TATA INSTITUTE OF SOCIAL SCIENCES

SCHOOL OF HABITAT STUDIES

Assignment for Fulfilment of 1 credit course:

REGULATORY CLINIC REPORTS

Prerna Mathur (M2019RG010)

Regulatory Governance
1st Year
 Contents of Regulatory Clinic Reports

1. Securities and Exchange Board of India (SEBI) Visit

(14th January 2020)

2. PRAYAS Energy Group

(17th January 2020)

3. Maharashtra State Electricity Regulatory Commission (MERC)

(4th February 2020)

4. Fonterra Future Dairy Private Limited

(20th February 2020)
 Securities and Exchange Board of India
(SEBI)

14th January 2020

(Tuesday)

The office of Securities and Exchange Board of India (SEBI) office was visited
by our batch on 14th January 2020 as a part of our 1 st Regulatory Clinic. SEBI’s
office is located in Bandra-Kurla Complex, Mumbai (Maharashtra).
Mr. A Ranjan (Assistant General Manager, SEBI) took our session which lasted
for about 2 hours. The session was a Presentation aided interactive one.

IMPORTANCE OF THIS CLINIC

Financial sector since the beginning have been an efficiency regulated sector in
comparison to the other sectors. This Regulatory clinic in this context holds
importance for us in the form that we as regulatory governance students got
glimpse of what comprises of the securities market and how the speculative
market works. This in today’s times become more important when were see
such a volatility in the market due to the global pandemic and also
cryptocurrencies’ ban being lifted by the Supreme court.

ABOUT SEBI
Securities and Exchange Board of India was constituted under the SEBI Act
with the main motives being trifold:
 To protect the interest of investors in the securities market
 To promote the development of the securities market
 To regulate the securities market and the matters connected therewith
For efficient discharge of its functions and fulfil its objectives as stated above
SEBI draws its powers from the underlying legislative act, the SEBI Act of
1992 which was formulated under the Ministry of Finance, though the body was
constituted earlier back in 1998 but the act was passed in the year 1992 only.

Functions of SEBI:

 Development - to develop market place to raise capital and invest in an easy,

fair and efficient manner which includes Framework for raising capital/debt,
facilitate corporate restructuring, trading and clearing mechanism, norms for
corporate governance, introduction of new products in the market.
 Protection – to protect the rights and interest of investors by providing them
with financial literacy, mandating the disclosures and maintaining
transparency.
 Regulation – regulating the registration of intermediaries, code of conduct
for market participants, certification of associated persons (namely
employees of intermediaries) market surveillance, inspection of
intermediaries, Investigation of securities market frauds, enforcement actions
against defaulters.
 ABOUT THE SESSION
As mentioned earlier Mr. A Ranjan took our session aided by the PowerPoint
presentation which was preceded by a brief introduction of our batch and the
academic backgrounds. Our session with him began on a very interactive note
with questions of general awareness and mathematical sums on basic financial
operation (compound interest, simple interest). Post that light ice breaking
session he began with the discussion about different regulators in the financial
market namely:

 RBI: Banking Sector

 SEBI: Securities Market
 IRDAI: Insurance Sector
 PFRDA: Pension funds Sector
After summarising the role of other
regulators of the financial market, he
then came on to discuss SEBI’s role and
other regulatory aspects which included
understanding of primary and secondary
markets, main functions performed by
SEBI, regulatory reforms initiated,
technological innovations, functioning
of derivative market, role of SEBI in
minimising frauds and further grievance
redressal functions.
While discussing about the importance of funds for any regulatory body Mr.
Ranjan highlighted the fact that SEBI being the only regulator of the securities
market raises a funds by levying fees on the market participants thereby has
financial autonomy.

