Time regulators rose up to the task

Nripendra Misra | January 23, 2014



One can be only as independent and objective as one wants to be. This is also true of the various regulatory authorities: their independence depends on the people running the affairs.

The idea to establish these regulatory bodies was to decentralise power and pass some of the decision-making authority from the government to such agencies. This was to ensure that corruption is minimised and the government of the day does not become a sole arbiter with wide discretion to decide on everything. While there seems to be a perception that regulatory bodies are not able to exercise their independence and assert themselves, I think such an impression is not uniformly true.

Almost all regulators are born out of certain statutes or Acts. Right from the appointment of chairpersons and members to their tenure, salaries and so on, all decisions are in accordance with the statute. I believe regulators enjoy freedom of work throughout their tenure and are not mere puppets in the hands of the government.

While most regulators do not have financial autonomy and depend on the government for their finances, it is unheard of that the government has tried to pressurise the regulatory authorities in their functioning or decision-making just because their budgets are piloted by the government.

The most crucial factor for the effective functioning of regulatory bodies is the selection of chairmen and members. If the selection process is right and people with high standards of integrity are selected, then the objectives and goals are accomplished. But if we fail to select the right people then the very purpose of having a regulatory authority is defeated.

However, I would like to make a distinction here. I would concede that regulatory authorities functioning at the central level have perhaps a better work culture and capacity to assert their powers than state regulatory authorities. Moreover, transparency, independence and respect they demand are some of the areas where the state regulators are yet to catch up with the central regulatory bodies.

In states, unlike the centre where there are multiple subject-matter regulators, there are mainly the electricity commissions that function. Hence, it is also the rarity of state regulators that an independent work culture in them has not evolved completely and they might not be perceived as very important. I recall a minister in the finance ministry who said that every ministry should own its regulators, in the sense that they must be considered an important organ of the ministry performing its own function. This sense of ownership and confidence by the state governments in the state regulators is still missing.

Appreciation of the independence, autonomy and capability of regulators may be missing at the political level in the states. On the other hand, at the centre even the politicians have come to appreciate the fact that regulatory authorities are independent bodies and there shouldn’t be any kind of interference in their work.

‘Unfortunate’ developments

The recent developments in Delhi have been very unfortunate. Unfortunate not in terms of the Delhi electricity regulatory commission (DERC) being circumvented or given a go-by while announcing the subsidy, because that truly is the domain of the state government. It is unfortunate in terms of the ripple effects that such vote-catching measures have had, as some voices in other states have also started making similar demands for subsidies. This may not be a great idea because while Delhi has a surplus budget and might afford giving out such subsidies, there are states which are facing a financial crunch and cannot afford subsidies. Also, this will hurt the power sector.

(Also read Fixing power tariff not your job, Mr Chief Minister)

There is every possibility that we might slide back to the times when states were competing on giving power subsidies for agriculture. This practice had its own repercussions. First, all state electricity boards became financially bankrupt, and second, it also led to corruption because a lot of power supplied to the industrial consumers was shown as agriculture supply. With subsidisation in Delhi, risk of this malpractice coming back is high.

The subsidy announced in Delhi has two parts: first, the actual fund outflow and second, adjustments of certain accounts which is referred to as undetermined regulatory assets. These kinds of adjustments can also lead to financial problems for the discoms and the state government. Subventions are, thus, economically disastrous even though politically popular.

Also subsidies, like every other expenditure, come with an opportunity cost. The question that the policymakers in Delhi should ask themselves is if they are giving freebies and subsidies to a class which perhaps is capable of affording it and whether this is the best use of the rupee.

I am of the view that subsidies can never have an element of equity in them and are also leaky buckets. There are also several instances where subsidies are claimed by those who don’t really need them. Hence, one has to take into account the opportunity costs of expenses and take decisions accordingly.

Also, sustainability of such schemes is an issue which cuts both ways. Today, the government might have the surplus funds to go ahead and give out subsidies but what if they run out of revenue surplus tomorrow? It will then have to resort to raising taxes which means they will be picking from one pocket to give to another.

However, given that the state government has gone ahead and made its announcement it is very important for the central and state electricity regulatory commissions to finalise tariffs at levels which are justified to both consumers and discoms without any interference from the government. For example, in the telecom sector, whenever we took decisions on interconnect charges or other charges, the datasheet of the last three-five years was obtained in order to make sure that decisions were taken on the basis of reliable data. This data was presented to stakeholders during open-house sessions and on the basis of discussions and feedback the regulatory orders were issued. There was no question of any kind of manipulation creeping in.

Similarly, the state electricity regulatory authorities should also ensure that tariff-setting is done in the fairest manner possible. In this case, the DERC, in order to assert itself, should be very specific and clear about the mode and duration of payment of subsidies, and this should be decided in advance. This is because Delhi is not a generator of power and purchases it from NTPC and other power-generating companies. Hence, DERC should make it very clear to the state government that discoms, which are in a bit of a financial crunch, cannot afford to delay payments to the generating companies. A timely payment of the subsidy amount should thus be ensured.

India is slowly awakening to the real worth of regulatory bodies. Given the high levels of vigilance and alert behaviour of all the major stakeholders in the society, the government is keeping its distance from the functioning of regulators, especially at the central level. And as this kind of awareness seeps down further, our state regulatory bodies too will be able to enjoy their own space.

(Misra served as chairman of the telecom regulatory authority of India from 2006 to 2009. He is now director of the Public Interest Foundation. This article appeared in the magazine's January 16-31, 2014 edition.)
 

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