As it contemplates the wide array of initiatives that need to be taken on infrastructure, where should the government begin?
Electricity is definitely on top. Here, everything will fail if electricity distribution is not addressed. The growth slump and the oncoming knock on effects of the Sixth Pay Commission will expose the limits of state fiscal support to distribution companies. Some states have reduced distribution losses significantly, both through private participation and public sector reform. This needs to diffuse across all states. The government could start by re-energising the state regulators to push for open access. Reforming the restructured APDRP would be a next step.
The respite due to the slowdown can be used to ensure that the generation sector is ready to grow, once demand starts to revive. The priority here is coal sector reform. It should push for modernisation of Coal India and introduction of the private sector, as in the NELP for petroleum and gas. With the world?s third largest reserves, we cannot rely on imported coal, nor can we afford wasteful mining practices. Coastal Ultra Mega Power Projects can at best be a stop-gap solution while we reform the sector. A generous rehabilitation policy for affected people and strict environmental safeguards are also needed to nip emerging problems with sites for plants.
Gas plants, with their lower emissions and ability to serve fluctuating demand typical of urban areas, are essential as we urbanise. These plants need to be located near cities; for this, a rational open access pipeline regulation policy is needed. If the Iran Pakistan India pipeline becomes a reality, then, along with the KG basin in Andhra Pradesh, there will be two large sources of gas at either end of the country.
While these initiatives relate to fuel linkage, exploitation of hydroelectric power needs strong transmission links, exemplified by the Tala project. Our international transmission links need more attention to build a mutually beneficial hydropower relationship with Nepal. The limited extent of private participation in electricity transmission projects needs quick rectification. Powergrid should be given much more regulatory and administrative attention to prevent it from becoming an inefficient behemoth. Finally, work needs to start on private entry into atomic energy. If we are truly serious, the French roll-out should be our benchmark.
The electricity problem is often forgotten since the residential elite and industry is able to self-provide supply, using expensive but reliable captive generation. Fortunately, highways still remain a public good, though the burgeoning tolling fiefdoms every few kilometres on our highways may testify otherwise. A mirage of risk transfer, with a misplaced policy that insists on transferring traffic risk, over which it has almost no influence, to the private sector, has set back growth in this sector. Besides, as airport concessions recently demonstrated, this risk transfer is illusory. Our highway policy needs serious overhaul if we target a barrier-free national network with a national tolling system, an eminently reachable goal in the next five years. This sector has enormous appetite for private participation and getting the contractual structure right, along with some enhancements to the Road Fund, can unleash a veritable torrent of activity.
Our ports and airports too suffer from an inappropriate contractual structure. The revenue share model pushes operators to make as little investment as possible, since they have to bear the full burden of costs, while sharing revenue. The Model Concession Agreement for ports, like for highways is possibly a step in the wrong direction. This needs to be revisited. Moreover, while airports will have a regulator, hopefully soon; the ports regulator, TAMP, remains hamstrung with a limited statutory foundation. Connectivity projects for ports, both by road and rail, too need to be prioritised on an urgent basis.
Telecom is still our bright spot, but it is still underleveraged. Our USO fund is quite capable of financing the delivery of high speed data access to our villages. Simultaneously, spectrum blocks need to be reworked to make them smaller, as in Australia, so that high spectrum prices will prevail only at the locations where it is really scarce, essentially the metros. Alas, for finmin, this may result in lower 3G revenues, but it will lead to faster spread and better competition. This is a choice that has to be made.
Finally, our cities pollute much more water than they use by not treating wastewater. This, and solid waste management, must receive top priority. Public transport is important, and many buses have been bought but service delivery needs sound institutions to be built.
Underlying all this, the institutional agenda of rationalising our regulatory structure looms. A beginning has been made by stapling the PNGRB appellate body to the Electricity Appellate Tribunal. We need to think of similar initiatives in transportation too. Further, infrastructure regulators have taken significant decisions on competition and a mechanism is needed to achieve concordance with the Competition Commission before it turns into an unseemly spat. Not all of the above involve significant outlays of money. Many, are changes in policy that can happen quickly, costlessly and simultaneously. The real question is not where to begin, but when.
The author is senior fellow, Centre for Policy Research