Energy regulatory commission in a blind alley?

Before we set about building our twenty-first century energy system, we should, however, be wise enough to try to understand how we got to where we are today. We seem to ignore the lessons of history at our peril and we impoverish our culture by forgetting or diminishing the achievements of those who came before us. We have now reached a miserable state, which may be further aggravated by faulty provisions of Bangladesh Energy Regulatory Commission (BERC) Act, 2003, as well as wrong application of the rules under the Act.

The story begins with the government. At the end of a long willy-nilly experiments, the government enacted the BERC Act in July 2003. Almost eighteen months later, a half baked amendment was published in February 2005. All along it was hoped that there would be an honest endeavour to constitute an independent and autonomous commission as exists in many civilized countries. But, in our case although the Act provided some semblance of independence, the issue as autonomy remained furthest from truth. The Act was defined (as per Bangladesh Gazette published on July 24, 2003) as, "An Act to make provisions for the establishment of an 'independent' and 'impartial' regulatory commission for the energy sector." The reason for deviation from norm has not been explained. The authorities perhaps thought that there is no need to explain these matters to ordinary citizens who have no stake in energy matters.

Thus, even a cursory glance over the provisions of the Act as well as the Draft Licensing Regulations, 2005 would show some wilful negligence and deliberate mistakes that may retard or complicate the implementation phase. It is in this background, a rumour floats in the energy sky that the Ministry is soft peddling now to circumvent the contentious issues incorporated in the Act. If there is any truth in the allegation, the commission has unwittingly entered into a blind alley.

So far, BERC's journey has gone smoothly. The radar now indicates rough time ahead. Some arbitrary perceptions with which it began about two years ago are now surfacing. For instance, in common parlance, 'energy' is a generic term used to cover sources of heat and power without specifying what sort and without regard to quality (Ref: Dictionary of Energy, General Editor, Malcolm Slesser). But the BERC Act (at chapter-1, 2 (b) - Definitions) states, 'Energy' means the electricity, gas and petroleum products, which appears to be an incomplete definition. The role of coal has not been recognised although it is a fast growing energy source in Bangladesh. At the same time, the scope for renewable sources such as solar and wind did not get a space in the definition of energy.

Ironically, the upstream activities of both the gas and petroleum sectors have remained outside the purview of the commission's work. But the reason for such a deliberate decision has not been explained even in the amendment published in Bangladesh Gazette (Ref. February 17, 2005). Whether Petrobangla or the government would regulate such activities is not clear. The most distressing news is that as per BERC Act, the commission is not an autonomous organisation.

The gas sector in Bangladesh is characterised by a peculiar situation. Both the Ministry as well as Petrobangla engage themselves in jealously guarded mechanisms to regulate, formulate policies and execute plans. Petrobangla operates through 9 (nine) operating companies (OCs). But neither Petrobangla nor the OCs have adequate autonomy in operation, not even in the formation of company boards. The OCs have been formed under the Companies Act, but the mother organisation i.e., Petrobangla has not been corporatised. In the past thirty-one years, the idea of transforming Petrobangla (created in 1974 under Petroleum Act, 1974) into a 'holding company' did not materialise. Government seems to be reluctant in making a holding company and subsidiary company relationship between Petrobangla and the OCs. So the issue of autonomy has remained captive in the files of the government. Most material decisions for finance, personnel, and procurement are taken by the MPEMR, sometimes tinged with malice and hostility.

The usual allegation against Petrobangla is that the efficiency with which the organisation should operate is missing. Reportedly, uninspired and unreliable senior management has weakened Petrobangla's operation over the past one decade. The introduction of IOCs since mid 1990s has complicated the situation. And there appears no serious effort to overcome the difficulties by the top management. Now, with the entry of the commission in the upstream, suspicion and uncertainty will grow more between the government and Petrobangla.

Another area of concern is the absence of rules and regulation under the Act, which come into existence under pressure from external agencies. The Act (Ref: Chapter-3, Article 20(3) states that the commission is a statutory public authority, and shall be under the jurisdiction of the comptroller and auditor general. It has been further noted (Ref: Chapter-13, Article 61) that the chairman, members, officers and employees of the commission shall be deemed to be public servants within the meaning of the term public servant as used in Section 21 of the penal code, 1860 (Act XLV of 1860). How come then, "No case, either civil or criminal, or any other legal proceedings, shall lie against chairman, member, officer, employee or a person authorised by the commission in respect of any deed done in good faith as a result of which any person either has suffered loss or likely to suffer loss (Ref: Chapter 13, Article 62)"?

