Public Private Partnership in Infrastructure Development A Regulatory Perspective ..

The Eleventh Five Year Plan has set an ambitious target of increasing total investment in infrastructure from around 5% of GDP in the base year of the Plan 2006-2007 to 9% by the terminal year 2011-12. Around 30% of the required investment of around Rupees 2056,150 crore (US $ 514 billion) will have to come from private capital. The ability to mobilise private resources on this scale depends critically upon the creation of a supportive investor-friendly environment and the regulatory system is a critical component of that environment. 1
Montek Singh Ahluwalia, Deputy Chairman, Planning Commission

A.

INTRODUCTION -

CHOOSING

AND

EXPLAINING

RELEVANT

GOALS

AND

CONSTRAINTS

Inadequate infrastructure constitutes a significant constraint on Indias growth potential. Improvement in physical infrastructure has thus emerged as an extremely Public resources available for investment in high priority area. However, infrastructure development is highly capital intensive and, therefore, requires huge resources. physical infrastructure are limited because of the increasing demands for investments in social sectors like health, education, etc., and also due the fact that the demands of sovereign governmental functions such as defence, policing, etc., further impinge upon
1

Foreward to the Approach Paper titled Approach to Regulation of Infrastructure, published by the Secretariat for the Committee on Infrastructure, Planning Commission, Government of India.

the availability of public resources. In view of this, increased private participation is necessary for mobilizing the resources needed to bridge the resource gap for investment in infrastructure sector, also known as infrastructure deficit. The Eleventh Five Year Plan Document recognizes that adequate cost effective and quality infrastructure is a pre-requisite for sustaining the growth momentum and that investment in physical infrastructure would have to be increased from about 5% of the GDP (Rs. 8,87,794 crore including an investment of Rs.1,75,203 crore by the private sector) 2 during the Tenth Plan (2002-07) to about 9% of the GDP by the end of the 11th Plan period. The projected investment by the private sector for the 11th Plan period is Rs.6.19,591 crore. In effect, it is expected that private capital would fund about thirty per cent of the total investment in infrastructure during the Eleventh Plan as compared to 20% during the Tenth Plan. The need of the hour is, therefore, to identify the constraints in achieving these goals and in finding appropriate ways and means for overcoming them. Infrastructure constraints can be seen in various sectors. The following

paragraphs briefly discuss the constraints in some of the key infrastructure sectors.

Power: The lack of reliable and reasonably priced power is perhaps the single biggest constraint on the countrys businesses. Indian industry has had to respond by installing captive power generation plants. The cost of grid power is fairly high at about Rs. 5/per unit. The fuel cost of generating power varies between at Rs 7-9 per unit. The Tenth Plan targeted additional power generating capacity of 40,000 MW, but actual achievement was only 21,180 MW3. The Eleventh Five Year Plan doubled capacity addition to 78,700 MW4, and generating capacity aggregating to 80,610 MW is under execution, comprising 19% hydel, 77% thermal and 4% nuclear energy. However, actual capacity creation may be just 62,000 MW. The period 2003-04 to 2007-08 has been characterised by high growth in peak demand and total energy requirement. Consequently, the deficit in power supply in terms of peak availability and total energy availability rose continuously.
2

Source: "Private Participation in Infrastructure, published by the Secretariat for the Committee on Infrastructure, Planning Commission, Government of India (January, 2010) 3 Annual Report (2009-2010), Ministry of Power. 4 ibid

The main reasons for under-achievement of capacity addition targets are difficulties in acquiring land; obtaining necessary approvals from the Ministry of Environment and Forests; delayed allocation of coal blocks; inadequate availability of power generating equipment delayed and non-sequential supply of material by suppliers; shortage of skilled manpower; contractual disputes between project authorities, contractors and their sub-vendors; delay in readiness of balance of plants by the executing agencies, design problems in CFBC boiler and shortage of fuel. Coal based generation of power, which constituted around 80% of thermal generation and around 66% of the total generation of power, was constrained by shortage in domestic coal supply and the non-materialization of planned imports during April-December 2009.

Roads: Road transport accounted for around 87% of passenger movement and 60% of freight movement in 2005-06. About 30% of the total length of national highways is single-lane/intermediate lane, about 53% is two-lane standard and the balance 17% is four-lane standard or more. Although the national highway network doubled in size between 1997 and 2007 almost 35,000 kms were added during this period soaring demand has far outstripped supply. According to the Economic Survey (2009-10), against the target of developing about 3,165 km length of national highways under the NHDP in 2009-10, the achievement till November 2009 has been less than half at about 1,490 km. Against the target of awarding projects for a length of about 9,800 km under the NHDP during 2009-10, projects have been awarded for about 1,285 km up to November 2009. The reasons for the delay include new procedures for approval of PPP projects, modifications in the model concession agreements (MCA), new Request For Qualification (RFQ) process, cap on maximum number of pre-qualified bidders, and time involved in evaluation of voluminous information. Some of the above irritants that substantially slowed down the process of awarding the PPP projects in road sector have been removed recently, following the recommendations of B K Chaturvedi Committee Report.

Civil Aviation: The deregulation of Indian aviation since 2003-04 resulted in average annual growth rate of air market at 27% till 2008. Passenger traffic is forecasted at 205.4 million and cargo traffic at 2683.47 thousand metric tonnes (TMTs) by 201112. Additional capacities of about 29.70 million international and 103.57 million domestic passengers would require to be created at 45 major airports by the end of Eleventh Plan. Government has liberalized FDI in aviation, but its growth is hindered due to high sales tax on Aviation Turbine Fuel (ATF); high service tax on premium class tickets, overflight and landing, and airport charges; infrastructure related issues for providing (Maintenance, Repairs and Overhaul (MRO) services in India; and, facility related issues for Air Cargo industry. Airport development suffers from land issues, infrastructure for passenger & parking facilities, and connectivity to airports. Ports: India has 13 major seaports and 200 minor seaports along a coastline of 7517 km. During 2008-09, major ports handled 72% of the total cargo traffic while the minor or non-major ports accounted for the remaining 28%. In recent times, India has witnessed a significant increase in cargo traffic. Against a compounded annual growth rate (CAGR) of 6.74% during the post liberalization period (1991-92 to 2003-04), the traffic growth at major ports has risen to around 10% since 2003-04. Moreover, growth in cargo traffic across all ports has been approximately 19% for the last few years. By the end of the 11th Plan, the total traffic at ports has been projected at 1,009 MMT, out of which 708 MMT will be handled at major ports.5 As such, capacity augmentation and modernization of ports has assumed great importance. Development of ports is facing issues like lack of autonomy to major ports, poor connectivity, complex administrative processes, and taxation issues. Shipping industry is also encountering problems due to taxation issues, high cost of finance, discontinuation of subsidy for shipbuilding, and high port tariffs affecting viability of coastal shipping. Railways: Planning Commission has recently lowered investment in railways for the Eleventh Plan to about Rs. 2 lakh crores, out of which Rs. 8,316 crore is expected
5

