Govt should not lobby the regulator for PSUs welfare

Updated: Aug 4 2005, 05:30am hrs
In order to appreciate the concept of regulatory commissions, one needs to delve into the very objective of creating the institution. It was in 1998 that this institution was envisaged and created in the electricity sector. The professed objective was to distance government from regulation. The government being the stakeholder itself, felt that it should not be involved in regulating the tariff.

The regulator was conceived as an expert body independent of the government and with adequate powers to take decisions on professional lines. The 2003 Electricity Act sought to further reinforce the institution and entrusted several other powers like licensing etc, on it.

The question is whether, almost seven years down the line, the government has really been able to distance itself. It is a fact that the regulatory commissions have been able to discharge their core functions of tariff determination, licensing etc. without much interference from the government. Unlike in some other sectors, the regulatory commissions in the electricity sector do not merely recommend but pass and enforce orders.

There is, however, a caveat! The concept of independent regulation being a new discipline, there was an initial enthusiasm amongst the personnel to join the regulatory commissionswith whose active support the institutions have been able to deliver reasoned and detailed orders. The initial enthusiasm amongst the personnel seems to be on the wane because of several factors.

The need of the hour is to accord flexibility to the commissions in terms of deciding service terms or of relaxing the conditions to induct personnel from various organisations.

When one talks of independence of an institution, the most important aspect relates to its finances. The 2003 Act has provided for special fund for the regulatory commissions. This fund should be operationalised at the earliest. The governments concerns, if any on profligacy by the commissions, should be addressed by upfront one-time drafting of rules not only on finances but also on all other aspects. And, withing this framework, the commissions should be given discretion to meet special circumstances.

Independence has to go with accountability, which is enforced through audit of accounts of the commissions by the CAG, etc. Safeguards in regard to regulation are aplenty. The problem is that of perception. It has become fashionable to talk of the independence of regulatory commissions. Every ministry tells the other to allow independence to regulators but behaves the other way in its backyard.

The 2003 Act empowers the government to issue policy directions to the regulatory commissions in matters of public interest. While the Central Government has not yet exercised this power, there have been instances when this power has been used by some state governments injudiciously, thereby encroaching upon the independent functioning of the regulatory commissions.

The government should guard against exercising this power for political reasons. Real independence of regulatory commissions would come only when all stakeholders adapt themselves to the changes necessitated by the distancing of government. In majority of cases, the regulated entities are owned by the government itself.

The litmus test lies in the ability of the government to dissuade itself from acting to safeguard the interest of their utilities and to infuse in them the culture of following the course of lawto appeal against the orders of the regulatory commissions rather than trying to influence the regulator commissions by using their proximity to sovereign powers. It is high time the nation decided where to draw a line between policy and regulation.

The writer is secretary, Central Electricity Regulatory Commission. The views expressed are personal