Managing messes

Setting up a regulator is just not enough to resolve issues

In his Budget speech a few weeks ago, finance minister P Chidambaram announced that the government would appoint a regulator for highways. A few days earlier, the railways minister announced plans for a regulator for the railways as well. And when the controversy surrounding the coal block allocation was at its peak, there was talk of even a coal regulator.

At the outset, there is nothing wrong with the intent to bring in a regulator — or several; it is necessary to ensure fair play, efficiency and transparency. Regulation applies particularly well to sectors where there is a strong interface with the public and those that increasingly rely on the private sector or public-private partnership models for delivery.

But, given the track record in setting up of regulatory bodies, the questions that need asking are: What do you regulate? And who? What exactly will a coal regulator do when the sector is dominated by a single player, Coal India? One of the major users of coal is the power generation industry, and that is already regulated. A coal sector regulator would then be responsible for the sector alone, even as those decisions impact the electricity sector. The regulator in the electricity sector, on the other hand, would have no say in matters related to coal. 

To compound matters, almost all states have a power sector regulator while the central power regulator has no say in state matters. The only organic link between the state and central power regulator is through a platform called the Forum of Indian Regulators (FOIR). Now consider a situation where a decision is taken by the central coal regulator that impacts states. Would the states approach the coal regulator or would it be done through the central power regulator? 

In the oil sector, we already have the Petroleum & Natural Gas Board that regulates all petroleum products, as well as the Directorate General of Hydrocarbons. None of these regulators have done anything to improve the fuel supply position in the country. Again, their view is limited to that sector.

So, instead of having individual sectoral regulators, isn’t it time we had an overall central regulatory body that looks into all energy-related issues? In the US, the national electricity regulator is the Federal Energy Regulatory Commission (FERC), not the Federal ‘Electricity’ Regulatory Commission. There’s a good reason for that. The FERC’s mandate extends to natural gas as well as to oil pipelines that affect the interstate market, including that of electricity. At the same time, the FERC’s span of control does not spill over into retail electricity markets and the regulation of nuclear plants.

This example illustrates how governments tend to assume that setting up regulatory bodies is a necessary and sufficient condition for resolving issues in a sector. The truth is far from that. In reality, regulators should go beyond sectoral borders in order to truly fulfil their mandate and be effective in what they were set up for. But how far is far enough?

In most cases, the intention of creating a regulatory body is for tariff setting, as is the case with the Indian Railways — in other words, its principal objective is to de-politicise tariff-related decisions. However, with the rare exception of the telecom sector, politics often continues to prevail in such matters. But even this regulator has got it wrong, sometimes. Consider the Telecom Regulatory Authority of India’s (Trai) suggestion of a reserve price for the November 2012 spectrum auction. It turned out to be too high and the auction was a flop. 

There are other constraints as well — regulators cannot be granted sweeping powers bypassing the judiciary because, as an official report points out, this would be in violation of the doctrine of separation of power.  

Road to nowhere

This brings us to the case of a regulator for highways. Currently, the National Highways Authority of India (NHAI) is both the operator and the regulator for its sector. A report by the Planning Commission says one of the issues the regulator can resolve here is by evolving standardised concession agreements in the roads sector. The lack of these, it adds, has “hampered the rapid and consistent development of the sector”.

But is that the only anomaly here? One of the core issues in the highways programme is improper traffic estimates and aggressive bidding for projects. How would the regulator address this? Will it have power to check operations in all highways and prevent a repeat of the Gurgaon Expressway fiasco, where NHAI issued a termination notice to the concessionaire in just a few years?

The NHAI is a central body and highways pass through states. What would a national highway regulator do for problems raised at the state level? Can it stop a parallel, competing state highway? Or, for that matter, can it get into environment-related matters?

In the US, there is an omnibus organisation that is responsible for all forms of transportation — aviation, rail, highways, public transport, trucks, automobiles and even maritime transportation. Its mandate is to ensure “fast, safe, efficient, accessible and convenient transportation” that, among other things, “enhances the quality of life”. The National Transport Safety Board is charged with investigating civil aviation accidents as well as other major transportation-related accidents.

Some would say that aviation and rail, for instance, are competing sectors. But if competition is to be promoted, an umbrella organisation is in the best position to ensure the two sectors compete and deliver the best results for the end user. Curiously, though, India has a Rail Safety Commissioner working under the administrative control of the ministry of civil aviation for  reasons of autonomy; but there is no talk of a Highways Safety Board — a proposal that’s been gathering dust for the past five years. Unlike in the case of railways, we have a Director General of Civil Aviation (DGCA) that’s in charge of safety issues and operates under the concerned ministry but no aviation regulator. Rather, we have an airports regulator in the form of the Airports Economic Regulatory Authority.

And yes, we do have a Competition Commission to ensure there is no predatory pricing but these are early days and there are just too many areas for it to cover. So, instead of randomly setting up regulators, we must look at what needs to be regulated and how, breaking away from the tradition of viewing issues on sectoral basis. It’s high time we take a more holistic view through the setting up of organisations that can address inter-linkages within the concerned sectors and those that are closely connected with it.

A start could be made with the energy sector, as the apex court in a judgement clearly stated that sectors such as oil, gas and LNG fall under the domain of the Centre. An FERC-like concept, including coal, needs to be tried out here after opening up the coal sector. 

Can this be pulled off, given the fact that some of these ministries are powerful portfolios in their own right? Who would want to give up that kind of power and control? Seen differently, would be it be wise to put lot of power and control into one organisation?

One thing is for sure. Merely setting up a regulator doesn’t solve problems. It only creates employment.