Mr. Ranjan then elaborated in detail about

the specificities of securities market and
also took time to highlight the financial
logic behind the terminology that we
come across when we speak of capital
market like Market Capitalization, Bond Market and Mutual Funds working.
Mr. Ranjan discussed in detail about capital, commodities and derivatives
market. We also discussed SEBI’s role in responding to dynamic market
situations and the ease of adaptability to the concerns of various differing
stakeholders. SEBI has been a part of Indian growth story by contributing to
economic growth by channelizing savings into investment. While serving as a
platform for raising finance alternate to bank finance, it has also played an
instrumental role in diversifying risk.
Since a lot of topics were touched upon the session became very informative
and knowledge loaded.
We discussed in detail about the change in scenario post the LPG Reforms of
1991 since SEBI did not have legislative backing then and then went on to
highlight the gains the market has observed post the formation of SEBI in the
form of greater in the trading of securities reducing opaque trading system and
restricting market manipulations. He elaborates on the working of market
participants and intermediaries pre and post the formation of SEBI and how the
investor interest is more secured now. He especially stressed on
Dematerialization process and how it has helped in increasing Transparency in
all transactions through mandatory information disclosures. Mr. Ranjan also
impressed upon the reforms processes being followed by SEBI like Quick
Listing procedures, Account Period T+2 Settlement on Rolling basis.
The SEBI (SCORES) which is the technological innovation by the body to
address the grievance redressal was discussed in detail in the session since we
being the students of regulatory governance, tools like these helps the regulatory
body get the necessary feedback it requires to regulate the market in a more
efficient manner. He also discussed various proceeding by SEBI and the actions
taken on the cases reported through SCORES.

. TAKEWAYS FROM THE SESSION

 We got the basic understanding of the powers, functions, structure and role
of SEBI in the light of it being a regulatory body and the difference its
existence creates for the financial sector as a whole.
 Leant the importance of principles of transparency and accountability in
working of financial sector regulators in efficient discharge of their
fiduciary duty.
 Understood the importance of is dynamic responsiveness of the regulator
like SEBI for the discharge of its functions.
 Importance of financial autonomy and resource availability for the
regulatory body is vital for it to deliver its functions in an unbiased manner
without external interferences.
 Relevance of a feedback loop in the system, in this context the SEBI
SCORES to not only handle the grievances but as also leads to enhanced
adaptability of the regulator.

Prayas Energy Group

 17th January 2020
(Friday)

The office of Securities and Exchange Board of India (SEBI) office was visited
by our batch on 17th January 2020 as a part of our regulatory clinic. Prayas’
office is situated in Kothrud, Pune (Maharashtra).
Ms. Ann Josey (Senior Research Associate), Ms. Manabika Mandal (Research
Associate), Ms. Shweta Kulkarni (Senior Research Associate) and Mr. Ashok
Sreenivas (Senior Fellow) took our session that was presentation aided and
involved real life data monitoring systems used by them.

IMPORTANCE OF THIS CLINIC

Prayas as a policy advisory group holds relevance in today’s energy sector with
the demand for electricity increasing at a very fast pace, increasing resource
crunch when it comes to non-renewable sources of energy, increasing
sensitivity of environmental issues in the society, innovative methods of
electricity theft are also being devised by people and DISCOMs burdened with
huge debts. This regulatory clinic helped us in understanding the electricity
sector from an angle where policy formulation takes place and how real time
data is used in further assessment and designing the regulatory framework for
the sector.
ABOUT PRAYAS
Prayas is a non-governmental, non-profit organisation based in Pune, India.
There are four groups under Prayas that works on different sectors and issues:
health, energy, resource and livelihoods, and learning and parenthood. Prayas
is also recognized as a Scientific and Industrial Research Organization by the
Department of Scientific and Industrial Research, Government of India.

Major Contributions of Prayas :

 Institutionalizing transparency, accountability and public-participation in

power sector regulation.
 Catalysing and strengthening civil society interventions in the energy
sector.
 Exposure and early warning of inefficiencies.
 Innovative policy analysis and solutions.

