RANBIR AND CHITRA GUPTA SCHOOL OF

INFRASTRUCTURE DESIGN AND MANAGEMENT

SPRING 2019-20

Infrastructure Regulatory Issues

ID60002
Arkopal K. Goswami, PhD
Assistant Professor
RCGSIDM
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What is regulation?

• Regulation can be defined as all forms of law or legislation enacted by

government.

• It is more useful to think of regulation as the rules governments or

public authorities apply to market-based activities.

• In the case of infrastructure, to influence consumers and suppliers

(including public suppliers) of infrastructure services through either
restraining or facilitating certain forms of behavior.

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What are the activities of regulation?

• Three main activities: setting regulatory rules, monitoring behavior

and enforcing rules -

 Setting the regulatory rules or standards which are needed to

influence the behavior of market participants;

 Monitoring the behavior of market participants; and

 Enforcing the regulatory rules when these have been breached.

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Why regulate infrastructure?

Regulation deals with aspects of market failure –

Natural monopolies –
• Private monopolists seeking to levy prices significantly above costs to earn
greater profits; or

• Public monopolies that allow costs to rise above efficient levels or offer
services of inferior quality.

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Why regulate infrastructure?

Regulation deals with aspects of market failure –

Information failures –
• In some infrastructure sectors there are substantial information failures
whereby customers are unable to assess the quality of the service they are
buying (e.g. drinking water quality, safety of transport vehicles).

• Regulation may be an appropriate response to these information failures.

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Why regulate infrastructure?

Regulation deals with aspects of market failure –

Externalities –
• Important externalities are present in a number of infrastructure sectors,
which may necessitate regulatory intervention.

• e.g. environmental costs associated with: greenhouse gas emissions in

electricity generation; sewerage disposal in sanitation; and pollution in the
transport sector

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Why regulate infrastructure?

Regulation deals with aspects of market failure –

Social concerns –
• Many infrastructure services may be considered ‘essential’ to life, and
therefore regulation may be enacted so as to guarantee access to these
services.

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What are the different forms of infrastructure regulation?

For infrastructure industries there are generally considered to be three categories

of regulation:

 Economic regulation, which primarily addresses the problems of natural

monopoly power in infrastructure;

 Social regulation, which addresses problems of market access and affordability;

and

 Other regulation, which would include regulation that is common to all

industries (not just infrastructure) as well as regulatory issues that may be
specific to an infrastructure sector (e.g. health, safety, environmental).
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Who regulates?

• Independent regulatory authorities? How can it be ensured?

• Public authorities?

• Self regulation?

• Should a regulatory body be responsible for more than one

infrastructure sector?

• Should regulation be carried out at National, regional, or local level?

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Policy making, regulation, ownership and operation

There are four distinct roles in the provision of infrastructure services. These are:
1. Policy: government decisions regarding the framework for the infrastructure sector,
including issues such as private sector participation, liberalization, the nature of the
regulatory regime and institutions, and social assistance;

2. Regulation: developing, monitoring and enforcing rules that influence the behavior of
suppliers and consumers of infrastructure services;

3. Ownership: carrier of equity risk of infrastructure operations, oversight of

infrastructure managers; and

4. Operation: management of day to day service delivery.

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Policy making, regulation, ownership and operation

• There is often confusion

between the four different roles
• Reforms are aimed at
separating these roles
• Eg: privatization of public utilities
separates ownership
responsibilities from policy
making
• Regulatory agencies should be
independent of operators &
governments
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Legal instruments for regulation

1. Primary legislation

2. Secondary legislation

3. Licensing

4. Contracts

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 The Indian context
• India’s infrastructure has been rapidly
expanding over the last two decades.

• Current annual investment for 2016-2020 is

estimated at 118 USD billion.

• To meet its growth agenda, the country

requires a further annual investment of 112
USD billion for this period.

• By 2025, based on projects that have already

been commissioned, electricity generation
capacity will almost double.

