PUCSL - a requirement to protect the people : Moragoda

COLOMBO (News1st): Concerns have been raised on moves to abolish the Public Utilities Commission - an institution a former minister described as a requirement to protect the people. Former minister Milinda Moragoda tabling the Public Utilities Commission bill in Parliament in 2002 had cited the legislation as a requirement to protect the people while offering high-quality utility services.

"We need this bill because we need to provide for consumer needs for electric power and water as well as protect consumer interests," he said in Parliament.

Moragoda observed that the bill would aim at using the country's resources wisely, efficiently, and economically through a public utilities commission that operates across ministry lines. He insisted that the PUCSL would act independently without working towards the interests of a particular industry, while also contributing to the idea of transparency. "The public utilities commission is also the mechanism to remove arbitrary, capricious, ad hoc decisions related to pricing taken with little or no relation to market forces or market prices," the former economic reforms minister said. Accordingly, he argued that setting up the PUCSL would ultimately contribute to the country's economic recovery and sustain economic growth. He had also observed that several analytical studies carried out by leading local experts have reiterated the need for an independent regulatory commission in the country.

Read full speech of former minister Milinda Moragoda in Parliament on October 8, 2002.

Mr. Speaker, Today, before this house I have the honour to introduce the bill which would establish for Sri Lanka a Public Utilities Commission.

My focus today is conceptual, related exclusively to the fundamental role regulatory commissions play within a market economy. I will not here attempt to debate the merits of a market economy. This I believe is done often enough in this house.

For now, we have an important decision before us, beginning with an important question.

So, Mr. Speaker, why do we need this bill?

Ultimately, we must consider ours success based on the same criteria as the people we serve. Jobs and fast-paced growth. When we do, we go to the heart of this bill, Mr. Speaker. This government and this house have committed to new jobs. Yet, we cannot seriously talk about jobs and fast-paced growth, and then shortchange that effort by depriving our country of the necessary pre-requisites. This bill provides one of those necessary pre-requisites.

So, as we consider this bill, let us also consider the relationships at work.

This Public Utilities Commission Bill represents a consensus, the best thinking coming from the line ministries and outside experts, local and foreign. Others contributed technical expertise as well as case history experience from other countries useful to our situation. And very importantly, this combined effort has been written to anticipate, and complement other utility bills to be introduced by other colleagues, including the Electricity bill.We need this bill because we need to provide for consumer needs for electric power and water as well as protect consumer interests. Even before we can provide and protect, we need to promote investment, because investment leads to an industry that is motivated to produce affordable, reliable, high quality service island-wide. What we can provide, we can then regulate to protect consumers from abuse or mistakes even as we provide the environment conducive to investors meeting their needs. Finally, we also must address these needs from a policy and structural perspective that considers both the overhead costs and the quality of the regulatory function itself. In the end, investors must be confident before they commit money to a project with a 15 year to 20 year payback, the utility and the consumer must have a fair, transparent, consistent, and professionally-managed process to determine rates based on costs, not guesswork.

We believe the public utilities commission bill creates the regulatory framework we need to motivate investment in utilities, to protect the consumer, and to define the legitimate roles for each of several government authorities, beginning with a new commission. The bill will assist in creating a framework for producing reliable and affordable services. And, the bill will contribute to our economic recovery now and sustain our economic growth later.

We have learned from our experiences like in telecommunications, we also have learned from our mistakes. I need only mention the case of Liquid Petroleum Gas to suggest how we can go an opposite direction if we are not careful.Already we can see benefits which accrue to the people we serve in our experience with telecommunications. Mr. Speaker, many members here today participated in a telecommunications effort which spanned several governments, and for all its complexity, had a simple criterion for success. What was that criterion? Simply this. Would the bill and its regulatory authority create an environment leading to high quality, reliable service, accessible island wide? The answers you already know.

This bill before you takes great care to create an independent, professional, and transparent regulatory function by virtue of its structure, duration of appointments, qualifications of the commission members and its professional staff, and all of which, Mr. Speaker, leads to a commission independent from industry, and accountable to this house.

As well, the bill provides appropriate links to other, relevant organizations, particularly those protecting consumer rights. Finally, the bill provides an open-ended feature, such that, in time, when your house decides, the public utilities commission can assume and perform similar regulatory functions for utilities beyond electricity and water.

