Business Standard

The long road to a regulator

Around Rs 17,000 crore worth of road projects are stuck in arbitration and litigation. Presence of a regulator could have avoided the logjam

Manu Balachandran  |  New Delhi 

It has been a fairly long wait for a road sector regulator with adjudicatory powers to resolve issues around road projects worth Rs 17,000 crore that are involved in arbitration and litigation cases. It is no secret that the country's highways and road sector is in the midst of one of its worst phases in the lead-up to the elections this year.

The sector, which had a great run in the past decade, has suddenly found it difficult to make itself attractive to the private sector after partnering it for the past 15 years. The poor phase is also the worst since 1999 when the government decided to award road projects in the build-operate-transfer (BoT) mode.

As with any public-private partnership, differences had emerged between the public and the private sectors. Among other demands, the private sector has been seeking a road regulator to address issues of litigation and arbitration.

The draft Regulatory Authority for Highways in India Bill, 2013, prepared by the Ministry of Road Transport and Highways is being circulated for comments from other ministries. The draft says the regulator is expected to:
  • Have adjudicatory power in areas of contract dispute resolution and renegotiation of future contracts
  • Address concerns of general public and lenders on road projects
  • Ensure that contracts are registered with the authority;
  • Fix tariff and monitoring the compliance of concession agreements
  • Decide on the terms and conditions of an exit policy that allow companies to exit road projects

Industry experts pointed out that a regulator could have ensured speedy resolution of such disputes, enforced contractual provisions and facilitated renegotiation of future contracts. Although the finance minister obliged in his Budget speech last year by announcing the setting up of a road regulator, efforts to implement it started only a couple of months ago.

The Draft Regulatory Authority for Highways in India Bill, 2013 - prepared by the ministry of road transport and highways - is still doing the rounds of other ministries for their comments. Most experts believe that with the government getting into election mode, the Bill, even if it gets Cabinet approval, is unlikely to pass muster in Parliament.

Case of missing regulator
For the past few years, the National Highways Authority of India (NHAI) has held the double portfolio of a highway regulator as well as nodal agency for management of highways in India. India's private sector participation in the road sector, meanwhile, rose rapidly in the past decade and BoT projects currently pending execution in the country amount to around Rs 1.8 lakh crore.

The draft Bill on the road regulator proposes to give the road regulator adjudicatory powers in areas such as contract dispute resolution, enforcement of contractual provisions and renegotiation of future contracts, which will ensure the decisions are legally enforceable. The decisions can only be challenged in a high court.

Today, NHAI, also a signatory to projects in public-private partnership (PPP), plays various roles and is addressed as the accused and defendant in several cases. It is also entrusted with making policy decisions on matters, creating a conflict of interest and raising the need for an independent regulator.

"Around 80 per cent of the projects (stuck in litigation) could have been avoided had the regulator been in place now. Private sector players do not want to get into a tussle with the NHAI and cannot fight them since they are the nodal authority", said Vinayak Chatterjee, chairman at Feedback Infrastructure Services.

Chatterjee added that the discharge of sovereign functions by the public partner in a PPP, such as environmental clearances, land acquisition, utilities removal, state support agreements have been seen as germane to the creation of stranded assets and need clear mechanisms for review and redressal. Since road projects are spread across a period of 20 years, the usual concession period in the BoT model, a regulator will be instrumental in ensuring speedy resolution to problems and take decisions, which cannot be questioned by any other independent authority later.

Another key area, that the independent regulator will be instrumental in, is renegotiating contracts. The duration of contacts are long and likely to need renegotiations due to various factors including economic and political reasons. A large number of highway developers are asking the government to reschedule the premium that they owe the government due to a slowdown in the domestic economy.

Meanwhile, the roads ministry has also made provisions for the general public to directly voice their concerns with the road regulator, and will also have powers to levy penalties on defaulting parties.

"It all depends on how the road regulator is eventually structured. But they will have independence and judiciary powers. In addition, most of the agreements today are managed by the concession agreement, and users and lenders are often given lesser independence. So the regulator can be a forum to raise these issues," said Vishwas Udgirkar, senior director at Deloitte Touche Tohmatsu. "It is a good idea to have a separate regulator as the NHAI is always an interested party when the concession agreements are signed," Udgirkar added.

Differences within
Both NHAI and the Planning Commission have been opposing the Bill, and the idea of an independent regulator for the road sector. The Planning Commission has maintained that the reopening of concession agreements is not possible, since renegotiations often tend to benefit the private sector more. The NHAI contends that it has been efficient in undertaking the role of a regulator. NHAI officials believe that to bring investments back in the sector, the government needs to expedite its policy-making process, including rescheduling of premiums and put in place a better exit policy. Though most private sector players are batting for a regulator, there are some such as M Murali, director general at the National Highways Builders Federation, who strike a contrary note.

"It is better to have NHAI play the role of a regulator since they understand all our problems and practical difficulties," said Murali.

Government officials concede that many are scared to take decisions at this point fearing legal action in the future.

Even as the draft Bill proposing the creation of an independent regulator gathers momentum in the labyrinthine bureaucratic corridors, Murali perhaps could be right that it is a tad late in the day to go for a regulator with the term of the government set to run out soon.

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First Published: Sun, January 26 2014. 21:30 IST