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The big R

What feelings do regulations evoke amongst manufacturers? And what is the regulator point of view? Benwen Lopez has the story…

| | Oct 4, 2017 | 2:55 pm
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In a world of enterprising markets and rapid growth, regulations play a significant role in bringing a balance in the race. There is a host of reasons why governments see a need to press the regulations button; whatever they may be, industry insiders have a mixed reaction towards welcoming regulations.

Generally speaking, the industry accepts regulations with a sanguine attitude, with a hope that they will propel businesses and escalate markets to new levels. But despite the optimistic outlook towards regulations, some industry insiders believe that the cavity between drafting and enforcing needs a smooth filling.

Impact of a regulatory environment

Dr P.R.Jagannathan

In the United States in 2008, when the financial crisis razed many institutions to the ground, many blamed a ‘complex regulatory framework’ for the collapse. But can a regulated market propel the economy? Explaining how regulations play a significant role in boosting the economy and market, Dr P R Jagannathan, Manager of Sustainability, Trakhees, says: “Regulations are instruments that support specific policy objectives of the government. As regulations get more progressive, there would be an automatic demand for high-tech products and services that add value to society.

“Progressive regulations tend to propel innovation, which in the process encourages research and development. The overall process of research, development, demonstration and deployment gets quicker in a competitive and progressive society, and we are already seeing that happening here [in the UAE]. Concepts and strategies that were considered less likely a contestant here are now being widely practised, thanks to the vision of the UAE Government.”

Regulations do not just boost the market, but they also act as a mechanism to protect investors and end-users. Concurring with this view, Faisal Rashid, Director of Demand Side Management, Dubai Supreme

Faisal Rashid

Council of Energy, says: “Regulations have a role to play, where there is a failure of natural market forces or a lesser reaction from end-users. Regulations can ensure that the benefits of District Cooling [for instance] are shared between customers, developers and investors. However, only when these three key stakeholders feel they benefit from regulations, will the market prosper.”

Tariq Al Ghussain

Stakeholders like Tariq Al Ghussein, Chairman & CEO, Taqeef, mirrors the Government’s view that regulations augment growth, innovation and open up new market opportunities. He says: “I agree that regulations play a significant role in driving businesses. When the energy saving regulations came into effect, we set up an energy solution division to tap into the retrofit market, and we already have worked on one building in Dubai, where we replaced the chillers with VRF systems and achieved 66% savings, and we also got an independent company to certify this project. Such regulations create new opportunities for businesses, and it is healthy for the country and economy and prevents wastage.”

Levent Taşkın

Sharing a similar view, Levent Taşkın, President (Middle East & Africa), Danfoss, says: “For us, the most tangible impact of regulations are on energy efficiency and the change in demands for specific refrigerants. When it comes to global frameworks, we have to comply with specific demands for each country and region that give an international standard for best practices. Although there are challenges for global industries, complying with regulations does optimise our portfolio.”

Others, such as those belonging to the food transportation segment, not only believe that regulations push businesses to achieve excellence but also suggest that businesses that cross the excellence mark should be recognised by regulators. Paul McGarrigle, Strategic Account Manager (Middle East & Africa), Thermo King, says: “Leading companies ensure the municipal standards are not only being met, but they strive to surpass regulation to a higher level. Supporting consistently good companies through recognition could have positive results.”

Paul McGarrigle

Saying that regulations are important, McGarrigle calls for specific regulatory attention in the area of cross-border food transportation. “While we can point to many good regulation changes with regard to food distribution at the local level, there is still room for improvement in the cross-border haulage segment,” he says. “Tonnes of produce cross into the UAE from throughout the Gulf, every day. Unfortunately, this element is not in focus, perhaps as it’s a much greater challenge to align international haulage standards, such as the mandatory ATP certificate requirements currently used in Europe for all International perishable food haulers.”

While the impact of regulations is known to boost businesses, a question that needs answering is, ‘How have certain segments progressed with regulations?’

Towards better building performance

With the exponential growth in the construction sector in the GCC region, it was critical for the government to come up with building performance regulations to drive towards greater energy efficiency. Explaining how Dubai has progressed over the last 10 years with the masterstroke Green Building Regulations, Dr Jagannathan says: “Since the landmark Green Building Regulations of October 2007 by H.H. Sheikh Mohammed bin Rashid Al Maktoum came into effect, Dubai has progressed a long way in its pursuit of high-performance buildings. It has rolled out several policy instruments, mainly regulatory and control ones, to promote green buildings. This has further been complimented by support and information tools to boost large- scale adoption of sustainable practices.”

Speaking on how stakeholders are conforming to the Green Building Regulations, Anne Le Guennec, CEO,

Anne LeGuennec

Enova, says: “In line with Dubai’s Green Building Regulations, our integrated solutions target two areas: Creating the safest and most comfortable environment for the end-user, while optimising and reducing buildings’ resource consumption. We are also a partner in Majid Al Futtaim’s sustainability journey, being the first to commit to Net Positivity in the region.”