This multi-sectoral feature, Mr. Speaker, is also important for three very practical reasons.

First, there is a documented worldwide shortage of professionals competent to deal with regulatory matters. We must admit, Mr. Speaker, a previous mistake related to transport regulation. We need not here and now review the details, but we know very well, the conclusions.

We use this experience to underscore the advantages of this multi-sector approach one feature of which is to recognize the scarcity of the skills we need.We overestimated our local capacity to staff and to manage a professional regulatory agency, and we underestimated the difficulty for those we appointed to perform these duties. As a result, lack of proper, effective, efficient regulation compromised a very good idea.

A second, practical reason for the multi-sectoral approach, Mr. Speaker, is that it provides a lean regulatory structure. The fact is that our government sector currently employs nearly 850,000 people. On a per capita basis, we have one of the largest government sectors of any country in the world. The government sector currently accounts for 27% of our gross domestic product. So, the solution, Mr. Speaker, and an important feature of this bill, is to use our resources wisely, efficiently, economically. How? With a public utilities commission that operates across ministry lines, and Mr. Speaker, can expand on that basis. Adding multiple commissions makes no sense. We cannot afford it, we would never be able to recruit proper staff, and we would only add to an existing problem.

A third practical reason for a multi-sector approach, Mr. Speaker, is the independence of the proposed commission. A multi-sectoral approach creates and preserves a balance that is key to avoiding problems at the start, or perceptions of problems later, with a commission "too close" to a particular industry's interest. That is why we have worked together with the line ministries to achieve a bill which has the advantage of an "arm's length" relationship that prohibits a crossover from management to regulation.

So, Mr. Speaker, as this house considers this bill, what are we really deciding? We will be deciding our optimum solution based not on opinion, Mr. Speaker, so much as a solution that is a function of technical expertise and experience, both our own and that from elsewhere.

Each of you here today can read this bill yourself, so I will spare you the details of the provisions which are clearly laid out in the draft before you. Instead, Mr. Speaker, I would appreciate a few minutes to cover, what those who contributed to drafting this bill, believe are its merits, and on that basis, urge quick approval by your house.We are unique, but so is every other country. Maybe that sounds trite, but it is true. We need to define our problems, solve them, applying the lessons learned, those best practices as we know them. That is the task before us, the criteria we should use to evaluate ourselves and this bill before you.

What are the merits of the bill? Mr. Speaker, the bill is 40 pages in length, but we can reduce those 40 pages to three simple words and still do justice to the bill's objectives. Those three words are: provide, protect, prevent. We must · Provide for basic needs · Protect the consumer, and · Prevent distortions on either side of the cost to the consumer, cost of production equation.

Let's consider them one at a time.

First, provide.

A power utility that only delivers electricity part of the day, and even then unreliably, causes businesses and consumers -- who can afford them -- to buy generators to compensate for what the utility does not deliver. This adds to costs, disadvantaging small business, big businesses, and households, alike. All face the same problem in their own way, whether it is a small business trying to make ends meet, or parents worried about a child with no light to study by.

Efficient utilities are a pre-requisite to sustained economic growth, employment, and income. All we need to do to see the effects, the good and the bad, Mr. Speaker, is to look, to compare the experiences of other countries, and then ask, what do we want for our country.So, as much as this bill is about regulatory reform, it is also about jobs, those we already have, and those we must create and about conditions in the home. The government is committed to creating new jobs and fast-paced growth. The cost of utility services is an important component to the cost of production, to the cost of goods and services, both at the firm level and across the economy as a whole. And, who among us would condemn a child to study in the dark, Mr. Speaker?

In some countries, Mr. Speaker, low cost electricity is more illusion than a reality and has become, in many, a national joke and a perpetual drag on the economy which, in turn, keeps investors away.

Elsewhere, we can see some countries awash in oil but unable to supply electricity on demand because power stations fail, a result of a declining physical plant, in turn, the result of no incentive to invest. As a utility continues to decline, some governments keep costs low to please the public, beginning a downward death spiral. Then, any cost passed along in return for poor service is perceived as "too high."