Source: Private Participation in Infrastructure, document published by the Secretariat for Infrastructure, Planning Commission (January, 2010).

through private investment. Railways have opened up container movement to competition and 16 entities have been granted concessions for operating container trains6. However, in other areas, progress in pushing PPP investment has been slow. Railways sector is facing set-backs due to old technology, saturated routes and low payload to Tare ratio (2.5). Though Government has identified 50 stations for development as world-class stations through PPP route, no concessions have been awarded. It has also invited expressions of interest for the development of logistic parks through PPP. A 60 km elevated fully air-conditioned rail system in Mumbai is also proposed to be implemented through PPP. Telecommunications: Telecom has been the success story in infrastructure. The success is mainly on account of unrestricted competition among public sector, private and foreign players coupled with a light-touch regulation. The intense competition among the service providers has expanded the market immensely, driven down prices and provided enormous benefits to the consumer. Indian Telecom market is one of the fastest growing markets in the world. Telecom tariffs in India are amongst the lowest in the world today. With its 562.21 million Telephone connection as on December 31, 2009, it is the second largest network in the world after China. It is second largest wireless network in the world. About 15 million connections are being added every month. The target of 500 million telephones by 2010 has been achieved in September 2009 itself. Wireless telephones are increasing at faster rate. The share of wireless telephones as on December 31, 2009 is above 93% of the total phones. The share of private sector in total telephone is about 82.33%. Overall tele-density has reached around 47.88%. Urban tele-density crossed 100% mark whereas rural tele-density is at 21.19% which is also steadily increasing. Broadband connections increased to 7.98 million by December 31, 20097.

However, wire line connections declined in the recent year. The number of wireline telephone connections, which had shown increase from 32.70 million in 2001 to 41.42
6 7

Source: http://planningcommission.nic.in/plans/mta/11th_mta/pdf/14_-_Investment_in_Infrastructure_-_29-04-2010%5B1%5Dgupthaji.pdf Source: Annual Report (2009-10), Department of Telecommunications.

million in March 2005, started declining to 40.22 million in March 2006, 37.96 million in March 2009 and 37.06 million in December'098. The share of the private sector in total telephone connections has increased to 82.3 per cent in December 2009 as against a meagre 5 per cent in 1999. Rural tele-density, which was about 1.2 per cent in March 2002, increased to 9.5 per cent in March 2008 and further to 15.1 per cent in March 2009 and 21.2 per cent at the end of December 2009. Urban tele-density increased from 66.4 per cent in March 2008 to 88.8 per cent in March 2009 and stands at 110.7 per cent in end- December 20099. Though telecom is the major driver of growth in the infrastructure sector, rural connectivity is still lagging. Issues related to Tower construction approvals, tower sharing and standardization, providing backhaul for broadband connectivity to all villages, electricity power at reasonable price, and pragmatic approach for collection and usage of USO Fund are some of the issues which require to be addressed. The real barriers to penetration in rural India is the smaller population to area ratio and the higher cost of setting up telecom infrastructure to cover larger geographical areas. This gets further aggravated by factors like difficult terrain, lack of other basic facilities like electricity, etc. In such a scenario, even with the setting up of some infrastructure with USO Fund assistance and with the sharing of such infrastructure by more than one service provider, the recovery of sunk costs on creation of the telecom infrastructure in a given time frame and the balancing of such recovery of costs with the provisioning of services at affordable price for the rural poor, would become possible only with some kind of additional support. This support can be given in the form of tax holidays to the service providers. Urban Infrastructure: As per the 2001 Census, about 27.8 per cent of the population lives in urban areas. Further, the Registrar General of India estimated in 2006 that 67 per cent of the population growth in the next 25 years is expected to take place in urban areas alone. Hence improving urban infrastructure including basic civic services assumes critical importance. Municipal institutions responsible for providing these civic services are facing acute shortage of capacity and resources. The Jawaharlal Nehru Urban Renewal Mission (JNNURM), the governments flagship programme for urban development, was launched in December 2005. An
8 9

Annual Report (2009-10), Department of Telecommunications Economic Survey 2009-10 (Chapter 10).

amount of Rs.50,000 crore is earmarked during the seven year period (2005-2012) for the JNNURM to part-fund urban projects over a period of seven year period10. However, many reforms are pending. While states such as Maharashtra, Gujarat, Tamil Nadu, and Andhra Pradesh have shown good progress in urban sector reforms, most of the States have failed to promote devolution of power and pushing local accountability reforms. Under JNNURM, the Mission cities have agreed to include promotion of PPP through appropriate policies and projects. However, there is no policy framework for the urban infrastructure sector, where the presence of the third tier-city administration in addition to central and state governments makes things difficult. B. MEASURES TAKEN FOR INCREASING INVESTMENT IN

INFRASTUCTURE -

THE MARCH TOWARDS THE GOAL AND THE SHIFTING OF GOALPOSTS

The Government is spending billions to improve infrastructure. The Planning Commission has indicated that investment in the infrastructure sector in the XI Plan (2007-12) will be close to the target of $514 billion (Rs. 20,54,205 crore), thanks to a better-than-expected show by the telecom sector. The Government has laid special emphasis on rural infrastructure as is evident from the impressive doubling of allocation for infrastructure, from Rs 0.86 lakh crore in 2007-08 (the first year of the 11th Five Year Plan) to Rs 1.73 lakh crore in 2010-11. The Union Budget for 2010-11 substantially stepped up allocation for infrastructure development especially for NHDP, JNNURM and Accelerated Power Development and Reform Programmes (APDRP). Budget allocation for infrastructure development accounts for over 46% of the total plan allocation. Thus, the Government has been promoting investment in infrastructure sectors through a combination of public investment, private investment and Public Private Partnerships (PPPs). As a result, PPPs are increasingly becoming the preferred mode for construction and operation of commercially viable infrastructure projects in sectors such as highways, airports, ports, railways and urban transit systems. As on December 2009, the status of PPP projects is 241 completed, 292 under implementation and 412 in pipeline. If infrastructure in the country is to match with the growing economy, investment in infrastructure during the XII Plan (2012-13 to 2016-17) has to be doubled
10

