The role and performance of regulatory bodies like OGRA

The role and performance of regulating agencies like OGRA

OGRA is in news these days. Its parent ministry MPNR is criticizing it in public and other senior parliamentary leaders from the ruling party have led onslaught on it. Earlier OGRA chairman came into limelight when public heard of its board members being fired by the latter. Is it a personality syndrome or conflict and infighting or there is something more germane into it. ? What is the role of OGRA and for that matter any regulatory agency of this kind. What role it has been given and what role it could have carved out itself by creative maneuvering and internal negotiations with its main stake-holder which is the Ministry of Petroleum and Natural Resources itself. Its counterpart NEPRA has been more successful in having a working relationship with its parent ministry.

First of all, a regulatory agency may be associated administratively with a ministry, but for all practical purposes it is independent. However, its independence may be circumscribed by the statutes and the rules that are usually made by the Ministry itself. Sometimes the issues are multi sectoral and multi-ministerial and are thus to be handled by the PM himself and his Cabinet Division. It is through the statutes that ministries can control or dictate their way and policies and not through administrative orders. Regulatory agencies can strengthen themselves by bringing in public discussions and hearings and oversight and making it more effective and integrated with their processes. Public consultation process may at times be overbearing and impeding speed and convenience in decision-making , but it is worthy enough to be welcome and built into the decision making process. It is perhaps the only defence and support the regulators have to fall back upon in performing their function.

As to the regulatory agency’s independence, it can vary greatly from country to country and its relevant legislation and from sector to sector. The most powerful regulatory agency in a country is normally the Central Bank or State Bank as we call it here in this country. Obviously, it is much less independent than its US counterpart, in theory and as well as practice. Energy regulatory agencies are more powerful in India than these are in Pakistan. Perhaps size and multi-polarity matters, and makes central organizations more powerful and effective. Even after 18^th amendment, all regulatory agencies and functions have been given under federal domain. Conflicts are going to arise, when the implementation begins .It would be highly debatable, if except for Punjab, any smaller province can have the resources to run these agencies, technical and financial both.

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It has been alleged that OGRA has not been able to perform its function. The latest case that is cited of is the unduly rising prices of LPG. A broader criticism, and perhaps legitimate, is that it has not been able to carve out space for itself. Space is granted by the legislation and statute but the statutes themselves are influenced by the lobbying and input of the regulatory agency itself. In Pakistan, perhaps it would be too much to expect from the retired bureaucrats for whom these positions are lucrative parking places. The salaries are too high to be risked? Ministries generally would like to maximize their power for legitimate and not very legitimate purposes and commercial interests would also not like to be constrained. The maximum support should therefore come from the legislature and the public.

Now coming to the two specific charges on OGRA; LPG prices and the charge that OCAC performed better. LPG is a fuel for the poor. Its prices have been going higher and higher, whether it is justified on some grounds, is a separate discussion. The real policy issue is that LPG has been kept out of the regulatory process and thus it is beyond OGRA’s purview. The culprit is the classical phony and naïve argument of freeing the pricing and the misconception that opening up prices leads to market efficiency and would ultimately lower the price. There are several reasons that these ideologies do not work in societies like ours, for the following reasons:

1) We are always supply scarce countries. Only population and demand is abundant .Supply is usually restricted by a germane shortage of capital. Price signals are not strong enough to attract foreign and local capital. There are other factors such as political instability and the law and order whish over-ride economic factors and signals.

2) The regulatory and legislative processes are weak. Consumer is poorly represented in the power structure. Producer is powerful and integrated into the power structure.

3) Anti-competition and price collusion behavior is rampant and generally well entrenched. Competition protection legislation is weak, ineffective and perpetually sabotaged as we have been observing in the case of Competition Commission of Pakistan.

4) We can not wait for the ultimate rationalization and resource allocative process to show its promised results. It may never happen or may be too little too late. Our consumer is poor. One-third of our people lives in abject poverty and cannot get the minimum nutritional requirement. And others are only marginally and slightly better off except for a very thin minority.