Gradually, as the cycle worsens, consumers and businesses alike adjust to the added cost of generating their own power, with the associated, additional drags on the economy of buying fuel, inconvenience, even adding to environmental problems as more fossil fuels are burned. The illusion of "low cost" electricity or water comes back around as a problem of reliability, which individuals become forced to solve on their own.

What we have before us is a balancing act, Mr. Speaker. The industry's lead time for power generation, as we all know, is measured in years even as our demands grow, according to a study in July 1997, at between eight and 10% per year.And, who becomes accountable in such a situation, Mr. Speaker? We cannot endlessly defer this problem rather than address it as we do today, starting with the bill before you. I must emphasize, Mr. Speaker, that this is only an installment on the future, not the future itself. Other, related bills will follow, as you know.

So, we face needs that spiral up, costs that spiral up, and debt that spirals up. In the past, the government has contributed approximately 15% to 20% of this investment, the rest has come from loans from the so-called donors, usually when a crisis is reached. If we plan to put our proverbial house in order, we must act, we must take a step toward an regulatory environment that is predictable, that provides the framework for investment necessary to meet needs we cannot meet, and in fact, would be foolish to attempt meeting on our own.

We must make the case for investment if we expect to meet this need, and a major part of this case is inherent in the bill before you. Utilities must recover their costs, plus the necessary margin to keep them in business to serve their customers, no more and no less, and certainly, consumers must know they have protections.

This public utilities commission is the mechanism to accomplish both.

The public utilities commission is also the mechanism to remove arbitrary, capricious, ad hoc decisions related to pricing taken with little or no relation to market forces or market prices. The public utilities commission is also the mechanism to introduce long term stability into the decision making process on both sides of the production equation, the utility side, and the consumer side. What are we talking about, Mr. Speaker? A mechanism to take substitute facts for guesswork.

So, protect. Protect whom, Mr. Speaker? The consumer, meaning, anyone who consumes power or water, anyone who expects service and who pays a bill. Mr. Speaker, in the interest of protecting the consumer, we cannot afford to slip from a bill intended to create a regulatory framework and into a bog of detail, trying to anticipate every eventuality because then, all of us become managers rather than policy makers.So, let us recall our three words again. Provide, protect, prevent. Our first word -- provide -- makes it possible to discuss our second, protect.

Our task before us, and the task we should measure ourselves against is not about detail, it is about creating a proper framework, in full cooperation with our line ministries, so that we can provide a means to deal with detail, and on a professional basis, not a political basis.

Let us consider then how this bill protects consumers, and it protects them two ways.

First, protection comes from provision. Consider again the telecommunications example you know very well. When hook-ups become available, bribery diminished, and what had become a privilege returned to being a service because the conditions leading to corruption had changed.

What conditions, Mr. Speaker? The telecommunications bill and support coming from past governments and this house, changed conditions from an artificial, shortage of supply to an increased supply, and thereby, removed the need for corruption. Remove scarcity from the equation, expand the supply of a commodity, make it available to all, and in this instance, you also solve a corruption problem along with reducing or eliminating the cost of policing it.

Second, protection comes from the right regulatory mechanism -- the public utilities commission -- composed of competent professionals, independent of both the industry and political influence, to review consumer issues, hear and adjudicate complaints, and in time, Mr. Speaker, establish a body of precedents which will serve as both principles and benchmarks useful to rulings.

The need for an independent regulatory commission, Mr. Speaker, has been repeated in several analytical studies by Sri Lanka's leading experts.

In study after study, experts identify two weaknesses relative to both "provide" and "protect". Analysis of price data itself, and then, an independent regulatory commission to rule on the correlation between costs and prices charged.

We know from these studies that we lack analytical data on both the cost of production as well as consumer use, leading to a void concerning both planning and an understanding of consumer use patterns.

This leads to a situation where, lacking data, planners do not know future capacity needs, nor do regulators have any idea of appropriate rate structures. Consider this: in developed countries, you have peak and off-peak charges. This makes sense. Charge more when the demand is high -- this causes all of us to conserve -- and give back when the demand is light, so as to help even out the load at the production side.

