Regulatory purgatory

It`s time to clean up our regulatory act

The Central Bureau of Investigation’s probe into the favours allegedly shown to the Nhava Sheva International Container Terminal (NSICT) by the shipping ministry as well as the shipping regulator has come after unconscionable delay. The issues that the CBI is going to probe in the NSICT case — interference by the parent ministry and favouritism/laxity of the regulatory process — apply to other sectors as well. The government should use this opportunity to review and clean up the regulatory process in the different sectors.

The NSICT story is well documented — a study on it was put on the Planning Commission’s website over 20 months ago. The issue revolves around the revenue share that the company that won the contract offered the government. In another case, concerning the Chennai Container Terminal, the company wanted the Tariff Authority of Major Ports (TAMP) to treat the revenue it gave to the government as a cost; TAMP rightly declared that this was absurd, since a firm could theoretically offer to share 99 per cent of revenues with the government, expense this and get TAMP to add it to the tariffs. The terminal company went to the shipping ministry, which directed TAMP to allow some part of the revenue share as expenses. The government later said that contracts signed prior to a certain date could get part of their revenue share payments included as expenses. A proviso was added to limit this to cases where the port operator was making a loss because of revenue sharing. TAMP, however, went further and allowed NSICT to expense its revenue-share payments even when it was making no losses. The CBI is now probing all this and more.

The problem goes beyond TAMP. In the case of the Petroleum and Natural Gas Regulatory Board, the government threatened to issue it a policy directive — of the type the shipping ministry issued to TAMP on expensing — when PNGRB questioned the ministry’s decisions to issue pipeline licences. PNGRB is now expected to decide tariffs for pipelines cleared by the government, over whose costs it had no control. PNGRB, similarly, has no power to look into the pricing of petroleum products, so there is no control over the costs of producers. And in telecom, the regulator’s existence has not prevented the minister from giving scarce spectrum to favoured firms. When broking houses pointed out that some telecom companies were hiding revenues in order to avoid paying licence fees, it was discovered that the telecom regulator never audited the firms’ declarations. In the case of airports, as in the case of the PNGRB, the government has brought in the regulator long after the major airports were privatised; so the regulator has had no control over their expenses. What these and other cases make clear is that the way the independent regulator model is being made to work needs review and a lot of improvement.