Historical Perspective Of Regulation In India1

HISTORICAL PERSPECTIVE OF REGULATION IN INDIA

What is Regulation? The term regulation at one end denotes

specific legal mechanism to control deficiencies or exploitation by producers or service providers; at the other extreme it is a regime that controls the economy or a particular type of capitalism . Protect and promote public interests. Enhance efficiency of markets and ensure social rights. In a nut-shell, regulation seeks to promote both efficiency and equity.

Need ?  Monopolies

Ex: Electricity sector, Telecommunication services, and urban infrastructure.  Absence of competition-operational inefficiencies,

poor quality of services and inefficient allocation of resources.

 State –owned utilities suffered huge losses.  Inability in QoS hindered the economic growth .  the poor quality of our infrastructure has been the

cause of investments not taking place.

History Growth of Indian power sector and its

regulation

was in 3 different phases.

Phase I- the early years and minimal

regulation

Phase II -state dominated industry and old-

style regulation

Phase III- commercialization and new-style

regulation

Phase I (provision of Indian electricity act 1910) Electricity was available only to the urban

pockets of the country. Industry governed/regulated through the provisions in the act. License to supply electricity in a particular area was obtained through section 3 of the act. Accounts had to be maintained by the licensees. No regulation on tariff.

Phase I…………contd…….. Central electricity board was established. There was only one regulatory agency . Moreover the regulatory frame work

provided was in harmony with the industry at that time.

Phase II Electricity supply is identified as a core

industry with its influence on the industrial development of the country. After independence, resolutions (1948 & 1956) were passed to accelerate the industrialization process . The constitution of India made power as a subject on which both GoI and state governments can make laws. The electricity sector was found as the basic and capital-intensive , its future became the responsibility of the states.

Since then the growth was mainly through

the public sectors.( SEBs or central government owned Gen. and Trans. Companies). Under the 1948 Electricity Supply Act , the different aspects of regulation were place under the CEA. It provided a detailed method for framing the tariffs . Profits were equitably shared between the stake holders.

But, several forms of govt. Intrusion in diff.

forms made the utilities financially nonviable and incapable of meeting demand Both the quality and quantity were affected. At this juncture ,GoI started to attract

private participation. The invitation was to BOO. Notifications were made attractive. 100% FDI, RoE-16% at 68.5% PLF

Even the ROEs were extended to Govt.

utilities in 1998 to give then a level playing field with foreign investors. The then regulation had two interesting consequences. 3.The govt-owned companies charged tariffs that recovered costs as well as ROE and additional earnings incentives were kept with them. 4.SEBs, after being protected by competition , were discouraged by political masters in recovering costs through tariffs.

Phase III Commercialization of the power sector. As more players, especially private emerged,

it was thought of introducing regulatory mechanism in transparent fashion. This didn’t occur since only a little new private investment in gen. , none in trans. And dist. Privatization made little progress. In order to achieve this regulator worked on different aspects 5.Rationalizing tariffs 6.Restricting the subsidies 7.Forcing utilities to turn efficient by reducing T&D losses

Phase III…..contd Finally in July 1998, the parliament enacted

the Electricity Regulatory Commission Act. CERC and SERCs were established. SERCs were set up either under the act or by separate legislation by the states. The later had wide range of regulatory powers. But the lack of cooperation from the state govt. and poor quality of SEBs and negligence of distribution utilities caused the in effectiveness of SERCs

The Electricity Act 2003 Passed three years after 1998 Act to bring

changes in the ERCs. India’s electricity system was opened to competition. The act permits free entry into generation. Introduced the idea of trading in bulk electricity. Open access was allowed in transmission lines. However, the regulator has the final discretion .

The bill permits multiple licensees in T&D. Open access might make SEBs lose their

big paying customers unless measures are to be taken to retain them. The act allows distribution to be completely privatized( Orissa and Delhi models). The act compels the state govt to improve the financial viability of the SEBs.

Functions of ERCs under 2003 Act Core role: includes tariff regulation, monitoring QoS, redressing grievances, monitoring compliance, adjudicating disputes. Recommendatory role: recommends the concerned authorities for approvals. Advisory role: on request from govt. , they provide information or advice on issues related to the sector.

Section 70 and 278 together gives the role

of CERCs and 86 for the SERCs. Section 178 gives powers to the central commission to make regulations and others functions primarily related to SERCs. FOIR( Forum of Indian Regulators) was voluntarily created.

Relationships 1. With the government 2. With the regulated entities 3. With the consumers 4. With the regulators of other sectors.

The present scenario….. Many states yet to undergo the reforms

process. Apart from this, the regulatory institutions that have been set up so far face several teething problems. Lack of political support for the reforms. Lack of adequately trained manpower for the regulatory institutions has been yet another constraint.

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