Task Force favours user fees for infra services

The report on National Infrastructure Pipeline (NIP) prepared by a Task Force headed by Secretary, Department of Economic Affairs, which was released by Sitharaman, said it is critical to ensure appropriate pricing of infrastructure services for the sponsors and investors of the infrastructure assets to recover both capital cost and operating costs.

“It is necessary to determine fair value of user charges to finance and grow infrastructure. Therefore, user charges deduced with excellent planning, execution and policy framework will provide more clarity to investors and in turn improve their confidence,” the report said.

The Task Force recommended setting up independent regulators or legislating regulatory mechanisms, (such as the Fare Fixation Committee under Section 34 of the Metro Railways Act 2002) in sectors where such market pricing mechanism is lacking.

“This can enable fixation of fares at arm’s length. Alternatively, there may be regulation by contract with price regulation provisions mentioned in the contract itself,” it said. Several state governments undertake populist measures ahead of elections to woo the people. Recently, the AAP government made bus travel free for women in the capital.

In the financial sector, the Task Force has prescribed some policies and reforms to address key issues to attract foreign and private capital into infrastructure.

It said as part of revitalising the bond and credit markets, it has suggested establishment of a credit enhancement fund (CEF) for infrastructure sector projects which is expected to open up appetites of bond market investors for investing in infra projects.

It said institutional investors are more suited to fund infrastructure projects given the long-term patient capital requirement of infrastructure projects. “However, strict regulatory requirements require these investors to invest only in safe government and public sector bonds and they have limited appetite for lower rated assets (below AA).

“As most of the infrastructure projects are rated below AA, it is critical to enhance their rating to augment the access of institutional investors infrastructure sector through capital market instruments. A well-publicised CE Institution should be set up early,” the Task Force said. It said it was also important long-term resources from the pension and insurance sector are channelled into the infrastructure bond market.