Financial autonomy to regulatory agencies

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: An important feature of infrastructure regulatory reform relates to separation of policy-making, regulation and operation functions. It is generally observed that separation of the three functions is seldom effected in true sense and they continue to be interlinked. The most prominent being cases where an independent regulator has been set up, but is made to report to a line ministry, which also manages state-owned incumbent. Thus independent regulation is given the short shrift, which will adversely affect our investments.

A study done by CUTS across the regulatory architecture in select developing countries in Asia (India, Indonesia, Vietnam and Cambodia) and Africa (South Africa, Kenya and Zambia) that developing countries pose unique challenges in implementation of regulatory regimes and that experience of developed countries are not directly transferable to the developing world.

The study threw up some interesting learnings, such as the regulatory framework adopted by Zambia in water supply and sanitation sector as a good example of separation of policy-making, regulation and operation functions.

The standard arrangement of post-regulatory reform is to leave the development of policy framework in the hands of ministry, whilst implementation becomes the function of regulatory agency. Confusion, however, prevails over what is a policy matter and what is a regulatory matter, and government departments seek to deal with typical regulatory issues under the grab of ‘policy’ matters. This severely undermines the ability of a regulator to function independently. The practice with respect to the Electricity Authority of Cambodia (EAC) is quite revealing in this context.

The enabling Act specifies clear separation of EAC’s function as regulator from that of the ministry concerned, and interaction between EAC and the ministry is clearly stated in the Law. This provides clarity in respective roles of ministry and regulator.

When it comes to regulating the state-owned incumbent or taking measures that could impact its interest, cases of micro-management by the line minister are observed, and independent regulators are perceived to be ineffective or powerless.