• Similarly, highway and metro length will

increase by 1.5 and 6 times, respectively.
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Need to create quality Infrastructure in India

5%

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 Present Infrastructure Challenges
Energy Ports Roads
• Peak hour shortage of 4,208 Mw in • Draft constraints, Berth Productivity • 65% of freight and 80% of
2015-16. and Rail/Road connectivity passenger traffic is carried by roads
• Energy shortage of 28,138 MUs • NH constitutes 2% of network but
carries 40% of traffic

Airports Railways
• Inadequate capacity in Runways and • Congested Routes – 804 out of 1219
Aircraft handling sections operating with capacity
• Congestion in Parking Space and utilization > 80%
Terminal Buildings • Low average speeds (Freight - 25.9
kmph: Mail/ Express – 50.6 kmph)

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Regulatory Bodies in India
Airport
Relevant Statutes Regulatory Authority
Aircraft Act 1934 Airports Economic Regulatory Authority
Airports Authority of India Act 1994 (AERA) acts as the sectorial regulator and
determines the aeronautical tariff for
Airports Economic Regulatory Authority major airports
Act 2008

Posts
Relevant Statutes Regulatory Authority
Indian Post Office Act 1898 No regulatory authority.
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Regulatory Bodies in India

Power
Relevant Statutes Regulatory Authority
Electricity Act 2003 Central Electricity Regulatory Commission
and State-specific Electricity Regulatory
Commissions

Ports
Relevant Statutes Regulatory Authority
Indian Ports Act 1908 , Tariff Authority for Major Ports
Major Ports Trust Act 1963

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Regulatory Bodies in India
Telecom and Internet
Relevant Statutes Regulatory Authority
Telecom Regulatory Authority of India Act TRAI has been given the responsibility to
1990 regulate telecom and internet service
providers.

Cable TV
Relevant Statutes
Cable Television Networks Regulatory
Bodies in India Regulation Act 1995
Regulatory Authority
Provides for the regulation of carriage and
content of Cable TV broadcasts. TRAI has
the responsibility of tariff setting and
interconnection for cable operators.
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Regulatory Bodies in India
Oil & Gas
Relevant Statutes Regulatory Authority
Petroleum and Natural Gas Regulatory The Petroleum and Natural Gas
Board Act 2006. Regulatory Board will regulate the
refining, processing, storage,
Petroleum Act 1934 transportation, distribution and marketing
of petroleum products.
Petroleum and Minerals Pipelines
(Acquisition of Right of User in Land) Act, Director General of Hydrocarbons licenses
1962 and regulates the exploration and optimal
exploitation of hydrocarbons.

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Regulatory Bodies in India
Roads
Relevant Statutes
National Highways Act of India, 1998
Central Road Fund Act, 2000
The Control of National Highways (Land
and Traffic) Act, 2002
Regulatory Authority
No regulatory authority. NHAI acts as the
regulator as well as the operator.
States have floated their own corporations
or agencies.
Investors have no recourse to an
independent regulator
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Regulatory Bodies in India
Rail
Relevant Statutes
Indian Railway Board Act 1905
Railways Act 1989
Coal
Relevant Statutes
Mines Nationalization Act 1973
Coal Mines Conservation and
Development Act 1974
Regulatory Authority
Railways act as the operator as well as the
regulator.
Regulatory Authority
No regulatory authority.
Control by ministry and through
nationalized corporations.
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Legal framework

• The Constitution of India details the distribution of legislative powers

between the Center and the States.

• While the Parliament of India has exclusive power to make laws on some
items (such as national highways), the legislature of any state can make laws
on others (such as water supply).

• Further, the legislature of a state has power to constitute municipalities and

Panchayats and may, by law, endow them with certain powers and authority.

• This section highlights the distribution of legislative powers for

infrastructure related items.
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Central level

• Items on which the Parliament of India has exclusive power to make

laws include:
1. Railways
2. National highways
3. Major ports
4. Airports
5. Telecommunication

• For example, the National Highways Authority of India (NHAI) is the

nodal agency responsible for developing, maintaining and managing
Indian national highways, and was established through the “The
National Highways Authority of India Act, 1988”.
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State level

• Items on which the legislature of any state has power to make laws include:
1. Roads, bridges, ferries, and other means of transportation not under the Centre’s
jurisdiction
2. Water supplies, drainage and embankments, water storage and water power.
3. Land rights, tenures and revenue.
• Also, states are responsible for the constitution of municipal corporations and
other local authorities for the purpose of local self-government or village
administration.
• The Constitution of India defines three types of municipalities:
1. Nagar Panchayats for areas in transition from a rural area to urban area;
2. Municipal Councils for smaller urban areas; and
3. Municipal Corporations for larger urban areas.