Now, we can perhaps start to think why BERC Act did not dwell on the areas such as the 'objectives' and 'benefits' of the Regulatory Commission being introduced for the first time in Bangladesh. Usually, the role of a commission, among others, is to protect: (a) the industry interest, (b) the consumer interest. The long-term goal has often been to meet at least the cost to the economy through a competitive energy industry -- with a minimum of government intervention. But, there is no perfect model, so each country adopts its own approach. In our case, it is perhaps a foreign consultant driven model -- with a number of inconsistencies here and there. But there has never been a public discussion or debate before enacting the Regulatory Commission Act, 2003.

Nonetheless, it is important to understand that the regulators are entrusted not with policy formulation but with application of laws, rules and regulations that set out its mandate. In doing so, one must also recognise the division of duties between the government (represented by the minister) and the regulator. The basic principle is that neither the regulator nor the minister should step into the shoes of each other. Ideally, the minister translates general government policy into sector policies, mandates fuel stock for national security reasons etc., while the regulator with his licensing tools issues and enforces licences, monitors compliance, and also arbitrates disputes between operators and consumers etc.

Before we move into other vital areas of interest a sentence or two should mention about an open secret. The secret is about USAID and Bruce Mc Mullen. In the recent past, Bruce Mc Mullen took a vow to educate Bangladeshis about the 'advantages' of bringing the energy sector of Bangladesh under a regulatory frame as if the sector was operated in a vacuum in the past three decades. Motivated by a deep desire to assist Bangladesh government, he managed to provide some handpicked expert (PA consulting team) to formulate some debilitating documents relating to the BERC Act, 2003 and also licencing regulations. The best part of his contribution seemed to be furnishing the commission's head office in Dhaka. Hardly anyone ever inquired what is the price paid or to be paid in future for such a gesture!

Nevertheless, to be effective, a regulator must have a degree of independence and autonomy that can be best assured by: (a) providing the regulator with a distinct legal mandate, free of ministerial control; (b) prescribing professional criteria for appointment (under recruitment rules); (c) involving technocrats from relevant disciplines, and also from the executive and legislative branches for fixed terms and protecting them from arbitrary removal (however, not through indemnification).

Many other anomalies can even now be identified under the Act. For instance, arbitrary decision have been made to incorporate a part of upstream and a part of downstream activities (in the commission) of the power sector and also downstream of gas and petroleum sectors, respectively. For argument's sake, we would like to raise a question as to why the government should retain the authority over exploration, production and also the pricing? Why not these aspects be delegated to a refurnished Petrobangla which has already has acquired experience and competence? Why also the ministry must retain the procurement of crude oil and petroleum products? The Ministry does not have any expertise or experience developed on these subjects. Yes, the business of procurement (including purchase) and sale is often a puzzle that attracts the government in many ways.

Yet, it's a pity that through the process of accounting and audit (ex: chapter Article 20), the Ministry intends to subordinate the Regulatory Commission. When Article-20 is read in conjunction with Article-21 (Reporting) the issue would become evident. If the commission is independent, why should it carry out its reporting through the Ministry? Instead, it is recommended that the commission should submit such report or reports either directly to the Parliament or through the Parliamentary Standing Committee to the Parliament to maintain independence and autonomy. Otherwise our earlier contention of no autonomy to the commission holds good, and raise questions.

It is a pity that the donors and even so-called experts from abroad expect that we Bangladeshis must always follow their prescription and remain sick or unhealthy (not die!). Time has come for us to realise that we are able to exercise our common sense and live more comfortably. Our national objectives should relate to stable and affordable price (low) for domestic consumers. Gas price, in particular, should be fixed as per international market price for both domestic and foreign private entrepreneurs, at least to cover the purchase price from the IOCs, plus transportation transmission cost to obtain a win-win situation. The idea is to ensure reliability, economic growth, regional development (both east and west zone), technological excellence, environmental protection and, public accountability.

For all things. It is sad that some overenthusiastic persons have made the creation of the commission more a place for debate than a place for balancing existing irrationalities in the energy sector. Today, affordable, reliable energy supply continues to be a cornerstone of Bangladesh's economic health. No one doubts this. There is, however, a debate -- whether public or private sector can better perform to fulfil this need for the common people of Bangladesh. The energy related challenges we now face, however, go beyond the electricity prices and availability. The power industry in Bangladesh is a large part of the problem and must be an equally large part of any solution. Nevertheless, the regulatory commission must be 'independent' and 'autonomous'.

Otherwise the very creation of the commission will continue to be questioned.

Nuruddin Mahmud Kamal is a retired Additional Secretary to the Government and former Chairman, Power Development Board.