INTRODUCTION

The term "regulatory" comes from the word "regulate" which, as defined in the Webster dictionary, means "to bring under the control of law or constituted authority." In the Philippines, just like in any other countries, public utilities are regulated by the government by requiring them to secure permits and licenses before they can operate business, submit relevant reports or documents, and by approving the rates to be imposed to the public, where appropriate. Government regulatory intervention is employed to attain social goals such as safety of workers, environmental and consumer protection, and protection of public interest.

Under the Public Service Law, "public utilities" are described as business organizations which regularly supply the public some commodity or services, such as electricity, gas, water, transportation, or telephone and telegraph services. These services are part of every household’s budget and affect almost everybody. Thus, rate hikes, contaminated water, sea mishaps and unsatisfactory performance of service utilities delivering these services have been everybody’s concern and the subject of numerous rallies, commentaries and inquiries.

These services are being regulated by the following:

In line with these issues, this audit was conducted to determine the effectiveness of the regulatory functions of concerned government agencies with due consideration to the protection of public interest.

AUDIT OBJECTIVE

The audit was conducted to assess the effectiveness of the regulatory functions of four Regulatory Offices in ensuring the viability of public utilities and protection of public interest taking into consideration the development of standards, rules and regulations, and enforcement and monitoring of the same.

AUDIT SCOPE AND METHODOLOGY

The audit covered the regulatory functions of the ERC, NTC, LWUA and MARINA. The team considered the following audit criteria in the assessment:

• Development of appropriate standards
• Effective enforcement of standards, rules and regulations
• Sound monitoring system

To achieve the audit objective, the team performed the following:

• Reviewed existing policies and procedures relative to the grant of authority to operate, inspection of vessels, and rate-setting;

• Interviewed concerned officials and employees of MARINA;

• Evaluated the existing standard requirements and performance standards imposed on ship operators;

• Analyzed the formula used in the evaluation of the financial capability of domestic shipping companies;

• Reviewed records/reports of vessels subjected to inspection;

• Conducted inspection/validation of selected vessels homeported in Manila, Cebu and Batangas: and

• Confirmed vessels drydock reports.

The audit was conducted from August 2 to December 22, 2004, in compliance with MS/TS Office Order No. 2004-033 dated July 4, 2004.

AUDIT CONCLUSION

While MARINA was able to develop adequate manning requirements and service standards to protect public interest and ensure their satisfaction, it was not able to establish adequate financial standards to ensure the operators’ capability to comply with such requirements. The formula for financial capability is only designed to measure the existing capitalization of the vessel operators. It does not in any way establish the financial requirements needed to ensure continuous and satisfactory operation. This condition would adversely affect the ability of the operators to comply with the required manning and service standards.

MARINA’s performance was further adversely affected by its failure to enforce and monitor compliance with the prescribed standards. There were a number of vessel operators who were issued Certificate of Compliance, Certificate of Inspection and Certificate of Public Convenience and therefore allowed to operate in the presence of deficiencies such as failure to provide adequate facilities, life saving and fire fighting equipment, and adequate personnel, among others. These conditions would greatly affect the ability of the officials on board to ensure safety and convenience of passengers.

The functions deputized to the Philippine Coast Guard were not properly monitored. A number of vessels operating and issued coastwise or bay and river licenses have no records of inspection with MARINA. There is, therefore, no assurance that these vessels were indeed inspected and have complied with the safety requirements. MARINA is not even maintaining a complete masterlist of registered vessels to be monitored.

As effective performance of regulatory functions is crucial in ensuring the viability of the maritime industry and in protecting public interest, the team recommended measures under Part IV of the report to address these concerns.

MANAGEMENT’S REACTION TO AUDIT OBSERVATIONS

The results of the audit were transmitted to MARINA on May 26, 2005. It claimed that some of the deficiencies noted by the team were already corrected by the operators but did not submit any proof of compliance. It did not submit comments on other observations. Their comments, together with the team’s rejoinder are incorporated in the report.