Prototype Interactive Public Questions and Answers - Document published by JNNURM Directorate, Ministry of Urban Development

from the existing Eleventh Plan envisaging investment of $ 514 billion (Rs. 20,54,205 crores) in infrastructure. Preliminary exercises carried out by the Planning Commission suggest that investment in infrastructure will have to expand to $1.03 trillion (Rs. 34,28,918 crores) in the XII Plan. In spite of the increased allocations being made from the public exchequer, the fact remains that public resources available for investment in physical infrastructure are limited, as the social sectors such as health, education, etc. have priority in budgetary resources. It is, therefore, essential to rely on private participation for funding the financially viable infrastructure projects in order to bridge the financing gap. Fixing Indias infrastructure problems will require a huge increase in investment, determined political leadership, a vastly expanded role for the private sector, deft policy making, consolidated synergistic and coordinated legislative, administrative and executive actions, and strong and independent regulators. The importance of private participation in infrastructure building is reflected in the various measures taken by the various policy initiatives taken by the Government of India for promotion of the development of infrastructure in general and private participation in such development in particular. These measures include ---(a) the constitution of the Committee on Infrastructure (CoI) in August 2004 under the chairmanship of the Prime Minister (with the Finance Minister, the Deputy Chairman, Planning Commission and Ministers-in-charge of infrastructure Ministries as Members), with the objective of initiating policies that would ensure time-bound creation of world-class infrastructure, develop structures that maximize the role of Public Private Partnerships (PPPs) and monitor the progress of key infrastructures to ensure that established targets are realised; (b) the constitution of the Cabinet Committee on Infrastructure (CCI) in July 2009 which approves and reviews policies and projects across infrastructure sectors, considers and decides financial, institutional and legal measures required to enhance investment in the infrastructure sectors and lays down annual parameters and targets for performance of all infrastructure sectors and reviews their progress from time to time;

(c)

the constitution of the Public Private Partnership Appraisal Committee (PPPAC) under the chairmanship of the Secretary, Department of Economic Affairs, Ministry of Finance (with Secretary, Planning Commission, Law Secretary, Secretary, Department of Expenditure and the Secretary of the concerned administrative Department(s) as Members) which approves PPP projects after they are appraised by the Planning Commission, thus simplifying and streamlining the approval process for PPP projects;

(d)

the establishment of an inter-ministerial Empowered Committee for appraising and approving projects for availing grants under the Viability Gap Funding Scheme (under which grant assistance of upto 20% of capital costs is provided by the Central Government to PPP projects undertaken by any Central Ministry, State Government, statutory body or local body and an additional grant upto 20% can also be provided by the sponsoring Ministry/body;

(e)

the Scheme for Financial Support to Public Private Partnerships in Infrastructure (Viability Gap Funding Scheme of the MoF);

(f)

the setting up of India Infrastructure Finance Company Limited (IIFCL) as a non-banking company for providing long-term loans for financing infrastructure projects that typically involve long gestation periods;

(g)

the launching of the India Infrastructure Financing Initiative a collaborative effort of IDFC, IIFCL, Citigroup and Blackstone to deploy capital of approximately US $ 5 billion for infrastructure projects including PPP projects in India; and

(h)

100 % FDI on automatic route in most of the infrastructure sectors.

C.

POLICY AND REGULATORY ENVIRONMENT -

AT THE CROSSROADS

Public Private Partnership projects typically involve transfer or lease of public assets/resources, delegation of governmental authority for recovery of user charges,

operation and/or control of public utilities or services in a monopolistic environment and the sharing of risk and contingent liabilities by the Government. They require a framework which assures a market driven return at reasonable levels of risk to the private investor and adequate service quality at an affordable cost to the users. These pre-conditions are more difficult to establish than is commonly realized. Because of the nature of the risks and the involvement of multiple stake-holders (project sponsors, lenders, government agencies, users and regulatory authorities) makes it difficult to draw up appropriate project agreements and even make the process for awarding such concessions very complex and difficult to manage. Hence, it becomes imperative to involve detailed legal and contractual agreements that clearly set forth the obligations, risks and rewards of different participants. The use of standard documents, in this context, streamlines and expedites the decision-making process and also helps in adopting a procedure which is fair, transparent for the bidding process in such projects. The adoption of model documents such as concession agreements and other bid documents has, therefore, been mandated as the preferred approach. Projects which are based on model documents benefit from fast-track appraisal and approval. Model Concession Agreements have been published by the Planning Commission for National Highways, State Highways, Operation and Maintenance of Highways, Six Laning of National Highways, Urban Rail Transit Systems (Metros), Operation of Container Trains, Non-metro airports, Greenfield airports, Re-development of railway stations, Port Terminals, etc. Model documents and standard guidelines approved by the CoI have also helped in incorporating key principles and best practices in the bid processes for PPP projects. D. ANALYSIS OF THE APPROACH TO REGULATION AND THE
FRAMING OF THE ISSUE

PROPOSED REGULATORY REFORMS BILL -

In order to appreciate the issues involved in creation of an appropriate policy and regulatory environment for any sector, it is important to first understand what is regulation, what is economic regulation and how it helps in the development of any sector. Regulation may be broadly understood as the effort by the sovereign State to address social risk, market failure or equity concerns through some kind of rule-based control and direction of social and individual actions. Economic regulation is that part of regulation which seeks to achieve the effective functioning of competitive markets.

Where such competitive markets are absent, economic regulation attempts to mimic the outcomes of a competitive market to the extent possible in order to maximize consumer benefit. Economic regulation is considered necessary only when there exists a natural monopoly or where a dominant player in the market abuses its monopoly power or when there is some other form of market failure. Economic regulation performs two core tasks: (a) (b) setting of maximum tariffs; and enforcing service standards. Apart from the objective of fixation of

In the infrastructure sector, economic regulation identifies and addresses subsidies and cross-subsidies in the prices of services. reasonable and affordable price for services, economic regulation is also used to achieve non-economic market objectives such as ensuring equitable access to services, consumer protection, maintaining safety standards, etc. In India, the regulatory frameworks for various infrastructure sectors have developed autonomously within each sector with very little coordination or crossfertilisation of ideas across sectors. It has been acknowledged that political constraints and ministerial preferences seem to have dominated the reform agenda in different infrastructure sectors. The result is that the regulatory mechanisms in key infrastructure sectors have different legislative frameworks, administrative structures, varying degrees of powers and functions. There is no coordinated approach to infrastructure regulation as such. The broad legislative and institutional framework currently prevailing in some key infrastructure sectors in the country is given below: Sector 1. Roads Applicable Acts The National Highways Authority of India Act, 1998 The Central Road Fund Act, 2000 The Control of National Highways Act, 2002 . Indian Railway Board Act, 1905 Railways Act, 1989 Regulatory body There is no separate regulatory body. NHAI acts as regulator as well as operator. Some States have set up their own corporations/entities. No sectoral regulator The Railways acts as the operator as well as sectoral regulator. Aircraft Act, 1934 Till recently, AAI was operator Airports Authority of India as well as regulator. AERA is Act,1994 now regulating tariffs for Air Corporation (Transfer of aeronautical services in major Undertaking and Repeal) Act, airports. DGCA and Bureau of

