A few weeks ago, the minister for power indicated that the government is considering amending the Nepra law to ensure the regulator's accountability.
REGULATION
A few weeks ago, the minister for power indicated that the government is considering amending the Nepra law to ensure the regulator's accountability.
The minister was right in pointing out the regulator's incapacity, which has led to a two-year delay in K-Electric's tariff determination. He also said that the regulator should not be controlled, but that there should be accountability for how decisions are made, their quality and the appointments to the authority.
Here, it is essential to see what the current law says about the regulator's accountability. In 1997, parliament enacted the Regulation of Generation, Transmission, and Distribution of Electric Power Act, which established Nepra as an independent regulatory authority. Initially free from government oversight, Nepra later connected with the Ministry of Water and Power and, subsequently, the Ministry of Law and Justice to improve coordination with the federal and provincial governments. Since 2000, it has operated under the Cabinet Division, alongside other regulatory authorities.
Under section 42 of the Act, Nepra must prepare Annual Reports and the State of Electric Power Services Report for submission to the Council of Common Interests (CCI) and the Federal Government. Nepra has published these reports since 2003-04, but they have never been evaluated at any forum (no official record).
It is not the regulator's fault. As Nepra was created under a parliamentary Act, parliament or its committees can question its performance and budgetary use, or review the process for regulatory decisions, but cannot direct the outcomes of any specific case. Nepra is answerable for delays in tariff determinations (or any other decision) upon request by Parliament.
The Nepra Act also requires the regulator to maintain public files and accurate financial records, which are audited annually by the auditor general of Pakistan, thereby ensuring accountability and transparency in regulatory processes. Transparency is further upheld through public hearings and the availability of documents on their website, which includes decisions and their justifications.
The 2018 amendments allow an appellate tribunal to review Nepra's procedures, while the government (Power Division) can only issue the energy policy framework for Nepra to implement.
The existing law also defines the process for appointing the authority, including the chairman and its members. It is the government's duty to ensure that regulators are appointed through a transparent legal process. If the government fails to appoint a competent individual, it is a failure on its part, not on the regulators'. According to section 4(2) of the law, the federal government may remove the chairman or any member found to be incompetent or guilty of misconduct after an inquiry by the Federal Public Service Commission. In other words, the law allows sufficient flexibility to hold the regulator accountable.
On the other hand, regulatory autonomy is as important as its accountability. Nepra must have the powers to issue licenses, determine tariffs, specify standards, review and assess their implementation and regulate processes, independently of the influence of power sector companies (it regulates) and independent of the Power Division, which effectively runs public-sector energy companies.
As Nepra was created under a parliamentary Act, parliament or its committees can question its performance and budgetary use, or review the process for regulatory decisions, but cannot direct the outcomes of any specific case
The lack of autonomy and clarity in Nepra's administrative roles has affected its efficient operation on numerous occasions in the past. No doubt, there is a need to revisit the Nepra Act. It needs to be reviewed to clarify roles and prevent unnecessary external intervention in decision-making, including by the government.
There exists a fine line between legitimate regulation or accountability of a regulator and illegitimate interference in its operations. This issue becomes even more complex for regulators like Nepra, where a lack of autonomy and ambiguity in roles within its administration is hindering its effectiveness. Multiple entities, acting as watchdogs in the sector, are also compromising its efficacy.
The legitimate oversight means holding the regulator accountable without influencing individual regulatory decisions. It focuses on performance rather than outcomes; for instance, it looks at whether the regulator used the proper process rather than what tariffs are determined. The government can appoint members of the authority, approve its budgets, and broadly set national policy directions, which are already provided for in the current law. Interference occurs when the government or any other actor seeks to control or influence the regulator's decisions, especially on a case-by-case basis.
Here, I am not at all defending Nepra's incompetence or its repeated failure to fulfill its responsibilities. As an independent regulator, it is tasked with addressing issues in the power sector. However, it has not effectively tackled inefficiencies in energy companies, which often fail to meet performance standards. Delays in decision-making remain a serious concern.
The legislation needs amendments to clearly define roles while ensuring the regulatory body's independence remains intact and its accountability is maintained. Interference occurs when external entities, particularly the executive, such as the power division, undermine a regulatory body's independent judgment, for instance, pressuring Nepra to set a specific tariff for a company or to grant a preferred company a license.
The optimal design of any regulatory institution always carries the risk of organisational failure unless credibility and transparency in regulatory decisions are established. When ministers and bureaucrats are directly involved in pricing and licensing decisions, it can compromise regulatory credibility and impact investment decisions. Politicians often reject justified tariff increases for short-term political gains, sacrificing long-term benefits to consumers and investments and ultimately undermining regulatory trust.
Without regulatory credibility, investors aware of the risks associated with their investments may demand higher tariffs to compensate for increased risk (as seen in the case of IPPs) or leave (as in the case of Shanghai Electric). Ideally, investors prefer to invest in industries with independent regulatory agencies that operate without government interference.
A robust regulatory framework is essential for enhancing the efficiency of utility services, particularly in monopolistic environments. In Pakistan's electricity distribution sector, there are significant concerns about Nepra's perceived bias in favour of government-owned companies. Only an independent and effective regulator can ensure fairness for investors, quality services at affordable rates for consumers and prevent government exploitation for political purposes.
Regulating the regulator involves ensuring accountability through laws and formal procedures. Policy guidance is essential for effective regulation, while short-term interference can jeopardise long-term stability and investor confidence in the sector.
The writer is an economist and researcher with expertise in the energy sector, based in Islamabad.
