. Another task in the sphere of power engineering regulation is to connect new subscribers to the network: by this indicator Armenia ranked the 150th in Doing Business 2012, and has now risen to the 100th position. On the other hand, if we compare the average price of this connection in Armenia with that in other countries, it is quite moderate in our country. As regards the period of connection, the Center has worked out proposals to reduce that period, but it cannot be considerably reduced. The Public Services Regulatory Commission representatives agreed that besides the Electric Networks of Armenia, other companies can also connect subscribers to the network. The matter concerns the subscribers, who will be supplied with electric power via a line with the voltage of no less than 6.35 KV. Now the Electric Networks of Armenia is doing now such work, it is holding tenders for subcontracting. The idea is to accelerate the connection of enterprises, large corporate subscribers, who will no longer wait for their turn for months or even for a year. This novelty may further cover small and medium businesses as well.
What about water supply?
Such practice is already active in the sphere of water supply: a subscriber is provided with a point of connection and involves a specialized company to the process at his/her own wish, but the issue of connection in this field is not regulated.
Should the organizations engaged in construction activities for connection to water and electric power supply networks be licensed?
The contractors are provided with a so-called “general” license for construction, but they receive allowance if they have a relevant experience and specialists. It should be noted that there are also problems with regulation in the gas supply field and the Center has outlined the principles of reforms in the gas supply system. The thing is that the current regulations have been worked out by ArmRusgasprom for the gas distribution network development project in the country. The project is mostly completed and by the gasification level Armenia holds one of the leading positions in the world.
I would also like to mention that the Center will study the price formation mechanisms in this sphere. Here the monopolist ArmRusgasprom imposes some services on the business and the population. We have suggested canceling this practice and we hope that this problem will be solved. Certainly, the company should ensure the security of gas consumption, but it should include its “price” in the gas tariffs, but not “invent” services and fix prices for them. And we have revealed many such services I call “Armenian outsourcing”. The Center suggests that the Public Services Regulatory Commission should approve these prices.
In general, we have revealed many cases in various spheres, when the regulatory bodies and monopolistic economic entities provide fanciful services at uncontrolled prices, and the business and citizens have to pay for them. A vivid example of it is the services of notary officers, who united into self-regulated associations and fixed prices for their compulsory services. But the state has blocked this activity by means of canceling the obligatoriness of notary certification. I think the optimal solution is that the state must fix the prices for all those services that are considered to compulsory.
What other activities is the Center carrying out to study regulation in the sphere of public services?
First of all, the Center will once again consider the price formation mechanisms in these spheres and will present its suggestions to the Public Services Regulatory Commission. In general, the Center is studying the regulation in the spheres of healthcare, education, entrepreneurship, financial relations, tax and customs administration.
Healthcare is an interesting, complicated but urgent topic.
We have almost completed the surveys in the sphere of healthcare. The situation is rather poor in terms regulation, and the reason is also the healthcare system itself, as this sphere provides 3 or 4 types of various services. For instance, a patient comes to a hospital, hoping to get treatment within the frames of the state-guaranteed order, but he/she is told that the state-guaranteed order funds are over. The patient may also be told at the polyclinic that the free X-ray examination may have low quality, and if she/he wants to receive a high quality service, he/she should pay for the service or go to the nearby hospital.
I think, the regulation problems are best of all settled in the British healthcare system, which has free, insured and paid healthcare simultaneously, but one can receive any medical assistance there free of charge. I hope a political decision on similar division of healthcare services will be taken in Armenia as well.
What about education?
The sphere of education also faces some problems, but they are fewer than the problems in healthcare. In the sphere of education, particularly, at schools 10-15% of the pupils or students really study and get knowledge regardless of the quality of the educational establishments. By the way, this index was almost similar in the Soviet times.
It is hard to agree with this index. A personnel is trained in families, at schools and higher educational establishments. I think the latter has completely decayed.
It is the epoch of internet now, and students educate themselves if the universities give them nothing. The system does not make the students get knowledge, because it is commercialized, and I think it is an absolutely wrong approach.
Is there a chance to cross the 15% limit you have mentioned?
It directly depends on the quality of education. The education system is directly connected with teachers and lecturers and it is hard to reform it without taking into account the personnel problem. I think it is impossible to simply change the education system at the Armenian higher educational establishments, as the system is connected with people. It is simply necessary to build the system anew.