2. Transport 3. Railways 4. Airports

5. Ports

6. Power

7. Oil and Gas

8. Coal

9. Broadcasting

1994 Civil Aviation Security (BCAS) Airports Economic Regulatory regulate licensing & technical Authority of India Act, 2008 aspects and security aspects, respectively. Indian Ports Act, 1908 Tariff Authority for Major Major Ports Trust Act, 1963 Ports (TAMP) regulates tariff setting. No regulatory body in respect of other matters (performance standards, competition, consumer protection, dispute resolution, etc.) The Electricity Act, 2003 Regulatory Commissions at the Central (CERC) and at the State levels with defined powers and functions. Petroleum and Natural Gas Petroleum and Natural Gas Regulator Authority Board Act, Regulatory Board (PNGRB) 2006 established in October, 2007, Petroleum Act, 1934 regulates refining, processing, Petroleum and Minerals Pipelines storage, transportation, (Acquisition of Right of User in distribution and marketing of Land) Act, 1962 petroleum products. Oil Fields (Regulation and Director General of Development) Act, 1948 Hydrocarbons issues licences and regulates exploration and optimal exploitation of hydrocarbons. Coal Bearing Areas (Acquisition No independent regulatory and Development) Act, 1957 body. Ministry of Coal Mines and Minerals (Regulation (through the Coal Controller and Development) Act, 1957 and through nationalized Coal Mines (Nationalisation) Act, corporations) acts as the 1973 regulator as well as the Coal Mines (Conservation and operator. Development Act, 1974 Prasar Bharati (Broadcasting Private participation allowed in Corporation of India) Act, 1990 satellite television and FM Sports Broadcasting Signals radio segments. No regulatory (Mandatory Sharing with Prasar body for content regulation. Bharati) Act, 2007 Draft Broadcasting Services Regulation Bill, 2007 is open for consultation. It contains proposal for setting up independent regulator for broadcasting. Broadcasting services have been notified as telecommunication services under the TRAI Act, 1997. TRAI is the sectoral regulator

10. Telecom

Indian Telegraph Act, 1885 Indian Wireless Telegraphy Act, 1933 Telecom Regulatory Authority of India Act, 1997 Information Technology Act, 2000

for tariff, carriage, etc. (sans content). TRAI is the sectoral regulator.

The underlying objectives behind the setting up Economic Regulators which are common to most of these infrastructure sectors is the safeguarding of consumer interest by securing quality and reliable infrastructure at affordable prices, balancing conflicting interests of stakeholders, creating level playing field to foster competition, plurality and private investments and, lastly, striking a balance between social welfare objectives of the State on the one hand and the financial viability of infrastructure projects and the need to have rational cost-effective tariffs on the other hand. Economic regulation is meant to be a surrogate for the distributive/allocative efficiencies and correctional factors of a competitive market. The role of the regulator is not to lay down policy which is the job of the elected government but, once the government determines its policy (by legislation or otherwise), the implementation of that policy in a just, fair and viable manner is the role of the regulator. For this, the regulator is required to maintain a fine balance between the conflicting interests of the various stakeholders. The regulator must convert the governments policies into implementable rules of the game and implement them consistent with the applicable laws and should also resolve conflicts. In doing so, the regulator must act as per the principles of justice, fairplay, equity and transparency. The efficacy of a regulator depends as much on the empowerment of the regulator and the enforceability of its decisions, as it depends on the regulators capacity and accountability. Seen in the light of the principles highlighted in the preceding paragraph, the regulatory set up in key infrastructure sectors, as highlighted above, appears to be facing some or all of the following problems, namely:(a) lack of a clear delineation of respective roles of the Government, the regulator and the judiciary;

(b)

inability to effectively monitor the quality of service in the absence of welldefined service benchmarks, performance standards and adequate trained manpower;

(c) (d)

inadequate consumer participation and voice in the regulatory decision making process; regulators still being perceived as policy makers and transgression by political executives in the selection, appointment, removal and allocations to the regulators;

(e)

lack of professionalism in the absence of representation from professional bodies and non-governmental experts due to appointment predominantly of retired bureaucrats and technical personnel drawn from public utilities;

(f) (g)

lack of consistency and predictability in regulatory decision-making and the development of regulatory jurisprudence; dissatisfactory compliance with regulatory decisions by dominant incumbent service providers in the public sector.

As noticed above, the creation of independent regulatory agencies for infrastructure sectors in India has, in the last 15 years, proceeded on a sectoral basis and this sectoral approach has resulted in an uneven regulatory environment. This model of regulatory evolution is bound to be very expensive in terms of economic growth and welfare. There is no clearly defined regulatory framework in place and that the attempt to lead transformation of these sectors through incumbent government functionaries as lead agents has led to flawed frameworks and the absence of consistent or efficient reform processes in these sectors. Uncertainties in the regulatory regime, coupled with lack of coordination across sectors and the empowerment of different regulators differently under different legal regimes applicable to different sectors , have impeded the growth of the infrastructure services to levels far below the needs and potentials of the country. It has given rise to similar problems arising again and again in many aspects of the functioning of such regulatory agencies. While there have been concerns expressed regarding regulatory accountability in some cases there has also been a view that economic regulators in some cases are shackled, not duly empowered and ineffective. This is the context of the felt need for evolving and implementing a robust mechanism with focus on regulatory effectiveness as a key tool for good sector governance.

Some of the major differences in the regulatory schemes in various infrastructures can be illustrated with the following examples : (a) the CERC and the State Electricity Commissions established under the Electricity Act, 2003 having conferred with extensive powers covering rulemaking, licensing, enforcement, imposition of monetary penalties, etc. As against this, the Tariff Authority for Major Ports (TAMP) has only the mandate of setting tariffs for major ports and that too with limited powers. (b) The Telecom Regulatory Authority of India (TRAI) has a mandate to promote competition in the sector (as mentioned in the Long Title of the Act) but express provision of section 11 of the TRAI Act restricts the role of the regulator to the making of appropriate recommendations to the licensor (DoT). On the other hand, the Electricity Act, 2003 mandates the Electricity Commissions specifically to keep in view the promotion of competition in the sector while setting tariffs. (c) In most of the regulatory commissions and appellate tribunals, the relevant acts provide that members of such commissions and tribunals will not be eligible for re-appointments. However, in the case of Electricity Appellate Tribunals, can be re-appointed. (d) The tenure of Chairman and Members of regulatory commissions and appellate tribunals varies between three and five years across different sectors. The qualification and experience for such appointment are specifically indicated in some cases while in others this is left open-ended. (e) The electricity sector, the telecommunication sector and the airport infrastructure sector have got appellate tribunals which adjudicate disputes and also decides appeals against the regulatory bodies while in other sectors, there are no appellate tribunals. The diversity in the regulatory framework can also be seen from the following statement:

SECTOR

ASPECT OF REGULATION LICENSING SAFETY TARIFF SETTING QUALITY OF SERVICE DISPUTE RESOLUTION LICENSING SAFETY

REGULATORY BODY DOT DOT TRAI TRAI TDSAT MOST/ DGS MOST/IMO/CLASSIFICATION SOCIETIES TAMP DGS COURTS (UK) RAILWAYS CRS PARLIAMENT/ RAILWAY. RATES TRIBUNAL RAILWAYS RAILWAY CLAIMS TRIBUNAL MoCA/DGCA BCAS AERA (FOR MAJOR AIRPORTS)/AAI MOCA/AERA AEARAT RTOs/NHAI TRAFFIC POLICE ------------COURTS GOVERNMENT OF INDIA GOVERNMENT OF INDIA GOVERNMENT OF INDIA PNGRB COURTS GOVERNMENT OF INDIA GOVERNMENT OF INDIA GOVERNMENT OF INDIA GOVERNMENT OF INDIA COURTS