Challenges

The HVACR industry is one of the most crucial sectors in the GCC region, owing to the high demand that is placed on it, stemming from predominantly high-ambient conditions. Several regulations govern the industry, and therein lies a challenge. Al Ghussein says: “Ideally, there should be a unified code across the GCC region, but currently the challenge is that each emirate or other GCC countries have set their own standards and testing procedures. Then we have manufacturers struggling to meet the testing and standards, because they have to customise the product for that particular country and then worry about selling it.”

Speaking on another aspect of the uneven path of regulations, Taşkın points out to a gap between the regulations and demands. He says: “We have often come across different regulations that cross each other. For example, the demands for new refrigerants do not always match the latest energy- efficiency regulations, and vice versa. This is why we have to stay well-informed of the implications of each regulation, to ensure we are creating the best product for the end-user, while always complying with the rules.”

The other challenge, Al Ghussein says, is the period between the drafting and the implementation. “There is a requirement for better clarity and prudence in this area,” he says. “While regulations are welcome, there is also a need for better standards and vision. Because when they set a major regulation or standard and decide that it needs to be implemented within six months, it can become a panic situation for manufacturers, because they have to make a lot of internal changes, which causes a lot of hindrances, especially when innovations are also in the process of being launched.”

He further adds that sometimes, discussions hit roadblocks without further action of implementation, thus causing frustrations among manufacturers, owing to uncertainty.

Sharing similar concerns, Taşkın says: “One of the biggest issues we face when new regulations are passed, is the time taken for enforcement. When running against internal design cycles, it can be very challenging to ensure that we are working to the correct guidelines and by the deadline.”

However, Al Ghussein also believes that there is a level of maturity among regulators, owing to their exposure to international bodies like Eurovent (Europe’s Industry Association for Indoor Climate (HVAC), Process Cooling, and Food Cold Chain Technologies).

Giving a government perspective, Rashid recognises the need for reducing the burden on stakeholders, while addressing the critical factors, owing to the adverse effects on end-users and the market at large. He says, “As with most regulations, regulators need to address the key areas of concern without creating an excessive burden on the market participants, thus preventing escalation of prices for consumers or developing unintended consequences in another area of the market.”

Is the participation balanced?

For a healthy regulatory environment, it is critical to have a balanced involvement of all stakeholders, particularly in the drafting stages of the regulations. And regulatory bodies make an effort to ensure an equitable participation. Explaining how regulatory bodies work with relevant stakeholders, Rashid says: “We connect with relevant stakeholders when it comes to drafting policies. We also conduct workshops, meetings and share questionnaires. A balanced-elastic input is essential for an objective and balanced output.”
Further explaining the importance of balanced participation, Dr Jagannathan says: “The need to have a fair participation of the stakeholders cannot be overemphasised. It is important to capitalise on the collective wisdom as well as the experience while establishing policy frameworks and regulatory instruments, as they play a vital role in enforcement.”

Dr Jagannathan believes that there is further room for better participation, and it is achievable if the commitment level is high. He says: “I am of the opinion that there is adequate space for strengthening the participation even more. This, however, takes time, as the market becomes more mature, and I am confident that over a period of time, I can expect to see significant voluntary participation that is driven by a sense of involvement, mutual engagement and aspiration for a better future.”

Sharing similar views from a manufacturer’s perspective, Taşkın says: “Although government bodies draft regulations, they are heavily influenced by the industrial stakeholders. There are vast differences between the regions, but I believe that the industry can be proactive and make an impact on future regulations proposals.”

Adding to Taşkın’s view, McGarrigle says: “We have seen a marked improvement in recent times, where regulatory bodies are taking part in various public-interest forums, in addition to requesting information from industry experts based both locally and from abroad. There are many lessons to be learnt from developed countries that have been at the forefront of “green” regulation change for decades.”

Offering a different opinion, Al Ghussein says, “You cannot just copy and paste regulations from other regions, like Europe, without customising it for the GCC region. However, through industrial bodies, like Eurovent, I believe the regulators are getting more exposure, and we, too, can voice our opinion through such associations. We do require more dialogue and more enforcement in projects, and they should give high preferences to high-efficiency products.”

Regulatory initiatives 

As the region witnesses an upward spiral of technology and innovation, the various governments seem to be believing in the importance of developing more regulations for growing sectors, such as District Cooling and VRF, as well as for controlling the dumping of goods in the region.

Explaining how District Cooling regulations are driving the sector, Rashid says: “Currently, there are two regulations in effect, and they concern the use of recycled water and the installation of thermal energy storage. Since the regulations came into force, we have observed a significant increase in the demand for cooled water that has been met by recycled water.” He further points out that currently, all new plants with a cooling capacity of over 10,000 tonnes of refrigeration (TR) are installed with thermal energy storage.

