Brace for another dose of price hikes. A high-level committee on Wednesday recommended a slew of measures to encourage investments in the infrastructure sector, including hikes in electricity, gas prices and rail fares besides deregulation of port tariffs.
While the rationalisation behind the suggestion is to make the respective businesses remunerative, the committee has also pitched for other measures such as hiking the FDI limit in the telecom sector from 74% to 100%, removal of regulatory uncertainties and easier M&A rules to ease flow of funds into the sector.
The interim report of the HDFC chairman Deepak Parekh-led committee on financing infrastructure, submitted to Prime Minister Manmohan Singh on Wednesday, mooted rationalisation of natural gas allocation and pricing within two months.
Besides, it suggested an overarching regulation in the telecom sector to bring clarity on on issues relating to spectrum and in turn attract more investments.
The government will have to bite the bullet by constantly reviewing and changing railway fares, if it needs to attract more investment in the sector, it said.
Stating that private sector investment in the infrastructure sector would rise to 47% in the 12th Plan from 37.5% in the previous plan, the panel focused on award of projects under a Public Private Partnership (PPP) model in all infrastructure sectors.
The final report, expected in a few months, will also deal with specific financing needs of various sectors including subordinate debt financing.
Investment in infra sector for the 12th plan period (2012-17) is projected to be R51.46 lakh crore at 2011-12 prices, as against R19.45 lakh crore in the 11th Plan and R9.16 lakh crore in the 10th Plan. In other words, total investment in infrastructure sector in the 12th plan is projected to be 9.14% of GDP against 7.22% in 11th Plan.
The projections made for the current plan (12th plan) has been viewed by the committee as realistic, the report said.
It noted that the recent moves on the part of the government to bring clarity on taxation related issues ?such as deferring the proposals on General Anti Avoidance Rules and deciding not to target investments from Mauritius under GAAR ? have given comfort to domestic and foreign investors.
The committee also observed that the present infrastructure deficit implies large unmet demand. At the same time, there is a robust interest among domestic and foreign investors in India’s infrastructure sector, it said. However, it said, “Business as usual approach is unlikely to deliver this level of investment,” adding that governance is the key to increased investment.
For the telecom sector, the report has mooted rationalisation of mergers and acquisition policy in the sector to facilitate consolidation.
It also wanted the removal of regulatory uncertainties related to allocation, pricing and sharing of spectrum allocated in the past, as well as increasing penetration in rural areas. The committee also suggested USO funds to be used for subsidising mobile connections for the uncovered rural population.
The committee said investment through PPP should be encouraged in railway stations, elevated sub-urban corridors in Mumbai, manufacturing of diesel and electric engines, coaches and wagons, new freight corridors and high-speed rail projects.
It also sought an institutional restructuring of the railway board.
The report mooted expediting award of green field airports, encouraging PPPs in operation and maintenance of metro airports at Chennai and Kolkata and in 50 non-metro airports.
On oil and gas pipelines, it wanted the introduction of independent operators to provide non-discriminatory access to all suppliers and consumers.
In the roads sector too, the committee wanted expeditious roll-out of PPP projects to avoid bunching in the last quarter.
It said low-traffic two-lane highway may be developed though engineering procurement construction (turnkey), and sought operationalisation of the expressway programme.
The committee has also suggested the constitution of an expressway authority, besides accelerating environment and forest clearances and land acquisition activities.
On power, the report wanted reforms in electricity distribution, allowing import of coal through STC, MMTC or directly through power producers. It wanted the adoption of PPP in coal mining, setting up of new CPSUs for engaging in PPPs, gas supply, importing gas to increase generation.
Significantly, the committee said gas-based power projects should be used only for peak hours.
On open access in power, it said the government should allocate 25% of unallocated central power for open access consumers, deregulate tariff of bulk consumers (one MW and above) and revise standard bidding document to ensure sustainable investment.
It also mooted PPP projects in ports, deregulation of tariffs and reduction of dwell time.
Besides, it sought acceleration of the pace of capital dredging, initiatiation of PPP in development and operation of inland waterways.
On the irrigation sector too, the committee wanted adoption of PPP for financing medium and minor irrigation schemes, besides exploring PPP pilot projects for construction of dams. It said Mass Rapid Transit Systems should also be carried out through the PPP model.
Interestingly, it has asked for reinventing the state-run IFCL (Infrastructure Finance Company).
IFCL should not just be a lending agency, it should also provide support credit enhancements to help improve the ratings of companies taking loans from it, the committee said.
What the panel wants
* Hike electricity charges, rail fares and natural gas prices
* Increase FDI in telecom sector from 74% to 100%
* Improve environment for private investment, which is expected to finance 47% of the projected investment during the 12th Plan
* Reforms in electricity distribution, allowing import of coal through STC, MMTC or directly through power producers
* IFCL should not just be a lending agency, it should also provide support credit enhancements
* IFCL should subsitute its direct lending operation by guarantee operation to enable the flow of non-bank long-term credit (especially insurance and pension funds) to infrastructure projects
* Expedite awarding of green field airports, encouraging PPPs in operation and maintenance of metro airports at Chennai and Kolkata and in 50 non-metro airports