ABOUT THE SESSION

The session was very systematic and meticulous. As mentioned earlier, it was
supported by power point presentations along with real world examples.
The first session was taken by Ms. Ann Josey where she introduced us with
some fundamentals of electricity and the foundation of Prayas, where she
mentioned how it actually consisted of 3 sub-groups. A brief explanation about
Health group and Livelihood group was also given.
Then she told us about the Energy group and emphasised upon the energy
group’s role of ensuring democratization of energy sector in our nation focusing
on the ambition of sustainable development of the country.
She told us about the primary aim of Prayas, i.e. to represent the public interest
at large as the different stakeholders involved in this sector have their own
lobbies to meet their interests and solve their concerns. She also explained about
the methodology that Prayas follows. It aims to come up with practical solutions
and correctives to existing problems and promote efficiency in the sector. Some
of the examples are electrification, supply quality and affordability.
The next session was taken up by Ms. Shweta. She explicated some policies that
involved analytical research done by Prayas. Prayas did evaluation of RGGVY
(Rajiv Gandhi Grameen Vidyutikaran Yojana) and DDUGJY (Deen Dayal
Upadhyaya Gramin Jyoti Yojana) policies. They mainly focused on the
loopholes in these policies. First, she told us about the purpose of these policies
and then how people were able to bypass them through some blind-spots.
Prayas gave following suggestions:
 Annual Consumption limit over free connections
  Dis-incentivize minimum fixed charge components in Electricity Tariff to
ensure affordability.
 To engage with authorities for fixing model standards of performance to
ensure quality of supply.
Further, she displayed a live data related to a pilot project, ESMI (Electricity
Supply Monitoring Initiative) of smart metering that was being run in my home
town i.e. Kanpur District.
The next session was taken by Mr.
Ashok. He told us about the energy
sector from the perspective of
generation. In this, he elucidated the
role of different sources of electricity
generation, mainly coal in India. He
talked about solar power generation
using rooftop solar, solar agricultural
pumps, etc., specially community
solar grids (or micro solar grids) along
with its working. The main focus was
on Coal or thermal power in India’s
electricity generation, as it has a long
history and different challenges like productivity and efficiency of quality of
coal we use and its comparison with import quality coal.
Further, he told about Prayas’ involvement with the coal sector in recent years.
Prayas engages mainly two activities, i.e. criticism of government policies and
actions along with their effect on the sector, and governance of the sector.
He also told us about the Governance Lapse in this sector that led to NPA
problem in financial sector that had effects till 2012. One more example was the
policy “Shakti” which he appreciated and how Prayas found aperture in it, i.e.
the preference of public sector at the cost of private sector. Hence, the scheme
was good on paper, but had some issues in practicality. Also, some shift towards
renewable energy is seen which has its own issues.

TAKEWAYS FROM THE SESSION

 The role played by organisations which are not a part of the formal
regulatory system are crucial in framing the regulations.
 These influences provide valuable input to the regulatory authorities, for
example: ESMI. They act as a good source of information for the
regulator.
 Such inputs are based on a more bottom up approach where real are inputs
are gathered.
 The regulatory bodies should encourage such initiatives to get a more
realistic picture of how the sector works
 Maharashtra Electricity Regulatory
Commission (MERC)

4th February 2020

(Tuesday)

The office of Maharashtra Electricity Regulatory Commission (MERC) office

was visited by our batch on 4th February 2020 as a part of our Regulatory Clinic.
MERC’s office is located in Mumbai (Maharashtra).
We visited the Commission for a Public Hearing at the Centrum Hall, Centre
No. 1, World Trade Centre, Cuffe Parade, Colaba, Mumbai at 10:00 AM. In the
public hearing, some very renowned panellists were present like Mr. IM
Bohari, Mr. Mukesh Khullar, Dr. Ashok Pendse and many other MERC members
and those associated with BEST and Adani. The public hearing mainly focused
on the issue of Turning-up the Aggregate Revenue Requirement and Multi Year
Tariff of BEST and Adani Electricity.

IMPORTANCE OF THE CLINIC

Electricity Regulatory Commissions play a very important role in the electricity
sector: a sector with ever expanding new users, differing energy requirement of
different types of consumers and their own set of challenges. With bodies like
Central Electricity Regulatory Commissions (CERC) and State Electricity
Regulatory Commission (SERC), established as per the provisions of Electricity
Act, the regulatory functions are discharged. In this context, our regulatory
clinic to MERC becomes relevant to understand the regulator’s role in the
regulatory regime. This clinic made it possible for us to understand various
facets like sensitivity of tariff determination as a function and the role of public
hearings in holding people accountable.

