Departmental  Enterprises

      The production and service provision functions carried out by government departments under the rubric of departmental Public enterprises, such as Ports(Port Trusts) , Airports(AAI), Railways (Railway Board),need to be removed from government.  Governmental rules and procedures (including CAG audit) are not conducive to quick decision making and commercial risk taking.  Departmental enterprises should therefore be converted into public companies with professional boards.  Technological developments over the last two decades have made it possible to un-bundle the ‘natural monopoly’ segments of infrastructure from the rest.  In general there are three parts to an infrastructure department enterprise, namely production of goods used in the sector, the ‘natural monopoly’ segment (e.g. rail track) and provision of services.  Each of these segments should be dealt with separately.

Privatize non-core activities

  The production units of infrastructure departments and the defense production units producing civil goods should be sold to the private sector.  Railways should focus on their core business by selling to the highest bidder, captive units producing equipment and parts.  This will ensure full exploitation of economies of scale, while imports provide potential competition in supply. Peripheral services, not related to the core infrastructure service, could also be privatized.

Convert into Companies

      The ‘natural monopoly’ segments and service provision should be converted into separate companies, which can be termed the ‘Network Company’ and the ‘Service Provider’ respectively.  Any excess land can be retained by the government in the existing departmental enterprise. The network companies must operate on the ‘public carrier’ principle, subject to independent regulatory supervision, which ensures that all ‘service providers’ especially new entrants have equal and fair access to the ‘natural monopoly’ network at non-discriminatory prices.  Over time, up to 74% of the equity in ‘network companies’ and up to 100% of the equity in ‘service providers’ should be sold to the public.  Investment must be fully de-licensed, with no artificial barriers such as division into basic, cellular, ISP, paging or Internet Telephony.  It is only through free private entry and competition in providing all services that the gains from technological change, economies of scope and productivity improvement can accrue to the public.  Natural resources such as natural harbor or radio frequency spectrum should be dealt with separately as a problem in resource pricing and contractual resource rent collection (if any).

Ports and Airports

  The core of an airport is the runway and traffic control facilities.  The core of a port consists of the harbor and docking berths & related fixed structures.  These core components of ports and airports could be converted into companies.  In the case of major ports and airports there could be one company for each port or airport.  In the case of minor ports  & airports commercial viability may require amalgamation into regional companies.  Non-core activities should be privatized and opened to competition through free entry, with a view to improving the quality of service to the international level.  For instance the best airports of the world are very profitable up-market commercial centres, which provide shopping, food and entertainment.  There is no reason except the public monopoly why our international airports are not as attractive and profitable as airports from Dubai to Hong Kong.  Minor ports and airports should be privatized after their reorganization into companies.

  Port trusts must allow private investors to set up and operate specialized facilities for bulk cargo handling such as SBMs (single buoy moorings), with freedom to provide these services to all users.  To promote containerization through conversion of existing facilities, port infrastructure and cargo handling services should be privatized.  This could be done through long term (25+ years) and medium term (10+ years) concessions for port infrastructure and cargo handling services respectively.  Multiple concessions should be awarded for each port, with private entrants free to  take both types of concessions at each port.  Pre-qualification conditions should not be so stringent as to kill competitive bidding.  Private entry services such as pilotage and towing should be free.

  To reduce the excess labor at ports, a generous severance payment could be devised and be coupled with increased flexibility in employment conditions.  Inter-port competition should be fostered, by improving the linkage of ports with road and rail networks.  Automatic approval could be given to private road and rail investment for this purpose.

Railways & Roads

   See below

Subpages (2): Railway Road