The establishment of the road regulator, as was announced in the 2013-14 Union Budget, might take place only after the elections. While many industry players want a regulator to be set up, what will the entity finally look like? Rahul Kamat takes a peek at the current trends.
The much-delayed process for the appointment of a road regulator might be postponed even further, after the current round of elections. Private players in this sector, who are pegging their future prospects on the appointment of a regulator, might have to extend their prolonged wait for another six months.
It was expected that by March end, the Ministry of Road Transport and Highways (MORTH) would pass a note on the draft Regulatory Authority for Highways in India Bill, 2013 to the Cabinet. However, with the model code of conduct in place due to the upcoming Lok Sabha elections, the Cabinet is likely to give a pass to this important bill.
Sharing his views with Infrastructure Today, Tushar Chaudhary, Minister of State, MORTH, says, "Due to the model code of conduct in place, we will not be able to circulate the note on this Bill in the Cabinet."
However, according to a source close to the development, the Ministry is deliberately not taking up this Cabinet note, as it wants the new government to deal with the issue. "Since the Planning Commission is already against this (regulator), and does not want to pursue the idea, the new government will have a tough task ahead, as there will be pressure from the industry for setting up a regulator," said the source.
Meanwhile, road contractors still remain positive that a road regulator will be set up. According to Satish Parakh, Managing Director, Ashoka Buildcon, a regulator is definitely the need of the hour. He says, "It can be a fair arbitrator for public and industry interests if it's given a little independence. I suggest that the involvement of a regulator should begin from the pre-bidding stage, when the Detailed Project Reports (DPRs) are done." But Ajit Gulabchand, Chairman and Managing Director, Hindustan Construction Company, is not so keen on introducing another regulatory hurdle for the already ailing infrastructure industry. "Why do we need a regulator?" he questions. "Over the years, if the National Highways Authority of India (NHAI) was capable of handling arbitrary and administrative issues, then there is no requirement for a regulator," he adds.
To some extent, Gulabchand seems to be in agreement with the current political mood as the Planning Commission has observed that the proposed regulator has no role to play in almost all crucial issues. Objecting to the proposed adjudicatory power of the regulator, the Commission has suggested that it would be "appropriate" to set up a tribunal for dispute resolution.
Interestingly, some road contractors feel that NHAI, in recent times, has been unable to address certain issues like land disputes, environment clearances, finance, etc. These companies claim that since NHAI is also a party in most cases which involve concession agreements for road projects, it cannot be neutral.
Another fact thrown up was, if at all the government sets up a regulator in the future, the number of disputes could go up as many developers do not want to be in the bad books of NHAI. That's because the developers have to go back to NHAI for other projects, and hence contractors want to stay away from complications. However, some players have made bold decisions to go against NHAI's diktats in the courts of law.
But a few in the government are convinced that a regulator is necessary. Rohit Kumar Singh, Joint Secretary to the Government, MORTH, points out to the amount of money stuck in the process of dispute resolution. He says, "We need an independent entity that can be neutral and objective."
According to the ministry, it is looking at vesting the proposed regulator with two kinds of powers. One is adjudicatory, in terms of resolving disputes where the decision is binding and where the regulator derives the power from the law. And another is the advisory function.
However, the structure of the proposed Regulatory Authority for Highways in India is yet to be finalised, and the actual constitution of a regulator could take time.
S Nandakumar, Senior Director - Global, Infrastructure & Project Finance, India Ratings, says, "The next steps are likely only after the conclusion of the upcoming elections." He adds, "If implemented successfully, the regulatory body could help in managing friction between the government and private players in a better way."
The draft Regulatory Authority for Highways in India Bill, 2013 has been prepared by MORTH, and is still doing the rounds of other ministries for their comments.
Though private players (contractors and developers) were expecting some clarification over the regulator, the Finance Ministry, which has made an announcement in the 2013-14 Budget about the regulator, has raised some questions about the structure, isolating the MORTH completely.
These doubts include whether the proposed regulator should play a dual role of a quasi-judicial body as well as assume an advisory function. Ergo, on the back of the numerous challenges facing the sector, India Ratings believes that more than the actual setting up of the regulator, determining the contours of a regulatory mechanism will be a challenge.
The need for a regulator A regulator can be a fair arbitrator between public and private interest, because that's how it is supposed to be. But there are a number of issues that can crop up. For example, the Roads Ministry clarifies that the proposed regulator cannot fix tariffs, unlike the telecom and airports sectors. In case of roads, tariff are enforced under an Act and there are certain rules, like the National Highway Fee rules, that have to be followed. So the regulator cannot tinker with tariffs directly, but can adopt an advisory role if so required under certain conditions. "So such tricky situations which are not there in the normal course of things can be handled by a regulator," Singh adds.
"A regulator's main task is in the area of economic and technical regulation. It has to dynamically manage price and service quality to ensure that the sector's residual monopolists do not hold pricing power and provide quality service to users.
Simultaneously, it has to ensure an appropriate ROI for operators. Independent regulators are necessary to ensure fair play during a phase of rapid reforms," says M Murali, Director General, NHBF.
Though enough bylaws are in place, what is missing is policy enforcement. The huge difference in quality between local and global roads is because globally, the enforcement of bylaws is much more efficient. Also, a majority of Indian highways are brownfield projects, and at present, India is just upgrading the existing projects.