ABOUT THE SESSSION

We attended 2 Public Hearings as a part of our regulatory clinic in the
electricity sector in MERC:
 BEST Public Hearing
 Adani Power Group Public Hearing
“Public hearing is used as a tool for public consultation to ensure their
participation in the decision making process of the Regulatory Commission.”

BEST Public Hearing:

In this case matter of BEST in truing up of ARR for FY 2017-18 and 2018. The
petition to MERC was filed in November 2019BEST is an undertaking of the
Municipal Corporation of Greater Mumbai (MCGM) and serves the function of
both electricity supply and road transport, electricity is supplied to the areas
from Colaba (South Mumba)i to Sion/Mahim (North Mumbai).

The issues taken up during the hearing were:

  Admit the MYT Petition for Fourth MYT Control Period from FY 2020-
21 to FY 2024-25
 Approve the additional amount of ARR for FY 2017-18 for adjustment in
GFA for the period of FY 2012-13 to FY 2016-17 due to reversal of IDC.
 Approve final true-up for FY 2017-18, FY 2018-19 and provisional true-
up of FY 2019-20 and consequential revenue gaps for the claim, as
submitted by BEST.
 Approve the ARR and Tariff for Fourth MYT Control Period from FY
2020-21 to FY 2024-25 as proposed by BEST.

Observations and Suggestions during the hearing:

1.The approved Sales of BEST for FY 2018-19 was 5,145 MUs and actual Sales
was 4,923 MUs. Also, from this approved Sales of electricity the approved
amount of revenue recovery was Rs. 2,915 Crore, however actual revenue
realisation is Rs. 3,652 Crore. Fuel adjustment cost is charged when the power
purchase cost is higher than the approved power purchase cost. Hence, the
Commission was required to delve into the matter that why was FAC charged.
 Objection: Non-disclosure of payment of FAC
 Suggestion: FAC to me merged with Energy Charges

2.The commission applauded BEST for achieving 4.8% distribution loss

whereas it considers 5.5% for ARR calculation. Therefore, request made to the
Commission to allow gains and losses at 4.2%.
 Objection: on sharing of incentives of reduction in distribution loss with
the staff.
3.Issue of lack of any new Distribution System and Transmission lines but prior
collection of charges from consumers.
4.The provisions of Electricity Act for cross subsidies (± 20% of ACoS tariff)
not adhered to by BEST.
5. Objection that BEST has not indicated the Provisional Power Purchase cost
for truing up of accounts of FY 2017-18 and FY 2018-19 and for provisional
truing-up of accounts for FY 2019-20 of the Third MYT Control Period.
6.The increase in tariff for Domestic consumers (consuming 0-300 units) and
reduced tariff for commercial users. The ratio for fixed charge is not adhered to
(40-70%).

Adani Electricity Public Hearing

The other case which was taken up was Adani Electricity Mumbai Limited-
AEML (Distribution Business) for Approval of Truing up of Aggregate
Revenue Requirement and Multi Year Tariff (MYT). The company is an
integrated Utility engaged in Generation, Transmission and Distribution of
electricity. The company has a Distribution Licence for a period of 25 years
with effect from 16 August, 2011.
The issues taken up during the hearing were:
 Approve the provisional ARR and revenue gap/surplus for FY 2019-20
and ARR for each year of Control Period FY 2020-21 to FY 2024-25
 Approve the actual revenue gap/surplus arising on account of truing-up
for FY 2017-18 and FY 2018-19 with the carrying cost.
 Approve the Retail Tariffs, Wheeling Charges and Cross-Subsidy
Surcharge for each year of the Control Period FY 2020-21 to FY 2024-
25.
 Take on record the change in Registered Address of Adani Electricity
Mumbai Limited.
 Approve the revisions in Schedule of Charges.
 Allow for specific deviations from the MYT Regulations, 2015 and MYT
Regulations.