TELECOM

PORTS TARIFF SETTING QUALITY OF SERVICE DISPUTE RESOLUTION LICENSING SAFETY TARIFF SETTING QUALITY OF SERVICE DISPUTE RESOLUTION CIVIL AVIATION/ AIRPORTS LICENSING SAFETY TARIFF SETTING QUALITY OF SERVICE DISPUTE RESOLUTION LICENSING SAFETY TARIFF SETTING QUALITY OF SERVICE DISPUTE RESOLUTION LICENSING SAFETY TARIFF SETTING QUALITY OF SERVICE DISPUTE RESOLUTION LICENSING SAFETY TARIFF SETTING QUALITY OF SERVICE DISPUTE RESOLUTION

RAILWAYS

ROADS

OIL AND GAS

COAL

POWER

LICENSING SAFETY TARIFF SETTING QUALITY OF SERVICE DISPUTE RESOLUTION

CERC / STATE ERCs CERC / STATE ERCs CERC / STATE ERCs CERC / STATE ERCs CENTRAL AND STATE ELECTRICITY APPELLATE TRIBUNALS GOVERNMENT OF INDIA GOVERNMENT OF INDIA TRAI TRAI TDSAT

BROADCASTING

LICENSING SAFETY TARIFF SETTING QUALITY OF SERVICE (CARRIAGE SEGMENT) DISPUTE RESOLUTION

Apart from the diversity pointed out above, it is also noticed that there are several infrastructure sectors wherein the process of economic reforms has commenced without establishing a regulatory framework. Examples of this are the recent PPP programmes for modernization of airports and the highway projects. The sequencing of economic reforms is a crucial ingredient in ensuring its success. If the State is hereafter is going to rely on private entities and public private partnerships, then it should establish independent regulators in the early stages of the reform process so that they can help to promote fair play and competition in the evolution of policy and regulatory frameworks.11

E.

INTERNATIONAL EXPERIENCE -

LESSONS FROM ELSEWHERE

In the United Kingdom economic reform involved the privatization of State utilities and the creation of independent regulators. During the Eighties and Nineties of the last century, sectoral regulators i.e. non-departmental government bodies and quasi non-governmental bodies were created in each sector. In the Nineties it was noticed that there was considerable overlapping and clashing of jurisdiction amongst these bodies in addition to a lack of common approach and consistency in their functions. Therefore, since the mid-Nineties, regulatory reform has topped the agenda in the
11

Approach to Infrastructure Regulation, Approach Paper published by Planning Commission of India

United Kingdom. This reform programme has been implemented in two ways. First, multi-sector regulators have been created in number of utility industries under the Utilities Act 2000. This Act regulates 3 utilities namely electricity, gas and water. This Act lays down precise sectoral goals to be achieved by each regulator in these sectors. This Act is significant in that it allows the existing sectoral regulators to continue, it brings their objectives and regulatory functions under one umbrella statute apart from streamlining the appointment qand removal of those regulators, the regulatory processes followed by them and their accountability to Parliament. With the enactment of the Legislative and Regulatory Reforms Act, 2006 (LRRA), OFCOM has been conferred jurisdiction over telecommunication, television, radio and other wireless communication In Sri Lanka, the reform process for creation of multi sector regulators began very recently. The enactment of the Public Utilities Commission of Sri Lanka Act, 2002 was the result of this reform initiated. This Act establishes the Public Utilities Commission of Sri Lanka to regulate all public utilities sectors which are set out in a separate schedule to the Act. Presently, the schedule includes only electricity and water services. But it appears that several other sectors may be brought under this Regulator in the near future. The United States of America has pioneered the creation of independent regulatory bodies with a view to improving the legal and institutional framework for supporting a market economy. These bodies are created by Acts either as sector specific regulator ( e.g. Federal Aviation Authority) or as Multi-Sector Regulators (e.g. Federal Communication Commission. Regulatory bodies are considered to be a part of the executive government but they are free from every day political interference. These bodies are supervised by the Congress which vets appointments, requires all rules to be presented before it and may also subject them to scrutiny through the Committee system of the Congress. Service providers, both private and public, can be fined, forced to close and even jailed for violating Federal regulations. The Administrative Procedure Act, 1946, made by the Congress lays down the basic framework under which rule making is done and this remains the basic legislative standard which applies to all regulatory bodies. Under this Act, all proposed new regulations are required to be published in advance in the Federal Register at least 30 days before they take effect.

There is a notice and comment proce3dure under which interested parties can offer comments/amendments or objections to the regulations. Some regulations may even call for public hearing. Regulations requiring public hearing may require months before they become final12. In Australia, the regulation of public utilities is divided between the Commonwealth (the federal government) and the provincial governments. While the Commonwealth has control over competition policy, ensuring access to essential infrastructure and regulating access to national networks in sectors like telecom, airports, national road projects, etc., the Provincial Governments regulate water, intrastate transport, ports, electricity and gas distribution and supply. Each regulator is established under its own legislation which sets out the objectives of regulation, the institutional framework and the processes to be followed while achieving the regulatory objectives as set out in the legislation. Most Provincial Governments have adopted a multi-sector regulatory model so that a single regulator covers electricity, gas, water, urban transport, etc. The regulators are invariably commissions whose members are chosen from the fields of economics, business, legal, finance and consumer protection. The most significant feature of the Australian experience in coordinated regulation is their attempt to develop common regulatory approach in several sectors. For example, the national markets for electricity and gas through interconnected networks have been developed using common national market rules which were drawn on the basis of an extensive consultation process between the federal and the provincial governments, utilities industries, consumers and other stakeholders. The Australian experience has thus demonstrated that even in a federal set up with a diverse legal framework with no standardization in regulatory institutional designs, objectives or processes, it is possible to build a coordinated regulatory framework for national markets. F. NEED FOR CLARITY OF POLICY ROADMAP, TRANSPARENCY OF
THE ROADMAP FOR

BASIC PROCEDURES AND REGULATORY CONSISTENCY

THE FUTURE

12

Approach to Infrastructure Regulation, Approach Paper published by Planning Commission of India