We have not been successful at managing these complexities. Mr. Speaker, but again according to industry studies, errors related to time-of-day tariffs and surcharge confusion have remained part of rate structures, some mistakes for a decade, even after identified. Were a public utilities commission in place, a consumer, a business, -- anyone -- could have filed a complaint before the commission, asking for a ruling.

With a competent, professional, public utilities commission to rule on such matters, utilities -- speaking now of electricity, water, and those others that may follow -- will be motivated to price its service and pass along efficiencies if in fact the utility can demonstrate these to an authority who has the power to issue a ruling.In the recent months the Hon. Minister of Power and Energy has been working hard to correct this and other anomalies. In my view his is one of the most challenging tasks in our government.

Mr. Speaker, until we have a proper public utilities commission in place, we have no such authority to motivate the producer and reward the consumer by passing along benefits. How can we when we do not know what the benefits are? How to price them?

We know from studies that in most countries where the electricity market remains a monopoly -- state-owned or otherwise -- a strong regulatory mechanism, including public hearings concerning utility proposal for tariff revisions, remains in place. This means that successful countries separate the regulatory function from the industry itself in order to assure fair rulings and a proper tariff structure, with professional oversight to manage the process. Not only have we lacked such a mechanism to assure fair, professional decisions, we have approached tariffs with the provider assuming the roles of witness, judge and jury when it comes to issues and pricing.

Mr. Speaker, with the public utilities commission bill, we simply acknowledge a long-standing need, a recognized need, a need which when satisfied will serve the producer, the consumer, as well as the line ministries. All can demonstrate a competence and a transparency for a pricing process that is common to developed countries because it works. Most important, we will have done the intelligent thing on our own behalf. Right now, we are operating with a blindfold, and we must remove the blindfold. Unless we do, we take a step back, not a step forward toward the efficiency we must have from this sector, and creating the conditions toward greater prosperity for all.

There is a word to describe what we are here, today, to do, as your house considers this bill, Mr. Speaker. The word is stewardship. Whether as a member of this body, or as a minister, we share an obligation by virtue of the jobs we hold. We are stewards of a public trust. I do not believe this is new to any of us, but it is important to remember. We sometimes must take the tough but necessary decisions to keep our economy, our country on track toward recovery.Again, Mr. Speaker, this Commission, in time, will contribute to the idea of transparency. For the moment, we lack certain benchmarks, and it is impossible to get them unless we provide the mechanism and invest that mechanism with the independence it needs to perform its job, including the ability to levy licenses and collect fees. It does no good to talk about independence and make the commission beholden to us financially, accountable yes, but beholden, no. Securing the financial independence of the Commission is fundamental to securing its integrity.

In 2001, according to The Global Competitiveness Report, Sri Lanka ranked 61st in the world) for electrical cost, meaning that electricity per kilowatt hour was cheaper in 60 of the 75 countries surveyed. This puts Sri Lanka at a competitive disadvantage from an investment perspective.

The same report ranked Sri Lanka 58th in the world for industrial water availability, and 60th for tap water safety. So, we do no better from a humanitarian and social perspective.

Obviously, companies need to recover costs in terms of what they charge for products. Higher utility costs must be offset for products to remain competitive. This exerts a downward pressure on wages and resources available to plough back into the business. In short, the higher costs are offset, in part, by a lower wage structure. Reduce utility cost, and companies have the flexibility to increase wages, offer training, reinvest.

When we talk, as the Prime Minister has, about Regaining Sri Lanka, he means the recovery that comes following peace, the recovery for time lost since we stood, toe-to-economic toe with countries in our region. They are challenges for each one of us. These are not abstract goals. On the contrary. We are talking about something very basic. We are talking about a better standard of living for all. To achieve that, we need to create wealth, and we need to make sure that people have both the means and the access to participate in our economy so that they can all share.

Is a public utilities commission a panacea? No. It is a process, no more, no less. It's not perfect, no process is, certainly none of us are. But, it is progress, it is essential to a regulatory structure which is, of itself, a pre-requisite to jobs and fast-paced growth.

This bill today speaks of a framework necessary to maintain and build services fundamental to a decent standard of living. We cannot achieve this overnight, maybe even over the next decade for everyone. We can, however, begin in the right ways. This is one of the right ways.