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Municipal level

• States may, by law, endow municipalities with the functions and implementation of certain
items within their jurisdiction, including:
1. Urban planning including town planning
2. Regulation of land-use and construction of buildings
3. Roads and bridges
4. Water supply for domestic, industrial and commercial purposes
5. Slum improvement and upgradation

• Municipalities develop legal tools in the form of “Building Bye-Laws” for structural design and
construction (including that of public infrastructure such as roads), to achieve orderly
development of an area.

• They incorporate standards developed by the Bureau of Indian Standards (BIS). This is the
national standard setting body in India, established under “The Bureau of Indian Standards Act,
1986”.
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Panchayat level

• Village panchayats are rural local bodies responsible for some of the governance
functions in their locality, as defined by Article 243B of the Constitution of India.

• The states may (by law) endow panchayats with the functions and implementation
of:
1. Roads, culverts, bridges, ferries, waterways and other means of transportation
2. Rural electrification, including distribution of electricity
3. Minor irrigation, water management and watershed development
4. Drinking water

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Responsibility for infrastructure in India

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Regulatory Impact Analysis (RIA)
• What is an RIA?

– RIA is a tool which examines and assesses an existing, new or changed

policies, regulations and statutes

– It measures the benefits, costs and risks

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Regulatory Impact Analysis (RIA)
• An effective regulatory system satisfies 3 principles

• Credibility
• Investors must have confidence that the regulatory system will
honor its commitments

• Legitimacy
• Consumers must be convinced that the regulatory system will
protect them from the exercise of monopoly power

• Transparency
• The regulatory system must operate transparently so that
investors and consumers “know the terms of the deal.”
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Need of RIA
• Assist the decision makers to choose systematically the most effective
and efficient policies.
– Eg. One-in, two-out policy (UK): Net reduction £836 million in costs to the business
between 2010-2013

• Facilitates conformity of regulations with welfare objectives and goals of

diverse policies

• Helps in prevention/ addressing of market and regulatory failure

• Promotes good governance and accountability through better regulation.

– Eg. £155 million annual costs to business have been removed through Red tape
challenge (UK)

• Induces competition and enhances competitiveness

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Regulatory Impact Analysis (RIA)
• Phases of regulatory process

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Regulatory Impact Analysis (RIA)
• Costs involved in regulation
• Direct costs
• Compliance costs – regulatory fees, administrative costs
• Hassle costs – time & delay, redundant provisions
• Indirect costs
• Ripple effect – costs incurred in related markets
• Enforcement costs
• Often downplayed in ex-ante impact assessments

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Regulatory Impact Analysis (RIA)
• Benefits of regulation
• Direct
• Well-being of individuals – health, environment, safety
• Indirect
• Efficiency improvements – cost savings, enhanced product quality and service
• Ultimate impacts
• GDP

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When to conduct RIA?
Ex-ante Ex-post
Identifies potentially anti- Review of existing policies
competitive, protectionist, and regulations and
welfare reducing, and sub- assessment if legislations are
optimal regulations before achieving their objectives,
enactment and suggesting suitable
modifications

Both needed in developing countries

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 RIA: Developing economies
• Africa: e.g. Botswana, Egypt, Ghana, Nigeria, Tanzania (pilot projects to implement RIA); Uganda
(RIA training, 2000-2003); Kenya (RIA proposals, 2007); South Africa (approved by
Cabinet,2007/RIA Guidelines available from 2012)

• Latin America: e.g. Brazil, Chile, Columbia, Costa Rica, Ecuador (trying to introduce a more
systematic use of RIA)

• Europe & Central Asia: e.g. Bulgaria (think-tank initiative IME (1998-2002); Moldova (2008);
Montenegro (RIA manual, 2011); Serbia (2004); Ukraine (2004); Uzbekistan (adoption of
government decree on RIA, 2014)

• Asia: e.g. Cambodia, Lao PDR, Malaysia, Mongolia, Philippines, Vietnam (piloting RIA); Indonesia
(via ADB project in Min of Trade,2002 & TAF training for LG)

