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IF what they’re saying is true, that the government is moving to ‘abolish’ the regulators and practically take over all their functions, then it will be an unmitigated disaster for each of the sectors involved. But, at the moment, nothing of the sort has happened. Most of the people raising a hue and cry about this agree that the main regulator at stake is Nepra, the power sector regulator that is currently in the thick of deciding the fate of billions of dollars worth of projects under the China-Pakistan Economic Corridor.
The notification from the government that placed five regulators under the “administrative control” of their respective line ministries is, in reality, a paltry step. By itself it does not amount to ‘regulatory capture’ as is being alleged. The real issue is with the proposed amendments to the Nepra Act (1997) that the government has already drafted, and should notification be followed up with amendments to the Nepra Act, which curb the regulator’s powers to operate independently and make its determinations binding on the government, then yes, we can be said to be moving towards ‘regulatory capture’.
It is important to remember that the act can only be amended by parliament, unless it is done through a presidential ordinance, which will only be in force for 90 days unless renewed or ratified by parliament. Another avenue could be through calling a joint sitting of parliament where the government can use its majority to pass the amendments.
There is still a long way to go before we get to ‘regulatory capture’, but there are good reasons to be vigilant.
So there is still a long way to go before we get to ‘regulatory capture’, but there are good reasons to be vigilant. Main reason is that we already have reports that amendments that seek to neuter Nepra have been drafted and put into limited circulation, most recently being brought to the Council of Common Interests where objections immediately arose and the amendments were withdrawn from the agenda.
I can’t find anyone who has actually seen these amendments, but some of the comments that Nepra has given on them have been reported, as well as a synopsis presented by the KP government summarising the main points. If the comments have been faithfully reproduced, Nepra’s own reading of the amendments is alarming, whereas the KP government synopsis reads a little more nuanced.
For example, Nepra claims the move will disallow it from regulating government entities. Nepra claims the amendments will “undo the power sector reform programme of 1992” and essentially “roll back the power-sector reforms” painstakingly put in place over 25 years.
Ironically enough, these reforms began under the first Nawaz Sharif government of 1991, and the legislation required under them was passed under the second Nawaz Sharif government of 1997 (including the legislation that created Nepra). They will subordinate tariff determination to government dictate, “subject to binding directions of the federal government” and the federal government will also take for itself the right to determine whether any decision of the authority is “in the public interest”.
Moreover, the representation of the provinces will be eliminated, with all members being appointed by the federal government. “[T]he powers of the authority to initiate investigation and impose penalties on wholly owned federal government entities have been made subject to prior permission of the federal government”. The list goes on and on.
But the synopsis from the KP government says the amendments only seek to delicense generation of power, preferring to restrict licensing to connections to the national grid only. This would allow greater investments in stand-alone or captive power generation. They say the amendments aim to create a framework for regulating the ‘open market trade of electricity’, something that was always a part of the power-sector reforms from the very beginning.
According to the synopsis, the amendments are only trying to enable the market trading of electricity, which automatically means Nepra’s role in determining tariffs will need to be redefined since more and more tariff determinations should be done on market principles, either through open trade or competitive bidding.
Then there is this: “The need to issue binding directions in matters of policy is required to address emergent issues of public interest.…” Matters of public interest include “sustainability and stability of power-sector companies…”, language which clearly points towards safeguarding the cash flows of the companies, which points to favourable tariffs.
“[A] power to impose surcharge is being introduced,” says the synopsis, presumably to address the legal challenges that many of the existing surcharges have been bogged down in, and give the government a greater hand in making midstream corrections to bills to keep recoveries in place. Such a move would be contrary to the consumer’s interest.
Moving to reform tariff setting and licensing to enable a greater role for market forces in these areas is fine. But other moves contained in the amendments run contrary to the government’s stated intention at the beginning of its term. When drafting its own Letter of Intent for the IMF loan that began in December 2013, the government committed that “[w]e continue to place high priority on improving energy-sector governance and transparency”. Part of this commitment involved expanding the powers of the regulator. “Over time, determination and notification of tariffs will be consolidated within Nepra”, they claimed in the attachment to their own Letter of Intent, signed by Ishaq Dar.
Where does that commitment stand now? And have things changed so drastically in the three years since this commitment was given that the proposed thrust of structural reform of the power sector should be turned around 180 degrees?
If there is indeed a move afoot to capture the powers of the regulators, it must be resisted. The move will begin in earnest when the legislation under which the regulators have been created is amended. If this happens, we will know that Nawaz Sharif is destroying his own legacy in order to get his way in the short term, a breathtakingly myopic act.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn December 29th, 2016