Tarek Alsitt

Considering the strides made by the VRF segment, the GCC Standardization Organization (GSO) has taken up the initiative to draft specific regulations to govern VRF manufacturers. Speaking about the initiative, Tarek M Al-Sitt, Senior Standards Researcher, GSO, says: “As you know, VRF is classified as an air conditioner with a capacity exceeding 70,000 BTU/hour. We are developing a draft of regulations for such air conditioners among the GCC countries, according to voltages, frequencies and the test criteria. Our committee is currently studying the draft.” He adds that feedback from manufacturers is being considered.

Anti-dumping law

In April 2017, the Federal National Council of UAE passed the anti-dumping law to safeguard the interests of the market, industry and consumers from unfair trade practices. This law is aligned with the anti-dumping agreements prescribed by the World Trade Organisation.

Karim Toumi

Highlighting the basis of the law, Karim Toumi, International Trade Law Expert, the UAE Ministry of Economy, says: “The anti-dumping law is formulated based on the agreements between members of the World Trade Organization (WTO) that gives power to the member governments to impose additional duties above the already bound duty.” Citing an example, he says: “Suppose the bound duty is five per cent, the government cannot charge more than this bound duty because of the WTO agreements. However, with the anti-dumping law, the government has the power to charge an additional duty over the already bound duties, if the exporter manufacturer is found to be guilty of this unfair trade practice.”

Further elaborating on the law, Toumi says: “The main objective of this law is to offer trade remedies for industries against unfair trade practices that affect the markets and take action against the violators.

“There are three types of complaints that can be accepted, and they are anti-dumping, safeguarding and countervailing complaints to initiate an investigation, which is for one year, and will result in imposing of an additional variable duty on the product over the regular duties. This imposed duty can last for five years, 10 years or a lifetime, depending on the type of violation and its density.” However, he adds that even during the investigation period, a company is free to export their goods until the verdict is reached.”

Speaking on the challenges of the law, Toumi adds: “The investigation itself is a challenge because of its complexity and technicalities. We take a thoughtful approach towards the investigation, and we examine every aspect of the complaint to reach an accurate verdict; therefore, it is spread out for one year. We want to ensure fair treatment for every party concerned in the complaint.”

Toumi hopes that with this law, violators will be discouraged from committing such acts of dumping imports that hurt the local economy and market. He also hopes that foreign investors will be encouraged with this law to invest in the UAE, because such laws safeguard their business interests
and products.

Is it only about business?

Sometimes, it is not just about driving businesses and safeguarding markets, but governments also look at more pressing issues to press the regulations button. Elaborating on the bigger picture of regulations, Dr Jagannathan says: “Globally, regulations are drafted in such a manner that it reflects the urgent needs of a region. In the case of the UAE, there is an overarching agreement that energy, water, indoor air quality are most important aspects of the regulatory basket that require urgent attention. This is on the back of the commitment of UAE towards emission reductions and climate change mitigation.”

Moving on

Both sides of the table have a certain level of expectations from each other to fill the potholes on the road to progress. Governments expect a more qualitative contribution from the industry stakeholders, especially when regulations are being drafted. Elaborating on this need, Dr Jagannathan says: “I would expect stakeholders to be an active part of our journey by supporting our policies and, in turn, providing us with their valued feedback for strengthening them further. Each of them has specific roles to play, which if carried out diligently would help us succeed.”

Citing an example of how stakeholders can support government regulators and achieve the desired goals, he adds: “I would expect the engineering community to serve as a strong interface between the regulatory bodies, developers and investors in terms of explaining to them the policies, regulations and their benefits.

“The developer would, then, be much more inclined to support the policies rather than being sceptical of the intent. Regulatory bodies should serve as an entity that the stakeholders can trust, respect and look forward to supporting.”

McGarrigle believes that a clear line of communication between regulators and the industry will help smooth issues out. “Constant communication channels must remain open to regular dialogue, and with our experience, we can offer an in-depth insight to regulators,” he says.

However, it’s not just about governments being ready to listen, but it is also about how much domain knowledge industry representatives possess and are prepared to offer. Sharing this view, Taşkın says, “Regulatory bodies usually listen to industry perspectives and points of view, if the industry is well prepared and can bring them facts, evidence and materials that prove suggested measures.”

Le Guennec believes that regulators must drive stakeholders, especially from the building industry, to set high standards and adopt best practices right from the design stages, which will enable a better utilisation of resources.

Taqeef says that for its part, it is taking strategic efforts to foster relationships with the regulators. Citing an example, Al Ghussein says: “For better understanding and implementation of regulations, we set up our internal regulatory division to collaborate with regulatory bodies like ESMA (Emirates Authority for Standardization and Metrology). This will enable a better interpretation of regulations, as well.” He adds that associations like Eurovent act as channels for communication with regulators.

It is a no-brainer! In an uncertain economic climate, with volatile oil prices, regulations can bolster the economy; at the same time, they can pose a few challenges. The challenges, though, can be overcome through a tandem relationship between stakeholders and regulators working together to foster opportunities for long-term investment projects while advocating for healthy financial markets and safeguarding the interests of all stakeholders.


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