Observations and Suggestions during the hearing:

1. The issue of Adani Electricity projecting its tariff based on the Voltage-
wise Cost of Supply (VCoS) instead of Average Cost of Supply (ACoS)
was raised along with the fact that the Tariff should be based strictly on
ACoS but taking into account cost of supply at different Voltage levels as
per the MYT Regulations, 2019
 The company had provided a higher cross subsidy to 0-100-units
residential consumers (0-100 units) in comparison to the players
 Residential consumers consuming less than 300 units per month have
become cross-subsidising for the first time.
  Mr. Pawan Kapoor and Dr. Ashok Pendse raised the matter that the
proposed tariff on residential consumers who consume over 100 units
would be giving them a great burden.
2. Adani electricity has proposed very high capital expenditure and it needs
to be scrutinised whether it under garb of network augmentation and
replacement.
3. The Wheeling Losses and Cross-Subsidy Surcharge (CSS) have being
levied unjustifiably.
 The company did not provide any data on the bill generation
efficiency
 Many others submitted that the FAC levied to all categories by
Adani Electricity has been much higher than that charged by other
utilities and it was also requested to the Commission to allow only
reasonable and fair amount of FAC to be charged to the consumers.
4. Objections regarding power purchase cost were raised by Tata Power
Company Limited. As per the proposed MYT Petition of AEML-D is
heavily reliant on the short-term / infirm sources of power and has not
presented any Power Purchase plan for the entire Control Period., AEML-
D may have to procure power from real time markets to meet the sudden
demands on account of unpredictability of RE power burden finally
falling on to the consumer.

TAKEWAYS FROM THE SESSION

 Public hearings provide an opportunity for all the stakeholders to voice

their concerns in context of the rising importance of the utility and
functioning of the players in the market.
 Tariff determination and its effective monitoring is a sensitive issue
because it affects the consumer directly thereby making the role of the
regulator very crucial. It becomes extremely important then for the
regulator to have a neutral and unbiased approach.
 Such public hearings though provide an opportunity for the people to
raise their concerns but often the less privileged people find it difficult to
make their presence marked due to a variety of reasons.
 The number of cases to be taken up in a single day and the kind of
workload leads to less time being devoted to each hearing.
 Political interference in the process should be avoided as much as
possible.
 Fonterra Future Dairy Private Limited

20th February 2020

(Thursday)
Our batch held our food sector related regulatory clinic at Fonterra Future Dairy
Private Limited the corporate office being located at Moksha Towers in
Vikhroli, Mumbai (Maharashtra) on 20th February 2020.
Our main session about the working of the company and the overview of the
working scenario of the food sector was taken up by Mr Satish Karunakaran
who is the head of Supply Chain in the organisation. Our session at Fonterra
was also graced by the presence of our alumni Mr. Amol Shende, regulatory
affairs lead in Fonterra. The session started with a briefing about the company
given by Ms. Thilanka Jayanthilaka who is the Human Resources Head at the
organization.

IMPORTANCE OF THE CLINIC

Having visited one organisation representing each sector for regulation Fonterra
Future Dairy Private Limited holds importance for us in the context of food
sector as it represents the regulatee side of the regulatory regime which not only
gets affected the regulations so framed but affect the drafting of regulations by
providing its valuable feedback. Dairy being of the on demand industry in India
with its ever increasing demand provides us as regulatory governance student
the opportunity to learn and explore the disruptions and innovations happening
in the food sector due to changing regulatory regime.
 ABOUT FONTERRA FUTURE DAIRY PRIVATE LIMITED
Fonterra, a leading global dairy exporter based in New Zealand, has partnered
with Kishore Biyani-promoted Future Group to unveil a range of consumer and
food service dairy products to help meet the growing demand for high-quality
dairy nutrition in India. Fonterra’s joint venture (JV) with Future Consumer
Ltd., making it Fonterra Future Dairy Partners, has enabled the organisations’
presence in India.
This Joint venture would enable Future Consumer Limited of Future Group to
enhance its food and FMCG portfolio and offer a variety of dairy products
which are high in demand and consumed daily and would be able to reach its
customers with quality dairy products.
This organisation’s primary focus is on value added dairy segment that is
expected to grow 50 per cent faster than the dairy sector in the next seven years
as milk consumption in the country is also expected to increase by 42 per cent
from 196 billion litres at present to 278 billion litres in the next seven years.