The Planning Commission has emphasized that it is very important to create a supportive regulatory system which can ensure level playing field for competing suppliers and protection of consumer interests in terms of quality of service and its cost. The Planning Commission has, therefore, embarked upon the next stage of regulatory reforms process by bringing out an Approach Paper on the subject, viz., Approach to Infrastructure Regulation and has, based on the approach indicated in the said Approach Paper and the feedback from the stake-holders put on its website a draft of a proposed legislation, viz., the Regulatory Reforms Bill, _____ for public consultation. The Approach Paper on Regulation of Infrastructure explores the future path that regulatory reform in India must take, and considers the question whether an overarching regulatory philosophy will speed up regulatory reform and standardise some basic institutional features and regulatory processes across all regulatory institutions to serve the objective of enhancing competition, improving efficiencies and reducing costs. The draft Regulatory Reform Bill purports to give effect to the principles contained in the Approach Paper and aims at providing an overarching regulatory framework covering all important infrastructure services with a view to eliminating divergent regulatory mandates and providing for consistency across sectors. With a view to identifying the need for modifications in the present approach to regulation of the infrastructure sector, we need a better understanding of the nuances of regulatory governance. Ideally, these considerations should have informed our decisions while designing the sector-specific regulatory structures and the regulatory legislations. Because of the diversity in the approaches and objectives of various sectoral regulatory legislations, there are inadequacies in these regulatory designs and these inadequacies need to be addressed promptly. The designing of an overarching regulatory philosophy, which will supplement the existing sectoral legislations and address the inadequacies noticed in them, would serve the objective of enhancing competition, improving efficiencies and reducing costs. The three general principles which are critical to regulatory institutional design, in the context of values enshrined in the Constitution, are: (a) Separation of Power; (b) Democratic Accountability; and (c) the Federal Principle

The principle of separation of power is complied with when the rule-making and administration of rules are vested in the regulatory institution without combining judicial functions which are reserved for a body constituted separately. The Approach Paper brought out by the Planning Commission acknowledges that the institutional framework that has emerged in telecom and electricity sectors broadly conforms to the doctrine of separation of powers, with the regulators functioning as quasi-judicial bodies while appeals against their orders are heard by Appellate Tribunals that resemble judicial bodies in form and character and that this principle has also been applied to the competition and securities regulatory regimes after a prolonged effort13. The three modes of responsibility, which are required to be established to make an independent regulatory agency democratically accountable are:(a) (b) responsibility to the legislature (placing of regulations, annual reports, etc. before the legislature); responsibility to the people at large (adoption of processes and systems for acquiring information by citizens, full participation of interested citizens in the decision making process, decision making on publicly articulated rationale, etc.); and (c) responsibility of Government to insulate regulators from interference ( appointment of persons of competence and integrity, adoption of transparent procedures for appointment of regulators, offering attractive remuneration, etc.). Regulatory reform in India should aim at developing a regulatory philosophy and legislation that should reflect the lessons learnt and incorporate best practices from around the world. The focus areas should be institutional framework for regulatory authorities/commissions, their roles and functions, their relationships with the executive and legislature, and their interface with the markets and the people. The Approach Paper brought out by the Planning Commission suggests that the proposed approach should establish an overarching regulatory framework for the orderly development of
13

Approach Paper titled Approach to Regulation of Infrastructure, published by the Secretariat for the Committee on Infrastructure, Planning Commission, Government of India.

infrastructure services and that by clearly setting out the objectives of regulating the infrastructure sectors, it should be possible to eliminate divergent mandates currently set out for sectoral regulators.

G.

RECOMMENDATIONS: ON REGULATORY POLICY AND FRAMEWORK:

PART (1):

It is now clearly recognized by economists all over the world that competition is the best safeguard for consumer interests and that regulation should aim at removing barriers to competition and eliminating abuse of market power. The Approach Paper of the Planning Commission also recognizes this and, accordingly, points out that in evolving the regulatory approach, it would be useful to distinguish within a sector between non-competitive segments that consist of the physical networks or carriage that have elements of a natural monopoly on the one hand and potentially competitive segments such as the content comprising of electricity, gas or voice (or data or video or any other kind of intelligence for that matter) on the other hand. While carriage is typically regarded as a natural monopoly, the content is eminently amenable to competition. In order to enable competition in the content segment, carriage should be subjected to non-discriminatory open access under close regulatory oversight including determination of tariffs. Where technology or market structure enables adequate competition in carriage, its regulation could remain light handed. The Approach Paper of the Planning Commmission accordingly points out the need to have these aspects clearly addressed in the over-arching approach to regulation. Spelling out a regulators role in an unambiguous manner is the precondition for having effective regulation. Therefore it is necessary that the legislation as well as the policy, both should specifically set the regulatory agenda in rather concrete terms. An independent regulator is an instrument by which the government achieves its policy objectives. Therefore it is necessary for the government to spell out its policy

objectives in a concrete manner and adequately empower the regulator through legislation, to accomplish the state policy objectives. Separating the policy-making function from that of service-providing is one of the major objectives of the government in its current efforts to establish an independent regulatory regime. This would require empowering the regulator through clear legislation and unambiguous policy objectives. The test of the independence of a regulator is whether it relationship with the Government gives it the autonomy to carry out its everyday functioning without interference from the Government. Whenever Government chooses to issue policy guidelines to the regulator, those guidelines must be general in nature and not relate to specific regulatory decisions. directives or guidelines should be made known to the public at large. There are several goods and services in the infrastructure sectors where the market does not set the price. These include rail services, oil and gas, road transport and coal. Tariff in respect of these goods and services continues to be set by Government. There is need for setting up independent tariff regulators in respect of these goods and services. This would not only help depoliticize the process of tariff setting, but would also help in setting tariffs based on costs in a transparent manner. Transparency in the process of rulemaking by the regulator is a crucial ingredient in ensuring regulators accountability. The power to make regulations must, therefore, be subject to mandatory requirements for prior publication of such regulations, the adoption of a notice and comment process before they come into force and, most importantly, the subjecting of all such regulations to Parliamentary scrutiny. Regulatory decisions other than those which require Parliamentary scrutiny should be made subject to appeals by any aggrieved party before a specially constituted appellate forum. Second appeals against the decisions of such appellate forum to the Supreme Court should be only on questions of law. The regulatory mandate governing the setting up of such appellate tribunals should make it clear that the appellate tribunals must settle the interpretative questions of law and remit the case back to the regulator for final orders in the light of such interpretation. Appellate Tribunals should be mandated not to go into policy choices made by the regulatory institutions. This would Such policy

ensure that the courts do not interfere with complex decision making exercises undertaken by the regulatory bodies which a judicial forum is not equipped to handle. The proposed overarching legislation for infrastructure sector should vest the sector regulators with the jurisdiction to perform the following tasks in the respective sectors:(a) regulation of entry (grant, exempt, amend, suspend or cancel licences to service providers and impose, change and enforce licence conditions); (b) (c) regulation of prices (laying down tariff principles and guiding crosssubsidy decisions in a competitively neutral manner); and regulation of performance and quality of service (laying down and enforcing performance and QoS benchmarks, conducting audit of performance by the utilities at regular intervals; (d) enforcing regulatory decisions (imposing defined penalties for contraventions) Sectoral regulators should, in addition, be given flexibility to determine their own procedures and practices and the power to delegate specific functions to its members, officers or to other agencies basis on the specific requirements of the situation. More importantly, the sector regulators should be conferred with the powers of a civil court in relation to summoning and enforcing attendance of any person and examine him on oath, seeking discovery and production of any document or other material object producible as evidence, receive evidence on affidavits, requisitioning of any public record, issue commissions for examination of witnesses, etc. Regulating the government-owned incumbent service provider, is a challenging task not just in India but elsewhere in the world as well. There are several instances across the sectors when regulators find themselves unable to enforce compliance of their directives by the state-owned incumbents. Public sector service providers hardly compete with each other for better economic efficiencies. As long as the regulator remains powerless to ensure compliance of its directives by state-owned incumbents, it would be impractical to expect the regulator to effectively push the state-owned