And what regulation-related problems does this system have?
The pre-school and school education systems do not need much regulation as we have few private schools and kindergartens. I think we must minimize the profit-making element in the education and health care systems. Profit must not be the goal here. When you commercialize the higher education system, you get lower social mobility and need to support your students - as they in the United States do. In Armenia we have the problem of young people entering university for the only purpose of dodging the draft. I think we can solve this problem by making education free of charge for the students that have served in the army.
Are you considering applying the “regulatory guillotine” in the transport sector?
Yes, the government has already considered a package of relevant proposals. We believe that we need public transport of higher passenger capacity, that is, buses and electric vehicles as well as subway. Most of our transport problems concern Yerevan. As regards route taxies, we are suggesting making relevant tenders more transparent and effective. We also need to regulate the operation of non-scheduled transport. I mean transportation of tourists and international bus services. We are also trying to regulate the cargo traffic. Here we don’t have strong contradictions with the regulators. There are also questions concerning railway services.
You have been doing this work for half a year already. Are you still optimistic?
I didn’t expect things to be as complicated as they proved to be, but this is an interesting work and it makes me enthusiastic. We are already beginning to find solutions and we hope that our efforts will give results.
Did your Center make a contribution to Armenia’s going up from 50th to 32nd rank in Doing Business 2013?
We had no time for making any contribution to this as we started up in May 2012. This is all thanks to the government and its hard work. On the other hand, you must not overestimate the 9th rank of Georgia – for ease of doing business is not the only factor ensuring the high quality of business. There are also factors that have nothing to do with regulations. The same is for Armenia: no matter how well computerized we are and how helpful high-speed internet may be in working with foreign partners, we are still far from being leaders in terms of economic development.
Can one say that our progress in Doing Business was due to our e-governance system?
Not only. Before our center was set up our authorities had already made it much easier for users to connect to electronic networks and had improved tax administration. In 2009, when asked about the key factors preventing companies from being efficient, people named tax burden, corruption and stealing, while in 2005 stealing was not mentioned. On the other hand, registration and licensing were no longer called an obstacle.
Is it easy for you, as former Economy Minister, to look at this all from aside, especially the problems concerning our state administration system and the professionalism of our state administrators?
I would not say that I am looking from aside, better say, it is a look from below, while in the past it was a look from above...
Still what do you think about our state administration system? The few professionals that are holding high positions in the government are complaining that most of the people there cannot realize even elementary decisions.
I think that this is why the government is simplifying the regulations: they are seeking to minimize the human factor and to replace it with more efficient electronic systems. I regret to say that the quality of government services is still low because of numerous blunders and breaches, with those guilty being still unpunished.
Experts believe that this all comes from the absence of a normal personnel selection system. In Armenia everything is based on nepotism and corruption. Here even a schoolteacher vacancy costs $2,000-5,000 depending on where the school is located, let alone the office of a civil servant – a position implying access to resources.
You never know, but the fact is that we have few professionals who would like to work in the government system as this is a hard work: of course, if you are a civil servant there is a chance that once a year you may be sent abroad for some training course, but, on the other hard, you are not very popular and do not earn big money. Still loyal to this system are only people who love their work and know how to do it – and sometimes they achieve quite interesting and serious results. I think that only the best must work in a government system – for it is the government that sets the pace of a country.
Armenia’s state administration system is very like Soviet research institutes, where two employees worked and eighteen more just drank coffee, isn’t it?
But sometimes when you drink coffee you may think up quite interesting things... Of course, you are right: when control is weak some people may work less than the others. This is why in ministries they sometimes approve documents that must not be approved as they are simply bad for the government’s policies. We must start to put things in order here, at least, to prevent contradictions between laws and their bylaws. In Armenia this mechanism is not proper yet. On the other hand, today this system is much more efficient than it was some 15 years ago. At least we have an electronic workflow here.
We must also cancel superfluous regulations. For example, why do we still have candidates and doctors of sciences, while almost everybody in the world, including those who are part of the Bologna Process – just like us - have only PhD, according to the International Standard Classification of Education. I am sure that if we suggest leaving just one degree, there will be a big row. But this problem is not vital for our future, is it? Georgia has granted PhD to all of its candidates and doctors, Azerbaijan only to doctors.
It must be hard to push this all, isn’t it?
We are lucky – we just suggest solutions, while to put them into practice is the government’s business.