SUCCESSIVE governments have ‘found’ regulatory authorities turning from ‘quasi judicial forums’ into ‘resistance centres’ and ‘troublemakers,’ instead of complementing their policies.

The governments have considered different models to pacify these regulators while the performance of regulators has worsened generally over the years as a result of creeping bureaucratic capture.

Last week, Prime Minister Nawaz Sharif constituted a committee, led by his special assistant for law Advocate Ashtar Ausaf Ali, to review, in the first phase, the performance of four major regulators — Nepra, Ogra, Pemra and PTA — in the light of their governing laws and recommend a fresh framework for them.

The terms of reference (ToRs) required the committee to “suggest amendments in order to improve their working, remove confusion and strengthen the relationship between the regulatory bodies and the government and a fresh mechanism of oversight to ensure continued evaluation and monitoring of the performance of these bodies so that they serve their [mandated] goals”.

The committee will also examine the qualifications, terms and conditions of service of chairpersons and members of the regulatory bodies and bring them in line with the technical and leadership requirements needed for each body.

‘The role of regulators should be redefined to focus on the operational side, instead of just setting tariffs, so they can focus on creating energy markets’

It is also required to “examine the desirability of setting up a new service for regulatory bodies through initial appointments made by the FPSC,” the notification said.

Dawn spoke to the Planning Commission’s former energy member Shahid Sattar for an insight into the affairs of energy regulators and their role as the government simultaneously embarks upon an aggressive privatisation programme and changes the role of the regulators.

Mr Sattar said the energy sector regulators are not effective yet, even though Nepra and Ogra have existed for two decades and 15 years respectively. His thrust was on removing the concept of uniform pricing for gas and electricity consumers.

“When you don’t fix the prices of tomatoes and onions for different cities, there is no justification for keeping energy prices uniform artificially.”

He said there is a lack of uniform regulation in the energy sector, which is creating distortions between the gas and electricity sectors. The inconsistency between regulations for Nepra (the power sector’s regulator) and OGRA (responsible for regulating the oil and gas sector) is sending confused signals to investors and creating disharmony in pricing strategies between gas and electricity.

This also allows for arbitrage between the two sectors and the capture of cheap gas by influential lobbies at the cost of the country maximising economic benefit from this resource.

At the same time, both regulators have an incomplete regulatory mandate and a severely limited interpretation of the roles assigned to them by law.

“Ogra’s mandate does not even cover the upstream, which is still regulated by the directorate general of petroleum concessions (DGPC). Staffing and other problems at DGPC are far more severe than those at Nepra or Ogra,” he said.

Also, Ogra’s regulation of the downstream gas sector centres on determining the revenue requirements of the two gas utilities — SSGC and SNGPL — on a return on assets formula. This has been counterproductive in encouraging efficiency despite the limits sets on unidentified for gas (UFG), which has gradually increased to currently 12pc — many times higher than the accepted international level.

This happens partially because the government still allocates both gas and electricity based on political or other pressures. It issues policy guidelines but other sub-governmental institutions like the PPIB and the AEDB intervene in the tariff-making process. “There is no clarity of applicability of generation tariffs obtained through the tendering process,” said Sattar.

On top of that, the regulatory bodies’ members were appointed at the nomination of the provinces and have no industry knowledge. Operational directives from the government also undermined the independence of the regulators, which are also not provided with sufficient legal capacity to effectively promote competition under their legislation.

Mr Sattar said Nepra generally took six months to set tariffs, and it has taken even up to 10 months for some IPPs. Investors cannot wait so long. Also, the regulator lacks the capacity in terms of human resource and necessary tools and competencies to effectively monitor compliance of licensees with operational standards.

On the other hand, gas transmission and distribution remain vertically integrated, impeding the development of a market for gas while concealing inefficiencies such as leakage and theft, costing the country over $2bn per annum.

He argued that there is a need for the law to protect the sanctity of tendered tariffs, and, ultimately, the three regulators — Nepra, Ogra and GDPC — should be merged to have uniform regulation across the energy chain.

The role of regulators should also be redefined to focus on the operational side, instead of just setting tariffs, so they can focus on creating energy markets, as defined in their acts. Until then, the regulators must be held responsible for allocations of energy and for reporting shortages and load-shedding on a transparent basis, preferably on regularly updated websites.

The law should provide for induction of competent professionals as staff and chairmen of regulatory bodies and amendments made in original laws that allowed bureaucratic capture and parking places for retired bureaucrats should be revoked.

The downstream gas sector structure should be redefined by creating gas distribution companies and separating the transmission network.

Published in Dawn, Economic & Business, March 9th, 2015

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