Undermining independent regulation

The government?s ambivalence towards independent regulation comes out yet again in the Electricity Bill 2001 now before the Select Committee in the Lok Sabha. The Bill provides a framework for independent regulation, but introduces concepts that could undermine independent regulation. Section 121 places the regulatory commission under the superintendence and control of the chairperson of the Appellate Tribunal. Regulators should be accountable. But accountability has to be ensured by requirements of transparency and provisions for appeals against regulatory decisions; and not by bringing the commissions under the supervision of an individual, not even if that individual heads the Appellate Tribunal. Given the lack of guidelines on the manner in which supervision would be exercised, this section could result in an erosion of regulatory autonomy. The Bill further dilutes regulatory autonomy by reducing the normal tenure of regulators from five years (the standard in India and elsewhere) to three. It also makes regulators eligible for reappointment. Presumably, such reappointment would be possible only with the approval of the Selection Committee. But, unfortunately, the Selection Committee is packed with government servants or appointees and that does not inspire confidence. A short tenure, promise of re-appointment and a captive Selection Committee constitute the perfect recipe for influencing the regulator. Besides the short tenure of three years, there are provisions that prohibit members from accepting government or commercial employment for two years after demitting office; they would severely discourage industry professionals from becoming regulators. Thus, the Bill, instead of seeking to attract the best talent, does just the opposite. The regulator?s role in promoting competition is very limited under the existing regulatory legislation in India. The promotion of competition is only an advisory function of the regulator, both under the TRAI Act, 2001 and the ERC Act 1998. And neither Act spells out the regulator?s role in maintaining competition, although the regulator has some opportunity to do so through provisions relating to inter-connectivity, etc. Now for the first time, however, section 60 of the Bill specifically empowers the regulator to maintain competition by issuing directions to a licensee who tends to abuse his dominant position or enters into arrangements which are anti-competitive. These powers are very similar to the powers that the Competition Commission of India would enjoy under the proposed Competition Bill. There could be turf wars between Electricity Regulators and the CCI as both would have concurrent powers to maintain competition. In the UK, where a similar situation exists, the question of jurisdiction is decided on the basis of who is ?best? or ?better? placed to deal with the issue. A similar arrangement needs to be worked out in India to avoid jurisdictional conflicts. In terms of section 95 of the Bill, all the proceedings before a commission are to be deemed to be judicial proceedings. This would require the commission to employ the quasi-judicial approach although regulators the world over employ different processes to arrive at regulatory decisions. Even in dispute resolution they use processes like negotiation and mediation. TRAI also employs the process of consultation to arrive at decisions; experience has shown that it leads to a more comprehensive discussion of issues involved and helps in gaining the consent of stakeholders. That is why the Bill should have left it to the commission to employ a process best suited to deal with the issue on hand. (The consultative process could be adopted for tariff setting or laying down quality standards, reserving the quasi-judicial process for imposing penalties.) One issue that has been confounding the advocates of independent regulation is the relationship between the regulator, the minister and Parliament. The minister is accountable to Parliament, or the legislature, for all that happens in the electricity sector; but the regulator is neither accountable to the minister nor to Parliament. We now have some seven years of regulatory experience. There have been four regulatory legislations at the Centre and in the states. Thus those who drafted the Bill had the opportunity to learn from history, avoid the mistakes made earlier and adopt the good practices contained in earlier legislation. That opportunity has been lost and some of provisions in the Bill are retrograde. One can only hope that the situation can be retrieved between a minister committed to reform and a sagacious Select Committee.