Source: biz.nv.ua
The state regulation in Ukraine is an extremely important point, which is necessary to balance the interests of the state, businesses and the society.
But sometimes, this regulation can be obsolete and no longer serve any purpose while being determined by laws, some of which have been developed over decades ago.
The Better Regulation Delivery Office evaluate the “working life” of this regulation, not only the existing one, but also the regulation that will enter into force. A good example of the last-mentioned regulation is the creation of a new independent regulator in Ukraine – the National Commission for Regulation of Energy and Utilities (NKREKP), the formation and future regulatory measures of which cause certain concerns.
The new Law “On the National Commission for State Regulation of Energy and Public Utilities” adopted by the Verkhovna Rada is written in such a way that the energy-sector regulator is out of the philosophy of the “adequate” state regulation. This is in terms of not only the mechanism and procedures to prepare regulatory documents, but also the general philosophy. It seems that established provisions on its activity lack the reasonableness. According to the adopted law, the energy-sector regulator is independent to such an extent that it is not obliged to carry out, in particular, the appropriate procedure to approve new regulatory standards.
“If something is too much, it can not be rational”
Actually, a regulator that is not controlled by anyone or anything and doesn’t fall within any procedure is a threat to the business. It can introduce a new regulation for the market and, consequently, for market participants tomorrow or the day after tomorrow. If the business doesn’t accept it and it is unnecessary, costly and burdensome, the business will be no longer able to appeal to the State Regulatory Service to complain on a new document, organize working groups and meetings to discuss everything. This is because now the regulator won’t get approvals of this service.
However, there is also an argument “for” such independence: the regulator should quickly respond to the “challenges” of energy markets and provide an appropriate reaction.
And as it is accepted in the world, the independent energy-sector regulator should really quickly make decisions on tariffs and numbers. In this case, it should really be independent. However, main elements of these immediate decisions are just the tariffs. Previously, the regulator had the right not to adjust tariffs, except one category – the tariffs for the population; the adjustment procedure was time-consuming just like all pricing decisions for this group of customers (there were delays in making decisions, for example, when the Ministry of Justice stopped the rates of standard connection to grids at the level of numbers, but their approval was necessary since it also applied to individuals).
Therefore, being out of procedures for the approval of new regulations means having no control at all. A long procedure to adjust decisions (it takes about three months) has certain arguments “for” in this case. This guarantees a minimal quality of legal documents. But the question is whether we need the quality.
So, we have reduced or no influence of government bodies or market participants, not only the Ministry of Justice and the SRS, but also the business, on decisions made by the regulator. If this regulator is politically motivated – there is even a risk of influencing the energy market to protect one of the market participants and fight with their competitors through the regulator’s activities.
Another example of a possible situation with no control is a licensing issue – the law assigns this activity entirely to the NKREKP. However, as neither the Cabinet of Ministers nor the Ministry of Justice will have any influence on regulator’s decisions, the court will be the only branch of government, which can take decisions on the legality of licensing activities of the energy-sector regulator. I think there is nothing to say about the nature of our court system.
However, this practice is used in the US, there only the judicial authorities remain supreme with regard to the regulator as well. But we can not compare the current state of public consciousness in Ukraine and the US. It is also difficult to compare the American judicial system and ours. Our citizens are often afraid to go to court, and we still don’t have this legal culture. Ukrainian companies don’t believe in the fairness of courts. Moreover, any appeal to the court is a serious time lag. Therefore – the NKREKP’s decisions taken in a rush, which can be questionable, won’t be quickly cancelled.
“House without foundation”
In addition, there are many defects in the process of preparing the legal framework for the independent energy-sector regulator.
You will be surprised, but such a body as the National Commission carrying out the state regulation of energy and public utilities is not provided for even by our Constitution. Those legal acts regulating its activity didn’t take into account all details of its work and ensure the independence of the regulator while promoting the existence of many corruption risks. And now the work was done to provide Ukraine with a relevant law and consequently – with a new energy-sector regulator. The saga of preparing, considering the document in committees, making amendments, submitting to the session hall and voting in the Parliament took almost 2 years. Finally, the law was adopted in this September. As a result of dozens of discussions, more than two hundred amendments were made in the original text of the draft law while it was being developed. And political details concerning whether the regulator should be fully independent or controlled by someone and who it is were the most points of the amendments discussion.
As a result – the law was adopted with compromise decisions, but is it the foundation that will eliminate significant corruption components and keep the balance of interests of the state, businesses and citizens?
Maybe. It is true that the level of responsibility of the NKREKP chairman and members, who are the people making decisions, increases significantly, and there is a problem of the quality of new regulator’s decisions and the effectiveness of our judicial system in case of abuse.
“Brothers of such independence”
In Ukraine, there is an example of such “independence” of the regulator. This is the National Bank. If the NKREKP is independent to an extent that it is not controlled by either the Cabinet of Ministers or the Ministry of Justice when it comes to adopting regulatory decisions, there will be some aspects existing now in the NBU.
The first aspect. If the regulations become effective after their registration in the Ministry of Justice, you can found them in this registry and learn – when exactly some or another regulation becomes effective. There are no NBU’s acts in this list – as it is independent of the Ministry of Justice. So, it is difficult and burdensome to understand when this regulation came into force.
The second aspect. The Ministry of Justice has a clear procedure for registration and inspection of regulations for the compliance of a new regulatory document with a body that it adopts. In addition, professional methodologies who understand the mandatory attributes that legal acts should include are working in the Ministry of Justice. If the document has these defects – the ministry sends it back for revision. And finally, the Ministry of Justice checked the documents for grammatical defects, and the NBU’s acts and President’s decrees, which are not approved by the Ministry of Justice, contain grammatical errors in the text of documents very often. In particular, there is a very famous life example, when the NBU reported about a good news on cancellation of a passport in currency transactions in the evening. The next mornings, banks received a new instruction, where it was put down in black and white that a passport should be shown. Then it turned out that a rapid decision just lost a particle “no” and they needed to amend it.
The third aspect. According to the adopted Law on the energy-sector regulator, this body will have its own rules to publish and approve new regulations. Will the regulator follow these rules and take into account reasoned comments and proposals – this is an open question.
So, we face with the question again – can we afford this full and unconditional independence?
Probably, we can, but only from the time, when there is a healthy competition on energy markets and transparent tenders, no thefts of funds when implementing investment programs of energy companies, when controversial decisions in the energy sector just like, for example, decisions on transformers for Ukrenergo or Rotterdam + formulas, become a thing of the past. After all, we pay out of pocket for these decisions – all these things affect a final cost of energy resources.
And most importantly, when the regulation is predictable and quality, when its effectiveness is determined even at the time of its introduction, when this regulation is balanced both in terms of businesses and consumers and the need for its implementation is reasonably shown in public.
Finally, an independent regulator is an example of the Western model of regulation of natural monopolies, which has been developed on energy markets for a long time and approved that it could be effective only if the regulator’s decisions are not subject to any influence, while being professional and balanced. Everyone concerned should ensure the control over the regulator – whether they are energy market representatives or consumers of energy resources, who we all are. It is possible to achieve a positive outcome only this way.