A regulator can ensure stricter enforcement of laws. It can also help in reducing the number of contractual disputes that are growing by the day. Government agencies don't want to interfere in these disputes.
"No one is willing to bell the cat, and developers are forced to go for arbitration, which is a very lengthy process," observes a Hyderabad-based con¡tractor, preferring anonymity. Other areas which could see speedy resolution include changes in the scope of work and granting of a provisional completion certificate so that commencement of tolling is not unreasonably delayed. It would be crucial to see how the regulator manages the potential friction between government and private players in resolving existing risks in the sector.
Vinayak Chatterjee, Chairman, Feedback Infrastructure Services has a different take on the issue, bringing the Competition Commission of India (CCI) into the picture. He feels that in highways, all projects are awarded as a bilateral contract with clearly defined rules on the basis of an "excellent" model concession agreement. A regulator is, therefore, not needed; the NHAI can do the job with supervision by the CCI, concludes Chatterjee.
In the current scenario, the road sector does need effective regulation, and an independent regulator is only the answer along with strengthening contract administration and supervision.
Box The draft says the regulator is expected to
Premium rescheduling Premium rescheduling for road projects is a topic that continues to make headlines. The effect was such that the shares of 15 construction companies rose by 0.08 per cent to 8.13 per cent right after the announcement. According to a senior official in the Ministry of Road Transport and Highways, the National Highways Authority of India (NHAI) has received four projects for premium rescheduling.
The authority has received proposal for deferment of premium in the case of four projects, these are: six-laning of Samakhali-Gandhidham (L&T IDPL), six -laning of Tumkur-Chitradurga (IRB Infrastructure Developers Ltd.), six-laning of Walajahpet-Poonamallee (Essel) and six-laning of Ahmedabad-Vadodara (IRB Infrastructure Developers Ltd.).
It is expected that as many as 22 projects worth Rs 28,894 crore which were awarded between the years 2011 and 2013 will benefit due to premium rescheduling. The NHAI has awarded 22 projects with four-laning and 10 projects awarded for six-laning which are now eligible to be considered for deferment of premium. "These projects are those under execution or have achieved completion," said a senior official from NHAI.
Players like IVRCL Infrastructure, Sadbhav Engineering, BSPCL Ltd, Reliance Infra Projects, JMC-SREI Consortium, GVK Development Projects, Ecsel Infrastructure, Supreme Infrastructure, Ashoka Buildcon, GVR-RML-Prathyucho Consortium, IDFC+PLUS Expressway Berhad Consortium, L&T Infrastructure Development Projects Ltd, JMC Project, Essel Infra projects, KNR Constructions, IL&FS Transportation Network, JSR Consortium, Transstroy OJSC Consortium and Oriental Structral Engineers have applied for premium rescheduling of road projects.
According to the new norms set by the ministry, the developer will have to pay interest equal to bank rate+2 per cent on premium amount deferred. The road developer will have to clear due premium collected due to years of deferment a year before its concession period gets over. The recommendations also propose penalty for projects, where delay is on account of the fault of the project developer. After this move, road projects worth Rs 28,000 crore could be scrapped and might see re-bidding.
According to a senior official from NHAI, projects where work has already started can also take advantage of premium rescheduling. Meanwhile, the major benefit will go to the projects which have two to four lane expansion plans.
"I don't think we need a regulator at all"
The objections of the Planning Commission to a proposal to set up an independent regulator for the roads sector have raised question marks as the plan panel had backed setting up a roads regulator in its 12th Plan document that was approved only a few months back. However, the Commission now feels that it would not serve any purpose. An independent regulator was expected to help develop sector and ensure fair play, but the commission feels a good contract and sound legal process can address concerns of the sector. Gajendra Haldea, Advisor on Infrastructure to Planning Commission Deputy Chairman minces no words in sharing his honest opinion with Garima Pant about the Commission's reservations regarding the proposed Regulatory Authority for Highways in India Bill (RAHI), 2013.
For the proposed RAHI Bill, 2013, there have been differences between the ministry and the Planning Commission. What is your view on the entire debate? I don't think there is a road regulator of this kind in any other country. Regulation can be of different types of traffic, of standards and then there are economic regulations. So, the regulatory authority that we normally talk of, they are bodies undertaken for economic regulation, like TRAI, CRC etc. It is not clear to me what economic regulations need to be done for road projects. Secondly, the main terms of the concession, the fare that can be charged and other commercial terms are already predetermined and specified in the concession agreement approved by the cabinet. So it's not clear to me at all what the regulator will do.
So what are your recommendations and the proposed changes in the bill that is under discussion? I don't think we need a road regulator at all. We'll just add one more layer and if the government or the ministry insists on creating him, one will see for themselves in a couple of year's time that it will go nowhere.
One of the reasons why a regulator is being sought is to help the stuck projects get going. But if there is no regulator, how do see these projects getting a move ahead? Tell me one thing, if you have a house and you let it out to me for a specific number of years and you want me to increase the rent, or decrease the rent or make some changes, can a third party help you decide that? Can you go to the court? If I have agreed with you that I will pay an X amount of rent per month, can either of the parties go the court and argue that the rent is not enough? On what basis will the court intervene and determine the basis of our rights because it's already stated in the agreement. So I don't see what a regulator can do. If on the other hand there is a problem and the road builders think that some relief is necessary, then that relief may be granted by the government, not the regulator. So it's not clear to me why they are hankering for a regulator?