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Regulators financial autonomy restricted

June 02, 2012

ISLAMABAD, June 2: The government through the Finance Bill 2012 has limited the financial autonomy of key regulators making them dependent on concerned ministries.

The National Electricity and Power Regulatory Authority (Nepra), Securities and Exchange Commission of Pakistan (SECP) and Pakistan Nuclear Regulatory Authority (PNRA) have been restricted from developing financial independence and are directed to deposit their surplus finance at the Federal Consolidated Fund.

The finance bill further directed the Pakistan Telecommunication Authority that “all fines and penalties recovered by the authority shall be credited to the Federal Consolidated Fund.”

However, PNRA, SECP and Nepra have also been directed in different sections of the finance bill 2012 that the fines and penalties recovered by them shall be credited to the federal consolidated fund.

The finance bill said: “Any surplus of receipts over the actual expenditure in a year, after payment of tax, shall be remitted to the Federal Consolidated Fund and any deficit from the actual expenditure shall be made up by the federal government.”

Responding to a query, an official of the finance ministry said that the issue had not been created by the FBR or the finance ministry but it was a recommendation from the Senate Standing Committee on Finance made in August 2010.

The meeting while discussing the Competition Commission Law noted that it was a conflict of interest that the regulator would be getting a percentage from the fines and penalties it imposes.

“It was alleged in the committee by certain stakeholders that the Competition Commission of Pakistan was imposing heavy fines only to collect higher amount as the regulatory authorities were allowed to have some percentage of fines they impose,” the official said.

The finance ministry tried to insert these clauses in the Finance Bill 2011 but these were withdrawn due to objections by the Asian Development Bank (ADB).

The ADB threatened to withdraw $200 million under the head of Capital Markets Development Programme-II citing that 'restricting financial strengths of regulators would lead to decline in the competition' in all the sectors and restrict checks on the government machinery.

Meanwhile, an official of the SECP said that there was no mention of transferring the surplus amount to the federal government in the recommendations made by the Senate Sanding Committee on Finance.

“This way the regulators would be rendered without financial strength and they will be totally dependent on the government,” the SECP official, adding that it would also restrict growth and innovative moves by all the regulators.

Currently around 35 per cent of SECP income is from the surplus reserves that the Commission has in the banks.

“What will the Commission do when the income is not adequate as it has declined from the stock exchanges?” the official posed a major concern.

The move to cripple the financial strength of regulators is not limited to the SECP, PNRA, Nepra only. Rather it seems to be a guided policy of the government to reduce the powers and independence of regulatory authorities. It can be witnessed from the reduction in the role and responsibilities of Oil and Gas Regulatory Authority (Ogra).

With almost all Ogra responsibilities taken over by the petroleum ministry, the secretary petroleum in the last meeting of the Economic Coordination Committee said that the interference by the regulatory body in policy affairs was creating public unrest.

The petroleum ministry has demanded that the regulator be placed under the ministry.