Title - Centre looks to pep up investor confidence, dispel economic gloom

Coal and road regulator, railway tariff authority, review of FDI cap soon

A slew of stimulating reforms are in the offing. Over the next three weeks, the Centre is likely to set up a railway tariff authority, a coal and road regulator, unveil a new policy of auctioning coal blocks and remove the FDI cap in various sectors. The moves come as an attempt to kick-start a sluggish economy, remove the investment gloom and improve investor confidence. Prime Minister Manmohan Singh appears keen to send out a strong signal that the government is distancing itself from the allocation of natural resources and putting in place a transparent and efficient policy for the infrastructure sector. Finance Minister P. Chidambaram has been given the task of finalising these reforms and bringing them to the Cabinet for approval within the next month.At the top of the agenda is the setting up of a coal and road regulator. This is intended to give a boost to the infrastructure sector and make the decision-making in these areas more professional and efficient. The regulators would help remove the various bottlenecks that have impeded hundreds of projects. In addition, the formation of the Rail Tariff Authority (RTA) is also high on the agenda and likely to be brought before the Cabinet soon.

The six-member tariff authority would comprise of retired railway officials — of the rank of financial commissioner at the Railway Board — with a 50-50 representation of experts and former railway bureaucrats. It is likely to be headed by a former bureaucrat. The railways wants the authority to have an advisory role rather than be vested with regulatory powers, which would require a change in law and take months to do.

An advisory body can be floated under the existing Railways Act. Given the task of fixing rates for transportation services, the authority will deliberate on data furnished by the railways regularly, either once a year or on a six monthly basis, before making recommendations.

Similarly, to bring competition and efficiency in the coal sector, the government is likely to announce the formation of a coal regulator. A group of Ministers (GoM) led by Mr. Chidambaram has already finalised the draft of the coal regulator Bill, which will be taken to the Cabinet for approval soon. The proposed coal regulator will be primarily entrusted with the task of monitoring testing, quality, supply and grading of coal, but will not regulate pricing. It will, however, have an attached appellate body that will adjudicate on disputes between coal suppliers and buyers, including some pricing issues.

The government is likely to finalise a pass-through mechanism to address the concerns of the power sector players. The mechanism would see the higher costs of imported coal being passed down as increased tariffs. Both the Coal and Power Ministries are now on board with the proposal. “While projects with a capacity of 36,000 MW do not face this issue as they were awarded on a cost-plus basis (which allows a pass through of increased prices), other projects awarded after 2009 could become eligible for pass through under the new mechanism,” a senior Power Ministry official said.

The government is also on the verge of approving a new road regulatory authority and the proposal would be put up for Cabinet approval very soon. The regulatory body would address issues such as financial stress, construction risk and contract management in the sector. During his budget speech in March this year, Mr. Chidambaram had said the road-construction sector had reached a certain level of maturity but it faced challenges, including financial stress, enhanced construction risk and contract management issues.

The Minister said these issues were better addressed by an independent authority. Therefore, the government had decided to constitute a regulatory authority for the road sector. The key functions of the proposed regulator are likely to be 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, among others.

To pep up the falling rupee and boost investor confidence, the Centre would soon bring before the Cabinet a review of the FDI cap in various sectors. The exercise, promoted by the Finance Ministry and the Department of Industrial Policy and Promotion, is nearly complete and an across-the-board review is to be piloted to the Cabinet soon.