Regulation: Issues

V Ranganathan IIMB

Issues
What entities should be regulated? Jurisdiction Selection Capacity Process Features

What entities should be regulated?

Because there is no exit, (license cannot be cancelled) Regulator is toothless against Public Sector entities like State Electricity Boards. Even if penalties are imposed, for PSU it is only a transfer from rate payer to taxpayer. Further regulators orders can be compromised by States actions; eg. Not honour the subsidy amount; ordering PSU not to go to the regulator for rate increase It is a wasted bureaucracy doing shadow boxing and consuming resources.

Jurisdiction
TRAI has only recommending powers; not even tariff making powers. Recently TRAI recommended 6% of revenue as yearly fee but DoT has made it 8%. This leads to some duplication of work bet. TRAI and Ministry. TDSAT thinks it is Super-TRAI and claims some areas which belongs to TRAI. Needs clarity. In a recent order, it said TRAI should determine MTC based on costs, clearly not its jurisdiction. In Electricity, policy making is always a contes-table area between Department and Regulator. In other countries, like UK, there is industry; there is regulator; Ministry is miniscule.

Structure
3 or 5 members? Relationship with ministry and special appellate bodies like EAT and TDSAT At officer level, fresh recruitment vs deputationists? At TRAI most officers are from ITS and had worked in BSNL. So there is a softcorner for them towards BSNL, the inefficient PSU. Do you need regional/branch offices? Empire building?

Selection
Existing process leads to capture of Regulator to Government or the party which appointed him/her. Catchment area mostly restricted to Govt.; with low pay but decisions on huge sums of money; this appeals only to retired bureaucrats Tho Chairman and Members are supposed to be equal, the practice of putting Chairman from retd. IAS and members from lower services, leads to implicit hierarchy.

Capacity
Reasonably Good technical capacity, but rather poor on economics, law etc. Private sector has far better talent; this is an issue because it will come in in matters of information asymmetry. Regulatory commissions are short staffed for monitoring Quality of Service parameters; it is acute in electricity, where there is only State monopoly Lack of in house capacity leads to reliance on consultants. Knowledge with the consultant, but authority with the Authority/Commission.

Process
In Telecom consultation is vibrant and much more with industry; in power, it is mainly with consumers, and often uninformed. Delayed decisions due to nonaccountability of courts; stay itself is an end in many cases. Independence of members and conflict resolution within the Commission have not evolved yet. Eg. PNGRB, TRAI. What are my options if I differ with the Chairman/majority? Processes also impair ones right to dissent, by manipulation bringing matters without time to digest. Can a member with a different view appeal to the Secretary / Minister? Can s/he go to the press?

Process..
Hiatus between de-facto and dejure positions between Chairman and members; dejure Chairman is primus inter pares. De facto, he is simply primus. Chairman being the administrative head, and by having an yes man as Secretary, can bring all the officers toeing his line, by controlling the CRs; Other members are reduced to figureheads. He is the visible face of the Commission.

Features
Most regulatory positions are captured by IAS, and to a lesser extent by other services; result: lack of professionalism. Remedy: Look at retirement age; salaries Commissions infructuous, if they regulate PSUs, which have no exit clause. Commissions also cause Agency problems; wasteful expenditure, because of lack of accountability; more branch offices, empire building, locating in prime areas; wasteful foreign trips etc.

Case studies of experience: 1. IUC: Determination of MTC

Raisondtre : receiving network can exercise monopoly power, since no shopping is possible Still can be left to parties in MPP regime, eg US (Bill And Keep) Regulatory determination in CPP regimes Various bases: FAC, Pure LRIC, LRIC+, FL-LRIC, Hybrid LRIC etc. In India, one of the issues is whether Capex must be included or not. TDSAT has given an order wondering why capex should not be included. Ofcom engaged Analysis Mason; have put up their analysis in the website free for all to use. Pure LRIC with capex, over a gliding path. Around Rs.2 to 3. Thought of engaging Analysis Mason, but chose not to. Did it ourselves; Gave a gliding path from 20 to 10 to 0 over 3 years.

Case studies
2. 3g roaming 3. Valuing spectrum 4. Did TRAI recommend auctions?

Conclusion
Better selection of professionals Collegial atmosphere Consultation with stakeholders Avoidance of unnecessary litigation