Regulatory vacuum mars investment in railways

The setting up of Rail Development Authority is languishing over five years after the government issued a gazette notification in May 2017, following Cabinet approval for an independent rail regulator with the aim of creating a level playing field for attracting private investments into running passenger trains and other services. The lack of an independent regulator was one of the main reasons cited by investors for the failure of a tender to run passenger trains on multiple routes with private funds. Its absence will be felt again after the Ministry of Railways announced a scheme for operating theme-based tourist circuit trains christened ‘Bharat Gaurav Trains’ with private investments. The Ministry has set all the parameters for the implementation of the scheme including Right to Use (RU) charges, stabling and haulage charges to be collected from the train operators, while allowing them the freedom to fix the tariff to be levied from tourists.

Conflict resolution

The operationalisation of the ‘Bharat Gaurav Trains’ will generate disagreement which, in the absence of an independent regulator, will have to be addressed by the entity granting the permits for running such trains — in this case the Indian Railways — potentially creating a conflict of interest. The investors may, therefore, be forced to approach the courts for redressal. The planned Rail Development Authority was envisaged to achieve objectives such as pricing of services commensurate with costs, suggesting measures for enhancement of non-fare revenue, protecting consumer interests by ensuring quality of service and cost optimisation, promoting competition, efficiency and economy, encouraging market development,participation of stakeholders in the rail sector and for ensuring a fair deal to the stakeholders as well as creating a positive environment for investment.

Regulator responsibilities

The tariff related functions of the independent regulator cover issues such as framing guiding principles, rules, models for tariff determination for both freight and passenger segments; making recommendations on tariff setting including suggesting proposed tariff and revision of tariff; framing principles for determining classification and reclassification of commodities; framing principles for subsidy/social service obligations in the form of budgetary support or other methods; laying down guidelines, rules to determine track access charge etc. for providing non-discriminatory access to Dedicated Freight Corridor network and others in future.

The regulator was also to be vested with the task of ensuring fair play and level playing field for investment in railways. To provide a level playing field, the Authority could make suggestions on policies of Ministry of Railways for infrastructure creation through private investments, public-private-partnerships (PPP) and to ensure reasonable safeguards to PPP investors. Private firms say that an independent regulator would be a “defining” pre-requisite for investment in railways.

“There is a massive trust deficit between Indian Railways and private investors. To bridge that trust deficit, a regulator is crucial,” said an executive with one of India’s top infrastructure firms. The Indian Railways is prone to “changing the goal post” after announcing policies on private investments. “Indian Railways is a monopoly; an independent regulator will make all the difference,” the executive said.

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