Regulatory relationships - the management perspective

Are regulatory relationships in India well-managed? In fact, are they managed at all? To answer this, one has to go back a little into their history. The establishment of regulatory bodies in India in the mid-1990s marked the beginning of a new phase for various utilities. The requirements of the new regulatory role included internal and external co-ordination by the utility. However, at that time, only a few utilities were equipped to deal with this added responsibility and not enough resources ? financial and human ? were devoted to this function. This was because of the lack of regulatory awareness which, in many cases, led to a lack of trust and understanding between the two. But, over the years, a few service providers, especially the private players, have established divisions within their organisations to deal with regulatory issues. The public utilities, however, still lag behind in taking steps that could help them handle this relationship better. One reason for this is that the public sector utilities are constrained by the imperatives of the owner ? the government ? and the regulator, in its relationship with the public utility, has ultimately to deal with the government. This creates complexities and problems, especially when the government concerned is not fully committed to independent regulation. In a number of instances, it has been observed that the directions issued by the regulators are not followed by the utilities; the reasons for this need to be examined. Is it because they place unjustifiable demands on the utilities? Is the regulator not aware of the complexity of issues the utility faces in such instances? Similarly, is the utility aware of the consequences of non-compliance with the orders issues by the commissions ? consequences that are not only monetary but social, environmental, and so on? Is the utility able to present its views and apprehensions to the regulator in a non-inhibitive manner and in a nondeterrent arena? All these questions need to be addressed to be able to make a success of independent regulation in India. This is where the importance of what management gurus call "relationship management" comes in. Relationship management involves the achievement of attitudes and behaviour that encourage mutual success. Managing a relationship between two parties is the process of ensuring that both can work together to meet the requirements of a business. A regulatory body, by virtue of its role and responsibilities, deals with a number of `stakeholders' and, therefore, has a number of relationships to manage ? with the consumers; consumer representative groups, including residential, commercial and industrial consumers; service providers (both public and private utilities); governments, and so on. None of these relationships is one-sided. There is also no denying that while all these relationships are important, the utility is regulated directly by the regulator. Therefore, one of the most important relationships within the regulatory regime is that between the regulator and the utility. Both the entities face a number of issues in managing their relationship. Before discussing these issues, let us take a look at the benefits of developing an efficacious regulatory relationship between the two. It is important that both the parties see incentives to co-operate with each other. These incentives will be the motivating factor in building a mutually benefiting relationship. For the utility, the incentives for co-operation lie in being able to reduce the extent of regulatory uncertainty. A concordant and harmonious relationship is expected to help the utility understand the approach and requirements of the regulator ? in terms of, say, data requirement, monitoring procedures and compliance processes. For the regulator, such a relationship has the potential of reducing both the information constraints and the level of monitoring. This gains greater importance and cannot be overlooked in the light of the limited resources usually available with the regulators. An element of understanding is expected to develop gradually, enabling the regulator to understand the problems faced by the utility and help the latter contribute positively to growth and development in the sector. One finds that there exist two types of regulatory relationship structures ? formal and informal. If the relationship between the regulator and the utility is very informal and close, there is the danger of it being perceived as `regulatory capture'. On the other hand, if it is too formal, they may be seen as working at cross-purposes and as opponents to each other. Therefore, the right balance has to be struck to be able to make the arrangement a success. Just the right distance must be maintained between the regulators and the regulated, and a co-operative, regulatory relationship model developed between them. However, achieving and maintaining this balance is not as easy as it appears and requires an in-depth study of the dynamics involved.