incumbent to a level-playing field with rest of the service providers. Addressing that would require strengthening of the legislative framework to empower the regulators and enable them to adopt specific strategies to ensure the compliance of their directives and to develop an arms-length and objective relationship with the government as well as the stakeholders. Imparting financial autonomy can substantially enhance functional

independence of regulators. Therefore, it is desirable that the law allows a regulator to raise resources on its own, to the extent possible, through an appropriate regulatory fee. There is also a need to tackle the problem of identification of specific roles of the regulatory authority and the competition commission and the potential jurisdictional overlaps between the two areas of law. Sections 3, 4, 5 and 6 of the Competition Act, 2002, which are the key substantive provisions of law, are not market specific and apply generically to regulated and unregulated markets and so, it is inevitable that sectoral regulators and the competition commission will issue directives to the same market players which may conflict, given the diverse perceptions of the respective authorities. (An extract of the above sections and some other relevant sections of the Competition Act is given at Appendix-I to this paper.) The need to have these two systems integrated in a more comprehensive fashion in order to avoid jurisdictional conflicts needs no emphasis. Reference in this context can be made to the minimal institutional interface between the sectoral regulators and the Competition Commission of India in terms of section 21 of the Competition Act under which the sectoral regulators whenever they are considering issues which have a bearing on the provisions of the Competition Act, may refer such issues to the Competition Commission for its opinion. However, this is optional and regulators may choose not to do so. Section 21A of the Competition Act provides for the converse, i.e., references by the CCI to the sectoral regulators, which again is optional. By creating an interface which is limited to dispute resolution, the statute leaves open a wide scope for disagreement which may best be resolved before they have matured into legal disputes. The Approach Paper brought out by the Planning Commission fully recognizes this and accordingly concludes that there is need to review these issues in greater detail with a view to defining a workable division of labour between the sectoral regulators and the

competition commission as also for eliminating the possibilities of forum shopping by service providers/stake-holders.

Part II:

On the proposed Regulatory Reforms Bill

The Draft Regulatory Reforms Bill brought out for consultation by the Planning Commission seeks to cover important infrastructure services such as electricity, telecommunication, broadcasting and cable television, posts, airports, railways, etc. A copy of the Draft Regulatory Reforms Bill, as downloaded from the website of the Planning Commission, is placed at Appendix-II to this paper. It has been stated that the proposed statute, if enacted, would supplement the existing sector-specific laws that set out sectoral objectives. The following recommendations are made in this context: (a) The Draft Regulatory Reforms Bill proposes that the selection of chairmen and

members of regulatory commissions and appellate tribunals should be entrusted to a selection committee headed by the Cabinet Secretary. In so far as the selection of chairmen and members of regulatory commissions this does not seem to pose any problems. However, in the case of appointments to the Appellate Tribunals, it is felt that the selection of chairpersons of such Tribunals should be made/continued to be made on the basis of recommendations of the Chief Justice of India or the Chief Justice of the High Court, as the case may be. The procedure as suggested in sub-clause (7) of clause 4 of the Draft Bill (to have the Chairperson and judicial members of the appellate tribunals selected by a selection committee headed by a Judge of the Supreme Court nominated by the Chief Justice of India) may not be workable in cases where only a serving or retired Judge of the Supreme Court can be considered for appointment as Chairperson in any such Tribunal. Further, it may not be practicable to have two selection committees, one for the selection of technical/administrative members and another for selection of judicial members to an appellate tribunal. In the Groups view, for selection of Members to such appellate tribunals, the Selection Board should be headed by a sitting Judge of the Supreme Court as may be nominated by the Chief Justice of India (as is the present practice in the case of Tribunals like CAT, ITAT, CESTAT,RCT, etc.) or a sitting Judge of the concerned High Court, in the case of a State Level Appellate Tribunals, as may be nominated by the Chief Justice of the

concerned High Court. Further, in the case of selection of members of an appellate tribunal, the chairperson of such appellate tribunal (not a member nominated by him) should be a member of the selection committee. The provisions of clause 4 of the Draft Bill may, accordingly, require to be revisited. The desirability of including provisions specifying the exact procedure for appointments of members and chairpersons of regulatory commissions and appellate tribunals as contained in sub-clauses (8) and (9) of the Draft Bill may require a relook. The procedure as contemplated in these provisions of the Draft Bill involve a four stage mechanism, namely, selection of two names by a selection committee headed by a Judge of the Supreme Court, recommendation by the concerned Minister, recommendation of one name by the Prime Minister and concurrence by the President of India. The requirement of Presidential concurrence at the stage of appointment and at the stage of removal would imply appointments and removals under a Presidential warrant, i.e., under the signature and seal of the President of India, as in the case of appointment of Judges of the High Courts and Supreme Court. It may perhaps be worthwhile to consider whether such appointments can be cleared by the Appointments Committee of the Cabinet instead of being submitted to the President of India for express concurrence. (b) The provision enabling regulatory commissions and appellate tribunals to

authorize any person or appoint any advocate, to represent the interest of consumers in the proceedings before it [clause 9(6) of the Draft Bill] may require a relook. In its present form, the provision creates an impression that a regulatory commission may allow an advocate or a person to represent consumers at its meetings. In case a regulatory commission considers that representation of consumers is necessary at any of its meetings, the same can be done through participation of consumer advocacy groups (and consumers directly) in the various consultation processes it undertakes by giving them opportunity to respond to consultation papers published by it and by allowing them to participate and express their views in open house sessions. The engagement of advocates may not serve any purpose in this context. The reference to regulatory commissions in this clause may create unnecessary confusion. The provision for allowing participation by advocates may be desirable in the case of proceedings before an appellate tribunal as the proceedings in their case will generally be judicial

proceedings and the participation of an advocate on behalf of consumers or consumer groups may serve consumer interests better. (c) Regulatory commissions should have powers to enforce their regulations,

licence conditions and orders by taking appropriate punitive measures including suspension or cancellation of licences, imposing monetary penalties, etc.. Therefore, the provisions as contained in clauses 35-38 of the Draft Bill would need to be further strengthened by adding suitable clauses, defining the various instances of failure to comply with regulatory mandates and the penalties which may be imposed by the regulatory commissions for each one of them. (d) Clause 43 of the draft Bill, while empowering the regulatory commissions to

prohibit, prevent or restrict any agreement, action, omission, practice or procedure which is aimed at the prevention, restriction or distortion of competition or has the effect of market power or monopoly situations being abused, also provides for prohibition, prevention or restriction of such activities if they have the effect of creation or suspected creation of a merger situation. Sub-clause (3) of the said clause further provides that any agreement, action, omission, practice or procedure in violation of subsection (1) or (2) shall be void. This would give the sector regulators the power to deal ex ante with all cases of acquisitions and proposed mergers and prevent those which may have adverse effect on competition. The power to injunct service providers from contravening regulations or directions of the regulatory commission with regard to prevention of anti-competitive behaviour and to impose penalties on the service providers for contraventions as contained in sub-clause (4) would enable the sectoral regulators to effectively handle such situations ex ante, i.e., before the suspected or anticipated anti-competitive activity or merger or acquisition takes place and the sectoral regulator is faced with a fait accompli. The provision as proposed in the Bill will go a long way in empowering sectoral regulators to handle situations ex-ante and prevent anti-competitive practices before they occur. However, it may be advisable to avoid the word fines in sub-clause (4) of clause 43 as the word fine carries criminal law connotations and to substitute it with the word penalty. (e) It is also suggested that the provisions of Part VIII of the Draft Bill