Mission Statement of Fonterra

Fonterra Future Dairy seeks to re-define the dairy market in India by fulfilling a
promise of healthier, richer and more indulgent dairy products - the promise of
Dairy 2.0. In this endeavour they claim to follow one of the most stringent milk
testing regimes in the world.
Fonterra Future Dairy claims to have adopted a risk-based approach for the
management of food safety and quality. They have adopted regulatory standards
compliant with the Hazard Analysis Critical Control Point (HACCP) system to
identify, evaluate and control hazards which are significant to food safety based
on the GFSI certified Food safety management system.
 ABOUT THE SESSION

Our session about the company’s

mission and vision statements was
taken by Ms. Thilanka which not only
incorporated companies information
but was an interactive session wherein
the students gave their introduction.
This starting session primarily dealt
with the companies’ goal of future
expansion along with a brief history of
operations of the New Zealand based
Fonterra Group and how Future Group and Fonterra entered into Joint Venture
for penetrating the Indian Dairy Segment. We go got to know about the
concepts like Dairy 2.0 and the relevance of Milk and other dairy products in
Indian society not only from the point of view of a product but also something
that bears an emotional quotient to it.

The following session was taken by Mr. Karunakaran which was more of an
interaction based round and we as regulatory governance students were asked
ask questions concerned based on our understanding about the organisation we
gathered in the first session. Before opening the room for questions and
answers, Mr. Karunakaran explained in detail the entire supply chain structure
that Fonterra follows. We got to know about the comparative analysis of the
dairy products in India and New Zealand and dairy practices based on the
parameters like different farm size, productivity, organisation and consolidation.
Some facts highlighted in the session about the dairy industry:
 In majorly vegetarian country like India, Milk nearly accounts for 45% of
the protein source for diet.
 Specialized characteristics that Milk and other milk products holds in the
cultural and religious practices of the country.
 Consumer demand for dairy in India over the next seven years would
probably increase by 82 billion litres — seven times the growth forecast
for China.”
  Any dairy conglomerate than has the onus to maintain some very
stringent purity standards from both moral and commercial perspective.

Mr. Karunakaran briefed us about the entire supply chain and then explained us
about the point of adulteration which in this case to our surprise was not at the
source but at the middlemen level. To give a realistic example of how
adulteration happens at source he discussed in detail about Melamine
adulteration case in Chinese markets by Chinese subsidiary of Fonterra adding
to that he also elaborated on the aftermath of the incident where Fonterra
recalled the entire batch produce and has put in place mechanisms like RCA
(Root Cause Analysis) and CAPA (Causal and Prevention Analysis) to tackle
any such issues in future.
On the issues like FSSAI’s permission to add melamine in Indian market he
briefed us about the functioning and economics of the dairy market in India and
how farmers are benefitted with gains due to adulteration of melamine in milk
due to increase in the protein content.
We discussed in detail about the
regulatory concerns of the sector and a
greater need of participatory approach
in deciding and framing the regulatory
regime. The scope of self-regulation in
the sector was also touched upon in the
session as industry primarily needs this
with this.
We also got to know about the in-house
stringent safety practices and standards that Fonterra adheres to and for that
Fonterra has developed a codex that details out the organization response for
various categories of events based on contingencies. To conclude, he also
stressed on the skillset that we need to develop as Regulatory Professionals of
the future. His advice was to focus on impact analysis and causal analysis fields
so as to strengthen the policy analysis domain.
 TAKEAWAYS FROM THE SESSION

 Food sector becomes extremely important from the regulatory perspective

due not only commercial angle but also issues of health and food security.
 The interest of a regulate entity lies more towards a self-regulated model
than a command and control approach. (Regulatee side of the framework)
 Issues prevalent in the food industry like bureaucratic setup of FSSAI,
lack of experience of the regulators of working in the actual industry, lack
of experts in the sector.
 Efficient feedback systems to be put in place to take the corporates into
the regulatory loop.