Railways to have independent regulator for development

The ministry of railways proposes to set up a regulatory mechanism for orderly development of railway infrastructure and services while at the same time enabling competition and protection of customer interest.

It is proposed that the authority may initially be set up through an executive order and subsequently strengthened through the legislative process.

In his Rail Budget 2015-16 minister of railways Suresh Prabhakar Prabhu had stated that it was important to have a regulatory mechanism independent of the service provider. The railway ministry has now prepared a concept paper on a Rail Development Authority of India, which is in line with the vision presented by the railway minister.

Also, the National Transport Development Policy Committee (NTDPC) in its report in 2014 had recommended that a Rail Tariff Authority should be set up, which should become the overall regulator. Later, the Bibek Debroy Committee report had also recommended a regulator with overarching functions.

The authority will discharge functions in a manner to protect the interest of consumers, ensuring quality of service, promoting competition, encouraging market development, efficient allocation of resources, provide non-discriminatory open access specially on dedicated freight corridors (DFCs) and benchmark service levels for ensuring quality, continuity and reliability of service.

The key functions of the authority include:

• Fixing tariff;
• Ensuring fair play and level playing field for private investment in railways;
• Determination of efficiency and performance standards; and
• Dissemination of information.

The Authority would recommend passenger and freight tariffs, considering the cost structure (all direct and indirect costs such as pension liabilities, debt servicing, replacements and renewals), productivity parameters, market driven demand and supply forces and future investments.

The regulatory mechanism would ensure that the government steps in to extend financial support to Railways in cases where it does not accept the proposed tariffs.

''In cases where the Government does not accept the suggested tariffs, the Indian Railways would need to be compensated appropriately perhaps through increased allocations in the Gross Budgetary Support or through a suitable mechanism. This would bring in transparency and consistency in tariff setting, a fundamental parameter to encourage private participation and consumer satisfaction,'' stated the concept paper.

In case the projected revenues do not materialise as considered by the authority at the time of tariff determination, the ministry of railways can approach the authority for revision of tariffs.

A regulatory mechanism would also help streamline tariff determination mechanism, fix tariffs rationally based both on cost-recovery principle and the level of tariffs that the rail traffic can bear.

Defining track access charges and ensuring equal access on the dedicated freight corridor for all users – trains run by Indian Railways and other private operators -- is another mandate for the regulatory body.

The Authority would also have to ensure that the private parties and Indian Railways adhere to performance parameters as agreed in contracts. This would include the rolling stock maintenance agreements such as those entered into with Alstom and GE. In case of violation of these performance standards, tghe Authority would suggest mandatory action to be taken by either parties and impose penalties for violations of obligations.

Given the role and mandate of the development authority, the Authority can take the form of an Appellate body. It would be an independent body, housed outside the Ministry but funded through the annual railway budget sanctioned by Parliament.

The move will also help reduce the cross-subsidy within the railway users – in passenger and freight segments - and improve the market share in freight.

The authority may initially be set up through an executive order and subsequently strengthened through a legislation process.

The authority will consist of chairman and four other expert members who have experience and knowledge about railways, infrastructure, finance, law, management and consumer affairs.

Several countries, including the UK, Russia, the US, Australia, Germany etc, have regulatory structure in some form or the other.

The ministry has sought comments from the public, which may be submitted by 30 January 2016 through email at railwaydevelopmentauthority@gmail.com.