With an Electricity Regulator on the way, the Cabinet looks at a report backing a new financial services watchdog

The latest move towards appointing a regulator for the three State-owned airports is being driven by the European Commission which, through legislation, has pushed governments into liberalising markets such as telecommunications, air transport and, of course, electricity.

At present the Government, through the Minister for Public Enterprise, Ms O'Rourke, is the shareholder, owner and policy-maker for the aviation industry and for that matter, the electricity industry. Clearly there is a conflict in being responsible for policy-making and regulation, says a source who is familiar with the Department of Public Enterprise, and the idea is to separate the functions.

"This has been done in most EU countries," says the source.

Establishing an airports regulator will bring the number of regulators for industry sectors in the Republic to three - telecommunications and electricity being the other two. These are sectors which have been or are, State monopolies undergoing liberalisation.

Ms O'Rourke who has spent much of this week steering the Electricity Regulation Bill - which will establish the Electricity Regulator's office - through the committee stage in the Dail, is unequivocal. "The State cannot be a shareholder, policymaker and regulator," she says. However, she adds, regulators should also be accountable - to the Dail and the relevant Oireachtas committee. "Politicians are accountable to the electorate, the Dail, and their own political parties."

As what were once State monopolies open up to competition, private interests become involved and lobby for what they regard as a level playing field. Aer Rianta, for example, is clearly exasperated by Ryanair's constant campaign against its charges, maintaining that they are far too expensive.

An Aer Rianta spokesman says an airports regulator would adjudicate on airport charges "based on economic principles rather than the latest headline Ryanair gets".

For its part Ryanair is unfazed. Its chief executive, Mr Michael O'Leary, questions the need for a regulator to control a monopoly. He says you only need a regulator if you have competition.

"You need a second terminal, or Cork and Kerry airports competing with Dublin for passengers, to introduce competition," he says. "Otherwise, what is the point in having a regulator? You'd just be paying another civil servant to sit around all day. What would the civil servant do? Sure the Department has been regulating a monopoly for 10 years?"

Mr O'Leary contends that the only reason Aer Rianta wants a regulator for the airports "is to give the impression they are like the telecommunications industry, that there is competition there". He argues that the Telecommunications Regulator is doing something - there is competition in the sector and she has issued licences and Telecom Eireann has been forced to make interconnect agreements so companies can use its infrastructure to carry their own customers' traffic at certain rates.

The Office of the Director of Telecommunications Regulation (ODTR) is, it is understood, the model on which the Electricity Regulator's office will be based. The regulator, Ms Etain Doyle has had to introduce a raft of new rules as part of the liberalisation of the telecoms market. The final elements of liberalisation were introduced last November, one year and one month ahead of schedule. Part of its remit is to also regulate broadcasting and radio transmission.

Ms Doyle and her staff are not answerable to the Dail - except that she must lay her annual report before the Oireachtas - or any Oireachtas committees. However, Ms O'Rourke who is bringing in an amendment to change this, says it was purely a fault of the legislation at the time and points out that Ms Doyle has appeared before Dail committees.

When the office was established almost two years ago, Ms Doyle - who has never given a media interview on her role - was criticised for being too pro-establishment, in other words too pro-Telecom Eireann. However, as time passed and Ms Doyle mastered her extremely wide brief, the view of some in the industry began to change.

Ms Doyle has said that she wants her office to be pro-competition, to encourage it, but to ensure fair play in the market. Her office claims that in consultation with Telecom Eireann new interconnect rates were introduced which reduced costs to service providers (such as Esat Telecom) by about 50 per cent. Her office also oversaw the competition for the third mobile phone licence.

However, some sources believe Ms Doyle does not take a firm enough line with Telecom Eireann. The State operator did not publish a full list of all its charges - what it charges other operators for items ranging from ISDN lines to circuit, as it was asked to do under its telecommunications licence. On legal advice it did not reveal its charges for ATM (high speed data transmission) and on premium rate phone numbers.

"We believe Telecom Eireann is engaging in selective pricing," says a source. "Ms Doyle said two months ago that she would considering introducing an amendment to the licence to force Telecom to publish these prices, but she is still considering it."

A Telecom spokesman said the company had complied with the terms of its licence and had published the prices it was required to do. Ms Doyle, who it must be said faced some quite formidable opposition when doing so, also introduced new licensing terms for existing cable and MMDS operators. They now have exclusive rights on their particular platforms for five years.

Although there were veiled threats of legal actions and complaints that a gun was being put to their heads, the operators accepted the new licensing conditions. Ms Doyle indicated that she was prepared to thrash out the issues in the courts. In the end, faced with the possibility of years of legal action - something which would not please potential investors - the cable companies balked, and accepted the new conditions. Undoubtedly, the operators would argue there were other issues as well. The resolution of the issue paved the way for Cablelink to be sold relatively quickly. As new regulators are appointed, inevitably those pitching against the monopoly player feel that the relevant office was set up armed with powers which discriminate in favour of the incumbent.

This has occurred as procedures are being put in place to establish the Electricity Regulator's office. At least five companies have indicated they will compete once the electricity market in the Republic is liberalised - from next February, 28 per cent of the market will be open to competition.

One of these is Viridian, the holding company for Northern Ireland Electricity which plans to build a £300 million (€381 million) gas plant at Huntstown, Co Dublin, to generate electricity, in conjunction with CRH.

Viridian's commercial director, Mr David de Casseres, contends that the Electricity Regulator's powers will be restricted. "In any regulator's role, the customer should be the primary focus and should promote competition in the interests of customers," he says. Mr de Casseres says the regulator will not be able to take competition into account when authorising a generating plant. In other words, he says, although the ESB, for example, must seek authorisation from the Electricity Regulator to build a plant, the regulator will not be able to refuse authorisation on grounds of competition. He believes that if the ESB obstructs entry to the market there is not a lot the regulator can do.

This is disputed by Ms O'Rourke who says competition is one of the overriding principles of the Bill, which should be passed before the Dail rises, but it will also need another piece of legislation which will be introduced in September.

The incoming Electricity Regulator, Mr Tom Reeves says the Act will make the regulator clearly independent of government. He says regulation will be in the interests of the customer, "with a view to achieving a competitive market in electricity". Mr Reeves says his first task will be to get procedures in place on charges and authorisation - what people pay for getting electricity onto the national grid. He says winter of 2001 is the earliest by which there will be competition in the Republic's electricity market.

"Five or six companies have publicly indicated an interest in entering the market," he says, adding that he is confident there will be players in the market by then.