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Need for RIA in India
• Developing countries suffer with underperforming, high cost, competition distortionary
regulations

• Impacts on all the stakeholders or implementation bottlenecks not assessed

• Government has acknowledged this and initiated repeal of archaic laws, adoption of pre-
legislative consultative policy, sector regulators

• RIA recommended by Working Group on Business Regulatory Framework (WGBRF),

Financial Sector Legislative Reforms Commission, Damodaran Committee

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Elements of RIA
• Periodic review of regulations to facilitate course-correction

• Use of tools like cost-benefit analysis, cost-effective analysis to select the most
optimal alternative

• Taking in account concerns of all stakeholders i.e. government, regulated

entities, industry, consumers and society, through a structured consultation
process

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Regulatory Impact Analysis (RIA)
• Steps involved in the RIA process:

• Describe the compelling public need a proposed regulation

is intended to address and develop alternatives for doing
so;
• Estimate the costs and benefits for each alternative;
• Identify transfers;
• Assess uncertainty; and
• Select an alternative.

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 Regulatory Impact Analysis
Example of an RIA: (RIA)
(Revision of the Consumer Product Safety Law, G/TBT/N/JPN/186, Ministry of
Economy, Trade and Industry, RIA completed in June 2007)

Regulatory
Regulatory need
need
-- Maintaining
Maintaining and
and improving
improving the
the safety
safety of
of consumers
consumers by by preventing
preventing accidents
accidents associated
associated
with
with consumer
consumer products
products which
which have
have high
high probabilities
probabilities of
of serious
serious accidents
accidents due
due to
to age
age
degradation.
degradation.

Proposed
Proposed regulation
regulation Alternative
Alternative option
option 11 Alternative
Alternative option
option 22
-- On-demand
On-demand inspection
inspection of
of consumer
consumer -- Requiring
Requiring consumers
consumers toto bring
bring -- Promoting
Promoting voluntary
voluntary inspection
inspection
products by producers
products by producers products for inspection
products for inspection schemes
schemes by producers
by producers

Costs
Costs Benefits
Benefits Costs
Costs Benefits
Benefits Costs
Costs Benefits
Benefits
7,500
7,500 million
million yen
yen Serious
Serious accidents
accidents 103,000
103,000 million
million Serious
Serious accidents
accidents 900
900 million
million yen
yen Serious
Serious accidents
accidents
(on-demand
(on-demand inspection,
inspection, reduced
reduced by by 105
105 yen
yen (mandatory
(mandatory reduced
reduced by by 135
135 (voluntary
(voluntary inspec-
inspec- reduced
reduced by by 77
administration
administration costs,
costs, cases
cases in
in aa 5-year
5-year inspection,
inspection, admin-
admin- cases
cases in
in aa 5-year
5-year tion
tion by
by producers,
producers, cases
cases in
in aa 5-year
5-year
information
information provision)
provision) period
period period
period publicity
publicity costs)
costs) period
period
istration
istration costs)
costs)

Comparative
Comparative cost-benefit
cost-benefit analysis;
analysis; Estimation
Estimation of
of indirect
indirect effects
effects and
and uncertainties
uncertainties

Choice
Choice of
of appropriate
appropriate response;
response; Continual
Continual evaluation
evaluation (Plan-Do-See)
(Plan-Do-See) 41
Regulatory Impact Analysis (RIA)
• Example

• What are the costs involved and the benefits of India moving from BS-IV to
BS-VI emission standards ?

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 Study materials
• Infrastructure Regulation: An Introduction to Fundamental Concepts and
Key Issues
https
://ppiaf.org/sites/ppiaf.org/files/documents/toolkits/Cross-Border-Infrastructure-Toolkit/Cross-Border%20Compilati
on%20ver%2029%20Jan%2007/Resources/GTZ%20-%
20Infrastructure%20Regulation%20Introduction%20Concepts%20Key%20Issues.pdf

• Regulatory Infrastructure Development in India

https://www.nipfp.org.in/media/medialibrary/2018/05/WP_230.pdf

• Regulatory Management and Reform in India

https://www.oecd.org/gov/regulatory-policy/44925979.pdf

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