Decision to supervise regulators draws perplexing reasoning

Critics fail to understand government’s choice

ISLAMABAD: At the tail end of 2016, the prime minister exhibited his power by approving the transfer of National Electric Power Regulatory Authority (Nepra) to the Ministry of Water and Power; the Pakistan Telecommunication Authority (PTA) and the Frequency Allocation Board to the Ministry of Information Technology and Telecom; the Oil and Gas Regulatory Authority (Ogra) to the petroleum ministry; and the Public Procurement Regulatory Authority (PPRA) to the Ministry of Finance.

About 20 years ago, under his own watch, the then Prime Minister Nawaz Sharif started the process of establishing regulators by notifying Nepra. Other regulators followed. Why he reversed his own decision merits scrutiny.

There are seen and unseen factors that explain this change. What could be seen is an attempt by the prime minister to increase his control over economic governance by placing the regulators under line ministries. Although this is a commonly described factor, it is not logical. Earlier, the regulators were under the administrative control of the Cabinet division and hence the prime minister’s office was actually more in control than it is now. By transferring the regulators, the prime minister has actually diluted his power base.

Reasons behind decision

The unseen factor is that in any event, the regulators, by being under the administrative and financial control of the federal government, regardless of the ministry, were not independent. Appointments of members – be it government or independent – are practically under the control of the government officials. Some apex regulators have even established boards to provide them guidelines – as a watch over the watchdogs. For instance, the Securities and Exchange Commission of Pakistan (SECP) has a Policy Board chaired by the Secretary Finance.

SECP website explains the rationale in these words: “While ensuring full autonomy of the Commission, the 1997 Act provides for establishment of a Securities and Exchange Policy Board. The main objective of the Policy Board is to provide guidance to the Commission in all matters relating to its functions and to formulate policies in consultation with the Commission.”

Even then, sometimes regulators are able to claim independent space. A case in point was Nepra, which through its State of Industry reports had established at least its own intellectual space by criticising what can be arguably termed as flawed energy policy.

An independent regulator is a critical institution, which facilitates the functioning of market economy by resisting government intervention on one hand and by guarding the consumers against unfair business practices. This function can only be performed if a regulator is administratively and financially independent of the government, and of course, the business.

Thus, all regulators should be protected by the constitution and their budgets should not flow from the finance ministry. Regulators should finance their activities from the fees they charge from businesses.

Political reasons

And now the politics. It is understood by some quarters that the recent move is actually propelled by the differences between Nepra and Ogra with respective ministries. This was becoming evident particularly in the case of tariff determination. A less debated matter is the deregulation of CNG prices, a power which has been taken away from Ogra and left to the market. However, as argued by Khalil Ahmad, there is no market of CNG in true sense unless the exploration and distribution of gas is also privatised.

When the government has complete monopoly over distribution of gas, and effectively controls the exploration, mere deregulation of retail prices is a deceptive move. It will only serve investors, at the loss of customers, without any safeguards against cartelisation. Here again, the role of an independent regulator could have served both the industry and customers. When we consider apparent re-control over regulators and de-control of CNG prices – two contradictory decisions taken on the same day – it is perplexing. However, there is one possible coherent explanation; that the PML-N government is pro-business and not pro-market. These decisions are counter-productive and harmful and mark a move towards decreased levels of economic freedom.

The writer is founder and executive director of PRIME Institute, an independent free market think tank

Published in The Express Tribune, January 2^nd, 2017.

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