(Competition) be further strengthened with adequate provisions requiring ex-ante

approvals from the sectoral regulator for all proposed mergers and acquisitions. The provisions of clause 44 of the draft Bill may be supplemented with a provision as regards the need to consult sectoral regulators by the Competition Commission on matters entrusted to the sectoral regulators under the applicable sectoral legislation, with a view to avoiding jurisdictional conflicts. (f) The Approach Paper, on which the Draft Bill is based, has expressed the view

that legislative oversight should be limited in one significant respect, i.e., those decisions of a regulator which are open to appeal before an appellate tribunal or court should be exempt from legislative scrutiny to avoid a clash of jurisdictions but it would remain open to the legislature to review the regulations on the policy underlying such decisions. Conversely, decisions of the regulator which are open to scrutiny of the legislature (subject to Parliaments scrutiny/approval and also subject to such modifications as may be decided by Parliament) should be excluded from the appellate jurisdiction of appellate tribunals. It is settled law that an appellate tribunal which is a creation of the same statute which creates the regulator which has been conferred powers to make subordinate legislation, shall not have jurisdiction to consider the vires of such subordinate legislation. Thus, the distinction between regulations made by the regulator which are subject to scrutiny by the legislature and other decisions of a regulator which are appealable before the appellate tribunal should be clearly highlighted in the draft Bill. Clause 48(1) of the Draft Bill may accordingly provide for appeals from the decision of the regulatory commission other than a regulation framed by it in exercise of powers conferred by this Act or under any other law to the appellate tribunal. Part III: Some sector-specific recommendations

Power: Distribution reforms would need privatization of large discoms, reduction of AT&C losses, and peak load management. PPP in generation and increasing manufacturing capacity for power generating equipment is also needed. Nuclear power generation should be stepped up. Roads: Road construction has to be speeded up. Under the revised strategy the Ministry of Road Transport and Highways has set a target of completion of 20 km of National

Highways per day, which translates to 35,000 km at the rate of 7,000 km per year during 2009-14. Steps taken to expedite the progress of the NHDP include regular monitoring of contracts and progress reviews, putting in place a credible and effective dispute resolution mechanism, facilitating speedier land acquisition, review of issues around TPC (total project cost), review conditions of conflict of interest, environment & forest clearances, and revise Model Concession Agreement (MCA). Civil Aviation: Timely policy intervention is needed to settle the issues regarding land acquisition, encroachment of land, infrastructure for pax & parking facilities, and, provision of connectivity to airports. Other issues that need consideration are provision of MRO services, rationalizing sales tax on ATF, FDI by foreign airlines, services tax, and development of a robust air cargo industry. Ports & Shipping: Corporatise major ports in order to allow them to raise capital from the market. Improvement in port evacuation facilities to reduce dwell time and augment capacity through development of supporting infrastructure in terms of roads, railway linkages, power facilities, etc. is required. Easier clearances, taxation and financing issues, and coastal shipping also need to be addressed.

Railways: Railways should expedite the process of awarding concessions for development of already identified 50 world-class stations through the PPP route. Government needs to frame a policy to promote development of adequate number of common user terminals using existing stations and sidings. Indian Railways could also support the hub-spoke network by allowing access to the existing hub and spoke locations on reasonable terms. Telecommunications: A number of issues need to be considered in order to move forward in this important sector, including allocation of spectrum for 3G services for which auctions were completed recently, increasing broadband penetration, autonomy to USO fund administrator and rationalisation of taxes.

Urban Development: The provisions of 74th Constitutional Amendment Act need to be implemented in totality by all the States in order to benefit entire urban population. There should be a common democratic model across all the States providing uniform electoral power to all the citizens. All the states should give uniform functional power, revenue raising power and enforcement power to all the Urban Local Bodies. Development of urban transport needs improved transport coordination and interconnectivity. .

REFERENCES: Compendium of PPP Projects in Infrastructure, Published by Secretariat of Infrastructure, Planning Commission, Government of India (March 2010). Approach to Regulation of Infrastructure, Approach Paper publied by Secretariat of Infrastructure, Planning Commission, Government of India (September, 2008). Private Participation in Infrastructure, Brochure published by Planning Commission (January, 2010) Public Private Partnerships Creating an Enabling Environment for State Projects - Brochure published by Government of India, Ministry of Finance, Department of Economic Affairs (July 2007) Prototype Interactive Public Questions and Answers - Document published by JNNURM Directorate, Ministry of Urban Development Economic Survey 2009-10 (Chapter 10). Annual Report (2009-10), Department of Telecommunications Annual Report (2009-2010), Ministry of Power.

GLOSSARY

AERA Airports Economic Regulatory Authority AERAAT Airports Economic Regulatory Authority Appellate Tribunal CERC Central Electricity Regulatory Commission CRS Commissioner for Railways Safety DGCA Directorate General of Civil Aviation DGS Directorate General of Shipping Empowered Committee A Committee under the Chairmanship of Secretary (Economic Affairs) and including Secretary, Planning Commission, Secretary (Expenditure) and the Secretary of the line Ministry dealing with the subject. FDI Foreign Direct Investment IIFCL India Infrastructure Finance Company Ltd. A company incorporated under the Companies Act, 1956 for providing long-term loans for financing infrastructure projects that typically involve long gestation periods.

IMO International Maritime Organisation JNNURM Jawaharlal Nehru National Urban Renewal Mission MFC Memorandum for Consideration The format in which information will be provided by the sponsoring authority while applying for IIPDF grant.

Public Private Partnership (PPP) Partnership between a Government body/authority or public sector entity (sponsoring authority) and a private sector entity (a legal entity in which 51 % or more of equity is with the private players) for the creation and/or management of infrastructure for public purpose for a specified period of time (concession period) on commercial terms and in which the private partner has been procured through a transparent and open procurement system. PPP Project A project based on a contract or concession agreement, between a Government or statutory entity on the one side and a private sector company or other private legal entity on the other side, for delivering an infrastructure service on payment of user charges. PNGRB Petroleum and Natural Gas Regulatory Board TAMP Tariff Authority for Major Ports TRAI Telecom Regulatory Authority of India