Useful, but not for the lay reader

Since independent regulation came to India in the second half of the 1990s in telecommunications and electricity, there has been a spate of publications on regulatory practice and regulated entities. Teri has run international conferences annually and the proceedings were the first contribution to the literature on the subject in India. The path-breaking study by the Prayas Energy Group in 2003 reported results of a survey on electricity regulation. Two studies by Joel Ruet of some state electricity boards showed that they suffered from administrative as against commercial or enterprise mindsets in their management. My book Governing Power has so far been the only detailed analysis by a former Regulator. There have been articles in the Economic and Political Weekly and the business and general press, as well as some books. This is in addition to World Bank papers and international publications on independent regulation.

The Indian writings conclude that independent regulation, especially in electricity, has not produced the expected results and has only partially served the mandate given to it. This is attributed primarily to the selection of Regulators and staff from retired officers of government, the government enterprises and those on deputation from government departments. This makes them sympathetic to state-owned enterprises and government requirements, and fearful of raising tariffs. They have not exercised their penal powers and do little follow-up to ensure that their Orders are implemented. They are worried that they might be seen to be 'micro-managing' the regulated entities even when there is no other follow-up mechanism in place. Despite poor data on farm consumption and on transmission and distribution losses, they have not collected base line data.

This book draws conclusions from a study of electricity regulatory commissions in Andhra Pradesh, Maharashtra and Delhi. Its conclusions corroborate the work of earlier writers. The style is turgid, with long and complicated sentences, requiring familiarity with the subject, and hence not for the lay reader.

It concludes that electricity Regulators work under government constraints that do not allow them to be reformers. The problems of flawed selection processes and weak capacity are a repeat of earlier studies. The authors find there is little of a common approach between Regulators, a point also made in earlier studies that pointed to the lack of consistency that prevents codifying regulatory orders into precedents as regulatory law. The reluctance to go for close scrutiny and follow-up precludes grappling with pressing problems of the sector. Regulators avoid overtly political decisions and maintain an apolitical façade by erring on the side of safety and defensibility. While all documents with the Regulator may be accessed, there is no readily available indexed database of documents.

Pressures on regulators that constrain their independent working include "explicit and implicit governmental pressures, pressure from the public, and self-generated pressure within regulatory bodies aware of the implication for their reputation". The authors conclude that "it is impossible to separate out the extent to which regulators are dancing to their government's tune and the extent to which they have simply internalised the political costs" of tariffs. The government background for all their earlier careers means that they do not need to be told what government desires; they think in the same way.

All the three regulatory bodies make extensive use of consultants. This varies from extreme and continuous dependence to using them to build internal capacity. Consultants tend to be foreign firms and bring a strong market-oriented approach to regulation.

This book is a useful reiteration of the difficulties in independent regulation in India. Independent regulation has brought about some transparency and reasoning but has not been an instrument for reform.

A paper by Bernard Tannenbaum for the World Bank makes recommendations for improving regulation that are similar to the conclusions from this book. Some are: "Encourage regulators to create monitoring systems for technical and commercial quality of service; [p]rovide technical assistance to regulators in benchmarking the price and non-price terms of PPAs; [s]upport active consumer group involvement in the regulatory process; [e]xpand local training in regulation that reaches lower level staff and other stakeholders such as ministries, consumer groups (industrial and residential), newspapers and parliamentarians; [p]romote independent and public evaluations of regulatory governance and substance every 2 to 3 years."

We know how to make this system of governance effective. Governments are unwilling to implement them.

The reviewer was the first chairman of the Central Electricity Regulatory Commission

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The Practice and Politics of Regulation
Regulatory governance in electricity

Navroz K Dubash & D Narasimha Rao
Macmillan
Price: Rs 290; Pages: 201