The Comptroller & Auditor General (CAG) has found fault with almost every decision that the government and its departments took while privatising the Delhi airport.
The CAG has alleged that whenever the airport concessionaire raised issues relating to revenue accruals or expenditure to be debited to government in contravention of provisions of the airport concession agreement, the Civil Aviation Ministry and the Airports Authority of India (AAI) invariably interpreted the provisions in favour of the operators and against the interests of the government.
So, is this the case with all Public Private Partnership (PPP) models, and are all of them now liable for scrutiny?
In the CAG’s report titled ‘Implementation of PPP Indira Gandhi International Airport’, the audit authority has acknowledged that PPPs are an appropriate way for airport development and modernisation. He has also praised DIAL, the developer of the Indira Gandhi International Airport (IGIA), saying that from the point of view of development of infrastructure, the airport “can be considered a success”. The airport had been adjudged the world’s second best in the 25-40 million passengers’ category.
The IGIA is being developed as a joint venture between the AAI and a consortium of private developers led by GMR. The AAI holds 26 percent equity share in the project but commands a 46 percent revenue share in it. This, in itself, is an unexplained anomaly.
Anyway, what went wrong? Delhi and Mumbai were being promoted as model PPP projects that would result in world-class airports for India. In fact, the IGIA’s modernisation is linked directly to the volume of business that airlines finally manage to drum up since its development was crucial to India getting the critical hub traffic from nearby countries.
There have been many indictments of this PPP model in the past, but the accusations that the CAG has levelled (in the report that was tabled in Parliament today) against the former Civil Aviation Minister Praful Patel are the most serious till date.
The current Civil Aviation Minister Ajit Singh will have to answer them; he is expected to put up the oft-repeated defence that the concession agreement for Delhi airport and the subsequent decisions on levying airport fee and the development of some airport land for commercial purposes were all cleared by the Empowered Group of Ministers after careful scrutiny.
It is pertinent to note that DIAL is also in the crosshairs of the domestic and international airlines since it raised airport charges – that is, charges for parking and landing aircraft and so on – by more than 300 percent recently; the airlines are dragging this matter to court. They have also alleged collusion between DIAL and the Airports Economic Regulatory Authority (AERA) in permitting this extraordinary increase in charges. In other words, DIAL promoters will not only have to answer uncomfortable questions raised by the CAG report today, they will also have to face flak from airlines.
Here are some of the allegations levelled by the CAG in today’s report:
1) The OMDA or concession agreement that the government-owned Airports Authority of India (AAI) signed with a consortium of developers led by GMR does not provide for levy of any development fee on passengers to meet project cost. But the Ministry of Civil Aviation allowed DIAL to levy DF in 2009, and the CAG says this order was in direct contravention of OMDA, AAI Act and the Act under which the AERA is run. The approval by the ministry and later by the AERA for this DF levy was a post-contractual benefit, and the CAG has said that this led to undue benefit to DIAL of the order of Rs 3,415.35 crore at the cost of passengers.
2) It’s not as if DIAL was actually bringing in the required funding in the form of equity. The CAG says that only 19 percent of the project cost of the IGIA came from equity infusion by DIAL; the developer raised an additional 42 percent through debt. This is an additional reason for the CAG to wonder about the ministry’s permission on DF. Of the total capital expenditure of Rs 12,857 crore, the promoters’ equity was just Rs 2,450 crore . Of this, 26 percent, or Rs 637 crore, came from the AAI; the remaining 74 percent, or Rs 1,813 crore, came from other JV partners.
3) DIAL enjoys unilateral rights to extend the concession period (the period until which it holds the lease) for another 30 years. But interestingly, the CAG has pointed out that the phrase “mutual agreement and negotiation of terms” was omitted while allowing DIAL this 30-year extension. This effectively rules out any negotiations between the government and the concessionaire before extension is given.
4) In addition to DIAL being given unilateral rights to manage the IGIA for 60 years, it has also been allowed Right of First Refusal (ROFR) for any new airport that is planned within 150 km of the IGIA in future. Nowhere does this provision mention what kind of competitive bidding process would be followed in that event; the CAG says this provision thwarts competition.
5) An additional 190.19 acres of land was allotted to DIAL, which the AAI gave away at a paltry Rs 6.19 crore one-time fee. The CAG says price was too low for such a big land parcel, given that the AAI leased out 7.6 acres at Rs 2.41 crore per year. “Ministry has not been able to provide a convincing reply as to why a private operator should be levied a fee much lower that that fixed by Government as payable by its own departments,” the report noted.