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Rubber regulators PDF Print E-mail
Thursday, 07 August 2003 00:00
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The independent regulators for sectors like power and telecom were supposed to be people who would look after the public interest, irrespective of what the government of the day felt.
 
Yet, the way things are turning out, the regulator is nothing more than an extended arm of the government, in most cases doing precisely what his master wants. This should not be a great surprise, since the regulator is usually a retired government official, and his staff are also government officials on loan; usually, most of them do not have domain knowledge in what are specialised jobs.
 
Most states that have electricity regulatory commissions, for instance, have a retired chief secretary as the regulator; indeed, the job of the Central Electricity Regulatory Commission (CERC) chief was kept vacant for around a year when S.L. Rao demitted office, so that the outgoing power secretary could take over.
 
Now it gets worse. Just a few days ago, as this paper pointed out, the ministry of power came out with a draft tariff policy which even specifies the depreciation rates and plant load factors applicable to the sector — in other words, the only job of the so-called independent regulators will be to do the mathematical calculation to fix tariffs based on a pre-specified formula laid down by the central government!
 
It doesn’t help — but should be no surprise — that the formula benefits only the power generating companies and actually hurts the interests of consumers.
 
In March 2000, when S.L. Rao headed the CERC, he found that the state-owned NTPC was over-charging customers by Rs 800 crore a year. Under the two-part tariff prevalent then, NTPC was entitled to incentive payments if it produced power at capacity utilisation of over 62.7 per cent.
 
Yet, NTPC’s plants were operating at a 76.6 per cent capacity and were ‘available’ 81 per cent of the time — in other words, NTPC was being paid incentive money for what was pretty ordinary performance by then.
 
Mr Rao changed this, and said NTPC would get incentive payments only if it produced at over 80 per cent capacity. Now this is to be partially reversed, and higher depreciation rates have also been prescribed. Customers will pay more on both counts.
 
The maths apart, these are issues that independent regulators are supposed to determine, not something that the government is supposed to fix. The draft tariff policy, in fact, is moving back to the old cost-plus pricing days where tariffs were determined by (usually padded) cost estimates provided by the generators.
 
A similar situation prevails in the case of telecom. When the first regulator Justice Sodhi’s independence was found irksome, the government simply amended the Trai Act and removed Mr Sodhi. Not surprisingly, his successor gave in to what the government wanted on most issues, including controversial issues like mobile switching for WiLL-mobile operators.
 
If the mushrooming tribe of independent regulators is not to be exposed as little more than convenient parking spots for retired bureaucrats who will do more government-oriented thinking, then it will have to change its track record pretty quickly.
 
When new regulators are also proposed for the petroleum sector, railways and the electronic media, and perhaps even more sectors in the future, the pattern of how regulators are appointed and how they are functioning needs to be reviewed without delay.

 

 

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