Regulatory malfunction

The regulatory system for the efficient functioning of sector markets was meant to supplant a political system that is usually unable to take the required pricing decisions in various infrastructure sectors like electricity, or weighs in favour of special interest groups. However, as everyone knows, the regulatory system has not worked perfectly, and some might argue in favour of rule-based contracts that obviate the need for periodic decisions by fallible regulators. But it should not be too much to ask that, so long as a regulatory system is in place, it works smoothly. That, unfortunately, is not the case.

The selection of the chairman of the Central Electricity Regulatory Commission (CERC), due since late last year, has once again got held up. The chairman's post was also kept vacant for more than a year before the last incumbent was appointed, and the general belief is that it was kept warm for one individual. It gets worse with the Telecom Dispute Settlement and Appellate Tribunal (TDSAT), which will stop functioning for all practical purposes in three weeks' time, as the posts of a second member (out of three) will have fallen vacant. The government has to make the appointments, and it is clear that people in government are playing games. If the selection process is so politicised, it raises the question as to how independent the regulatory system is in practice.

In the case of the CERC, a selection panel short-listed two candidates, but one of them dropped out. Another name not in the original list was inserted, and, even more extraordinarily, this Maharashtra-cadre IAS official was placed at the top of the list of two. In the case of the TDSAT, it gets worse. A candidate for one of the two posts was chosen by a panel, and the name approved by the Chief Justice of India. Then an unexplained problem was discovered, as a result of which the post was not filled. Later, the communications ministry decided to recommend the name of the outgoing chairman of the government-owned telecom firm, Bharat Sanchar Nigam, which the Chief Justice rightly rejected on the grounds that 90 per cent of the cases before the TDSAT are against BSNL. Undeterred, the ministry has sent the same name once again. The selection process for the second member has just begun.

Matters do not improve after appointments are made. In the case of the Telecom Regulatory Authority of India (Trai), it is well known that there was a difference of opinion between the Trai chairman and the telecom minister. So, for months the ministry refused to act on Trai recommendations "" it did not help that the recommendations themselves were not well thought-out, and changed in one critical case once Trai had a new chief. Then there is the case in Delhi where the High Court said that the Delhi government's decision to give instructions to the Delhi Electricity Regulatory Commission (DERC) was incorrect, and pointed out that the DERC chief had also objected to this but had been over-ruled. Having delivered its verdict, though, the court chose not to take any action since, it argued, the matter pertained to the first five years of the privatisation of the Delhi Vidyut Board and this period was now over. There are other instances, in the shipping industry for instance, where the regulator rejected appeals by shipping firms and was then directed by the ministry to modify its views. None of this points to the regulatory system in the country functioning satisfactorily. A systemic review is in order.