Thus the price unfreezing and letting it to be decided by the market and in fact by the producers does not seem to be working and resulting into lower prices. Price decontrol of such things as energy and LPG is a fools’ paradise. It should be shun at the first opportunity indeed immediately. Only when price decontrol is lifted by the ministry of petroleum, OGRA cannot do any thing in this respect. People can do it in the long run, but they rise only occasionally and randomly and such processes are only disruptive, as there is ample history to suggest.

Now coming to the case of oil pricing, it is alleged that OCAC (Oil Companies Advisory Committees) has performed and could perform better than OGRA. I have no mandate or axe to grind with OGRA to defend its performance. As for OCAC, there could not have been a more shameless and disgusting name for an entity that is to set prices; a producers club setting prices for consumers with the support of the ministry. This may have been valid in military oligarchies of the past but it is very disturbing to find support for this coming from the ministry of petroleum .Oil prices used to be set on a cost-plus basis earlier and supported an essential but basically inefficient oil industry which made huge profits in the past. Now that the more saner policy of oil pricing based on landed price parity with imports , the oil industry is crumbling .It would need support like many other inefficient but essential entities. OGRA’s’ job today is implementing a formula, calculate the price and publish it. There are many ifs and buts in it, which OGRA should have made a practice of discussing in broad day light in public hearings than adjudicating on these quietly and slipping into the pricing system. No wonder it has not managed to attract a lot of respect from the stake-holders and the public.

Provincial governments demand transparency in Electrical pricing

Yesterdays newspapers reported that provincial governments have expressed dissatisfaction over fuel charges being levied by the electricity system , which they call non-transparent.Ministry of finance Has reportedly demanded from NEPRA to require audit of fuel purchased and consumed by the generation companies.This writer earlier had also misgivings on fuel adjustment charges levied by the utilities.Earlier NEPRA used to reveal fuel charges in one line statement issued monthly.Lately NEPRA has started publishing some details in this respect.Perhaps more is required towards this end,and detailed tabulation in this respect may satisfy the concerns and skepticism of the stakeholders.

On a larger plane Government has taken an institutional step to bring more order into the electrical system by organizing CPPA-Central Power Purchasing Authority.Readers may know that CPPA 's function is to purchase electricity from various generating companies like IPPs,WAPDA,GENCOs etc at formula previously determined by NEPRA.NEPRA,however,determines reference unit fuel charges and annual fixed charges under a cost-plus system.Actual prices paid by CPPA are ,however, according to a price escalation formula reflecting the changes in fuel prices.Meters have been installed at the required points to record electricity received.I am sure there is audit for all such payments,which although doesnot enjoy confidence of the governments themselves and other stakeholders.Hence the demand for transparency and publishing details on the net ,if not,by CPPA ,then by NEPRA.

Organizing CPPA as a company(under government guarantee) is expected to bring normalcy and the required transparency.Currently,the authority seems to have the status of a cell under NTDC.Company laws would require CPPA to make the required declarations.Advertisements have appeared in the newspaper for induction of a chief executive of CPPA.It is hoped that a candidate is found in time who meets all the requirements.

The criticism regarding fuel charge variations partly stems from lack of knowledge .It is perfectly all right that different generators would consume different quantities of fuel to produce same quantity of electricity,as there are differences in vintage,capital cost,technology etc.However there may be issues when the same producer charges for varying quantities of fuel for the same quantities of electricity.There may be variations of fuel mix,load factor.number of starts and offs etc that may cause variations.Hence that may require discretion on the part of buyer and seller.And hence the scope for abuse.Some measures towards declaring and transparency towards this aspect may satisfy the related skepticism from various quarters. However it may be only fair to also acknowledge that NEPRA publishes relatively much more data and info than other bodies like OGRA-Oil and Gas Regulatory Authority.