Independent Road Regulator

While presenting the Union Budget 2013-14, Finance Minister had proposed setting up an independent roads regulator. The finance minister said “the sector faces challenges not envisaged earlier, including financial stress, enhanced construction risk and contract management issues, which are best addressed by an independent authority.” The proposal was among several measures initiated by the government to address the slowdown in the roads sector.

Need for a Regulator

The independent road regulator was envisaged in the 12th plan document. The document said that – there is no independent regulatory authority for country’s roads and highways sector. Therefore, there is a need for a regulator whose key functions should include tariff setting, regulation of service quality, assessment of concessionaire claims, collection and dissemination of sector information, service-level benchmarks and monitoring compliance of concession agreements.

However, post budget 2013, a planning commission spokesperson had shot down the proposals saying that most of the regulation is contained in the contract itself.

Do we need an independent road regulator? Points for Analysis
  • The independent road regulator was needed right from the genesis of NHAI. The PPP capacity building model has resulted in not achieving road targets for many years. In recent times, the NHAI is moving back to EPC model because the PPP private sector is grimly moving away from the road development.
  • Economic regulation is done in two ways. one by law (such as in the telecom and electricity sectors) and the other by contract. In highways, all projects are awarded as a bilateral contract with clearly defined rules on the basis of a Model Concession Agreement. The opponents of the road regulator say that since the road contracts are governed by the conditions set out in the concession agreement, regulator is, therefore, not needed. NHAI can do the job with supervision from the Competition Commission of India.
  • However, these claims seem to be hollow because current arrangement both at Centre and states results in a potential conflict, because the rule making body (NHAI/ Ministry) is also the implementing body and there is no independent assessment of its performance across various parameters.

Its worth note that to create a level playing field and protect the interest of the private players, the government has drafted a Public Contracts (Settlement of Disputes) Bill, 2013. The bill is testimony to the fact that the concessional agreements and PPP contracts are not as rational as they have been thought to be and disputes are inevitable in public contracts.

  • NHAI and Ministry of Road, apart from being the signatories to the PPP agreements, also manage policy frameworks and guidelines for PPP projects. This way, they play the role of law-creator, judge, jury, accused as well as defendants. In case of a dispute, the private sector seems to be helpless.
  • Many a times, contract renegotiations begin from NHAI itself, this clearly states a need for regulator. Moreover, there are substantial numbers of arbitration cases pending with the NHAI and state road agencies.
  • Roads provide services directly to the citizens of India, issues relating to toll policy, safety, service levels, congestion, cross-subsidisation of development, parity of users, use of public money and technical choices, are debated from time to time, and various committees have to be constituted by the government of India to provide solutions to specific issues.
  • An independent regulator would provide timely and relevant solutions and reduce the burden on line agencies so that they can focus on the implementation of projects, which is their prime responsibility and for which the nation is crying out.

There should be an independent road regulator which can be created via an act of parliament. It should be preferably a quasi-judicial tribunal, so that most issues can be kept out of the purview of civil courts. The regulator should be given powers to renegotiate PPP concessions.