VOL 20 NO 281 REGD NO DA 1589 | Dhaka, Wednesday May 23 2012

The regulatory bodies need to be made independent

M S Siddiqui in the first of a two-part article on regulatory authorities Bangladesh, like other developing countries, is characterised by low per capita income. Its economic policies have the objective of reducing poverty and improving the well- being of the masses. Therefore, the regulatory endeavours are concerned not only with the pursuit of economic efficiency but also with social welfare goals. This led to a policy shift that involved restructuring of the economy and privatisation of the stateowned enterprises (SOE) including service providers of electricity, gas and transportation etc. The avenues for local and foreign investment were also opened up. However, in order to exercise control over privatised monopolies and dominant players, industry-specific regulators have been introduced. Several sector-specific regulatory institutions have also been established with varying degrees of mandates and autonomy. Nevertheless, the market-oriented economy allows more competition in the markets, and the growing market players have a dominating role in price fixing and supply of goods and services. Among the policy makers and media in Bangladesh, there is a popular view that the commodity market is controlled by 'syndicates'. It is also alleged that 'invisible hand' fixes the price and control the supply of commodities. But a number of researches and studies in commodity market failed to find the existence of syndicates/cartels or monopolies in the market of sugar, edible oil etc. Whether there are syndicates or not, the fact remains the consumers are not happy with the market as very often the poor middle class people are unable to cope with the cost of living, inflation and lower value of their money. The market is not really operating to the satisfaction of the stakeholders. A market-oriented economy does not allocate resources efficiently and produce competitive outcomes, as potential benefits are often thwarted by market- distortionary practices. These usually relate to fixing of prices with rivals, setting a price which is lower than the cost to throw out competitors from the market, taking advantage of a monopoly position and charging unreasonable prices, refusal to buy or supply, etc. So, many countries have made specific rules concerning specific economic activities to hand over certain regulatory authority to independent commissions comprising all possible stakeholders. Where competitive markets are not able to yield desired results, a case is made for some intervention to control prices and quality of products and services. In such situations, the bureaucracy in Bangladesh pursues more control and authority. In this backdrop, the donors and promoters of free economy advocate for independent regulators for regulating and controlling the market. Bangladesh already has established regulating authorities like the Bangladesh Energy Regulating Commission and the Bangladesh Telecommunication Regulatory Commission. There are other such bodies like the Consumer Commission but the citizens are not much aware of their presence. These are yet to

function independently as these are manned by government officials and they do not have financial and effective administrative authority. The failure of the Securities and Exchange Commission (SEC) to regulate the stock market properly is a widely discussed issue in the recent times. The Bangladesh government has long been contemplating enacting a 'Competition Act' which would provide for the establishment of a 'Competition Commission'. The proposed 'Competition Commission' would be headed by a Joint Secretary-level officer while in India, the head of the Competition Commission is a retired judge of the Supreme Court. A commission, controlled by bureaucrats, would hardly be independent nor would it be able to produce the desired results. The mindset of the stakeholders like consumers and businesspersons is also a barrier to set up independent commissions. The regulators in Bangladesh are going to face another challenge in the context of the proposed Competition Commission (CC) under the proposed Competition Act. The CC will have authority over almost all economic activities which render goods and services. In countries like Brazil, Sri Lanka and the Philippines the power to address competition concerns are given to the respective sectoral regulators. In Canada, South Africa and the UK powers are shared between the regulator and the competition authority. Procedural rules of defining the responsibilities of both the competition authority and the regulator are governed as per the provisions made in the respective legislations. In South Africa and Canada, it is handled on formal basis, i.e. it is governed by a memorandum of understanding. Bangladesh will have to select any of these methods to address the possible future conflict of authority among the regulators. The operating premise is that the regulatory framework must be transparent, consistent, effective and independent of the government. An important factor that calls for regulatory intervention in all sectors that are opened up for other players is 'access to essential facilities'. Another reason is that while markets can be expected to bring about equilibrium between 'need and supply', it is desirable from a social point of view that all consumers, regardless of their income status, have access to goods and services. Markets for services must be created by dismantling the existing public sector monopolies and must be regulated properly to either eliminate non-market risks, or to at least minimise the same through a predictable legal regime, making the public sector more accountable for their activities. The consumers should not be forced to pay higher prices for inefficiency and corruption of government officials. The existing regulators in Bangladesh are not independent of their financial, administrative and regulatory authority. The government in Bangladesh prescribes salaries and other terms and conditions of service of regulator's staff. Some of the commissions may suggest to the government the number, nature and categories of the staff, but these are determined with the approval of the Government. In the 1990s, many regulatory authorities, both in developing and industrialised economies, were set up and existing ones restructured. Both the developed and developing countries are passing through a phase of transition and the dynamic process of fine-tuning or adjustment continues in this period. It is desirable to maintain a safe distance between the regulators and the concerned ministry to ensure that the latter does not unduly influence the former. There are many good examples of truly independent commissions in many countries. In the UK, for example, the communication between the ministry and the regulator is carefully regulated and made public so that it is always clear who is taking which position. The new South African telecom regulatory law also explicitly provides for the regulator not to get influenced by the ministry. In Brazil, regulatory legislation does not provide for the ministry to allow it to supersede the decisions of the regulatory

agencies. In Philippines, the energy regulator appears to be more independent compared to its counterpart in the telecom sector; the relevant ministries are not, however, entitled to issue directives to the regulator in either case. The writer, part-time teacher, Leading University, is pursuing PhD in Open University, Malaysia. E-mail: shah@banglachemical.com