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Economics & Finance

A key aspect of the work of the Economic Regulation Unit is Tariff regulation and data collection. Regarding the latter, PURA has developed reporting requirements in the relevant sectors so as to capture data to analyze sector wide trends in a timely, responsive and effective manner. These data collection requirements allow the department to assess the level of competition in key indicators and if necessary adopt remedial measures to ensure that the playing field is equal thus stimulating competition.

PURA regulates and sets the pricing mechanism for the different markets it regulates. Different methodologies are used and where there is adequate competition, market forces are allowed to determine the rates. A prime example of this is on local calls whereby operators are allowed to set their own rates. Certain Interventions are made so as to ensure that competition prevails, an example of this was the intervention in “Interconnection” rates from an initial price of D2.50 to its current rate of D0.50.

Economic Regulation in the Telecoms Markets

Over the years, PURA has conducted several studies in the telecoms sector so as to gauge different factors and aid in its drive towards a vibrant ICT market.

The Gambia has experienced an explosion in access to telecommunication services over the years. Penetration levels have increased from just over 15% in 2004 to a current high of 99% in 2012. However, in the years following the liberalization of the telecoms market to involve private players, it was witnessed that most telephone subscribers carried more than two phones. This was done in order to save money by making “On-Net” calls. It was at this time that PURA conducted critical studies to assess the status of the telecoms market and look at ways that subscribers could benefit from increased competition.

Key among these studies was the INTERCONNECTION STUDY carried out in 2009. The 2 to 1 price difference between on-net and off-net calls was an enough incentive for consumers to carry multiple phones. The INTERCONNECTION report recommended that the disparity between on-net and off-net retail calling rates be reduced or eliminated by unifying and reducing interconnection rates of all carriers using a multi-step phase-down in rates as graphically illustrated below:

The Gambia is currently at Step 4 with an interconnect rate of D0.50

Another important study conducted for the sector was on INTERNATIONAL CALLING RATES. Currently, In The Gambia, the international gateway is still yet to be liberalized, therefore each operator is forced to originate and terminate its traffic through GAMTELs International Gateway. Key objectives of the study included:

  • Review of the international wholesale tariffs charged by GAMTEL to the mobile operators, COMIUM and AFRICELL and its subsidiary GAMCEL and also retail tariffs to end users.
  • Benchmarking review of international wholesale and retail rates using jurisdictions believed to be relevant, comparable, and appropriate given the objective to bring international tariffs to levels which mimic a competitive environment, including considerations of LRIC.

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  • Develop rules to ensure that GAMTEL behaves competitively as a provider of essential facility as the owner of GAMCEL and a competitor to other operators.
  • Present and discuss the tariffs benchmark study with the industry stakeholders through consultative processes.

Key Recommendations in the report included:

  • Review of the international wholesale tariffs charged by GAMTEL to the mobile operators, COMIUM and AFRICELL and its subsidiary GAMCEL and also retail tariffs to end users.
  • Benchmarking review of international wholesale and retail rates using jurisdictions believed to be relevant, comparable, and appropriate given the objective to bring international tariffs to levels which mimic a competitive environment, including considerations of LRIC.
  • Develop rules to ensure that GAMTEL behaves competitively as a provider of essential facility as the owner of GAMCEL and a competitor to other operators.
  • Present and discuss the tariffs benchmark study with the industry stakeholders through consultative processes.

Tariff Filing Guidelines  for the Telecoms Sector

In 2008, in accordance with Section 13 subsection 1 (a) of the PURA Act, Tariff filing guidelines were developed by the institution. The need of these guidelines was to identify the necessary regulatory procedures to be followed for tariffs to be approved or changed. As such, it sets clear parameters for which the tariff approval process should follow.

Economic Regulation in the Water & Electricity Markets

In 2009 the Government of the Gambia received a credit from the International Development Association toward the cost of the Gateway Project, and the implementing agency, Gambia Investment Promotion and Free Zones Agency (GIPFZA), applied part of the proceeds of this credit to assist PURA with an international consultant to carry out an independent Electricity and Water Tariffs Study

During a period of six (6) months, the consultant developed for PURA tariff guidelines and a model unbundled generation, transmission, and distribution tariffs in line with the spirit of the Electricity Act 2005, to ensure competition and sustainable supply of electricity. Similar framework was developed for Water and Sewage services. During the development of the report there were extensive consultations with all the key stakeholders in the sector including the private sector. A resultant national stakeholders’ consultation workshop was conducted to receive comments and validate the report that emanated from the study.

The consultant developed an Excel-based tariff model concerned primarily with the data analytics associated with computing an unbiased estimate of the annual revenue requirements and the average price per unit of service (a kWh of electricity or a cubic meter of water or sewerage). The model is meant to provide PURA and NAWEC a fully automated tariff tool for computing sound tariffs based on defined data inputs and consist of the following key components:

  • The computation of revenue requirement annually for a service provider, requires to cover its costs of service
  • Computation of a complete set of retail tariffs – for electricity, water and sewerage – within a defined tariff structure.
  • Use of an incentive mechanism focused on electricity losses along the transmission and distribution networks;
  • Annual application of a ‘true-up’ mechanism to adjust systematically for forecasting errors embodied within the computations of revenue requirements in previous years.

The Revenue Requirement and it’s Determination.

The central construct within traditional cost of service rate making for establishing tariffs for utility service is the annual revenue requirement. The revenue requirement to be computed annually for a service provider identifies the expected amount of revenue required by the company to cover its costs of service. Revenue requirement is a forward looking exercise and historical financial statements are used as a starting point. The goal of the revenue requirement is to establish a realistic, sound, minimum tariff necessary to maintain the financial viability of the utility. The revenue requirement is represented arithmetically as follows:

Revenue Requirement = (Rate Base * Allowed Return) + Operating Costs

This shows that there are three core components of the revenue requirement that must be computed namely: rate base, allowed return on rate base, and expenses.