Rethinking regulators

Good institutions need trained people

The government’s decision not to extend the tenure of VK Sibal as Director General of the Directorate General of Hydrocarbons (DGH) brings to an end yet another saga of controversy surrounding the office of a sectoral regulator. Whatever the merits of the criticism of Mr Sibal’s various decisions, and a new regulator may choose to reflect on some of these, there is certainly a case for the government to take a relook at the procedure that allows two of the four member-team that clears an operator’s capex to be from the operator’s firm itself — the other two are from the DGH and the petroleum ministry. There are larger issues that arise from Mr Sibal’s departure. The most important being the limited set from which governments tend to pick persons for such jobs. It is a sad commentary on the institution that so many of our regulators are retired civil servants. Even more problematic, of course, is the manner in which regulatory institutions are staffed.

The Telecom Regulatory Authority of India (Trai), it has to be pointed out, is not the body that discovered an increasing gap between the revenue numbers reported by Reliance Communications (RCom) to it and to its shareholders — it is possible that, as RCom says, the report made by the auditors is incorrect, but the point here is that Trai never woke up to the discrepancy, it was a stock market analyst who did. And it is surely unfortunate that an outside chartered accountant has to do an exercise that should have logically been carried out by the regulator itself. In the case of the Petroleum and Natural Gas Regulatory Board (PNGRB), the regulator has to hire consultants to vet the capital costs submitted to it by various pipeline firms since it does not have the capacity to process the capex itself. At a time when, in areas where there are only fledgling markets or where the capital costs are critical to how pricing decisions are to be approved, it is vital to have regulatory bodies which are staffed with the best professionals in the business, whether these are chartered accountants or lawyers. Hiring outside consultants is fine, but those receiving the reports also have to be well qualified.

This is clearly an issue that the government must pay attention to if it is serious about the idea of having independent regulators. Right now, of course, with the government not even notifying vital sections of the PNGRB Act — a government affidavit in court says the PNGRB is not authorised to clear pipeline projects but can vet them! — or of the Competition Commission Act, it does appear the government is happy to have weak and ineffective regulators. The inevitable government defence that it cannot afford to pay private sector-type salaries, it has to be pointed out, doesn’t really hold since the money saved/lost from an act of bad regulation is far greater than anything the government will spend on even a top-notch well-paid regulatory team. A small increase in capex that is cleared despite it not being justified results in a far greater decline in the government’s share of profits from the KG Basin gas.