Articles

Print

Delivery key for energy sector

The energy sector is a high priority area for the government. Many measures have been tried to accelerate reforms in the sector - intense discussions took place for years on vertical unbundling of functions with limited success and new regulatory institutions have mushroomed all over the country providing a great extended employment opportunity to various public servants. But a decade and a half have gone and progress has not matched the rhetoric.

The scale of investments required in the energy sector necessitates the aggressive participation of the private sector. Wisdom led to the identification of distribution reforms in the electricity sector as the key to bringing about improvements in the financial performance and operations of utilities. However, the vexed issue of pricing of electricity brought this promising and much-needed area of reform to a standstill after the Delhi distribution privatisation experience. The case with the pricing of petroleum products was just the same. The independent electricity regulatory commissions were brought in to provide an arms-length distance between politics and the economic functioning of the energy sectors - constant interference in the electricity pricing decisions and a diluted petroleum regulatory board ensured that the government defeated itself in its purpose.

Apart from direct interference with energy pricing decisions, governments - both central and state - stymied themselves by the poor accountability of the regulatory commissions and the inadequate support to the infrastructure needed for fast-paced, innovative reforms to be implemented - the classic case in point being the electricity metering systems that would allow the measurement and monitoring of the impacts of reform measures.

The government is today deliberating on a new version of regulatory reforms bill that aims to provide uniform treatment for all public utilities in the country. This bill does take cognisance of the weaknesses of earlier systems, but stops short of proposing the truly hard measures that are needed to put the energy sector on track. First and foremost is the issue of competition. If, as is the case in the electricity sector, there is no competition in the market then the regulatory function becomes a mere accounting exercise for tariff determination purposes. The only competition being seen is in the bidding processes for setting up new infrastructure projects - which is laudable - but has little or no impact on the downstream performance of the sector.

If, on the other hand, pricing regulation is not divested to the regulatory commissions, as in the case of the petroleum sector, then too the uncertainties of politically driven pricing would greatly deter newer competition entering the market.

Then comes the issue of the regulatory commissions themselves. The new bill once again lays out the constitution of the selection committee, the minimum disciplinary qualifications needed in commissions and the protected terms of the members. But, as has been noted from past experience, following due pro-cess in a technically right sense does not necessarily lead to the desired outcomes. The need of the hour is to be able to identify members who have a vision for the development of the sector and a proven track record of performance delivery in an open, transparent and consultative manner. The draft bill has taken a big step in requiring regulatory commissions to prepare annual plans, but they should also be required to prepare rolling five-year plans into which the annual plans would dovetail.

The key issue is one of protected tenures. Theoretically, the advantages of doing so from the point of view of independence of decision-making are obvious. Past experiences, unfortunately, belie these advantages and careful thought needs to be given to these provisions. The disadvantages of a protected tenure lie in the weak pressure to perform. If a member of a commission is loathe to making decisions needed to push reforms forward, then the sector would be stuck with the situation. Of course, the question would arise as to who is evaluating the performance of the commission and its members? How can appropriate benchmarks be set? Accountability of commissions has to go beyond mere reporting of (non) performance at the end of a year.

Finally, the challenges of having multiple regulatory authorities in a sector were revealed in recent weeks in the context of the financial sector. Discussions are now on about a super-regulator for the sector. If a new draft regulatory bill is being discussed for public utilities, it is an opportune time to revisit the issue of a single energy regulator and to strengthen mechanisms for coordination across other related sectors as well.

Electricity related legislations were implemented in 1998 and revised in 2003. If new legislation is being discussed today, let there be as comprehensive and unabashed an overhaul of this new legislation as possible, drawing on experiences from across all other sectors.

Archives