AAI to hand development of six airports to private parties

New Delhi: Airports at Chennai, Lucknow, Jaipur, Ahmedabad, Kolkata and Guwahati may soon be given over to private parties for operation, development and management. In a new plan the Ministry of Civil Aviation has drawn up, the state and state owned Airports Authority of India (AAI) will not hold any equity stake in these six airports but hand them over completely to private parties.

In India, all greenfield airports have traditionally been developed by the state-owned Airports Authority of India (AAI) but increasingly, the Government wants the operation and development of some airports to be handed out to private parties. These six airports will become the first such airports where private parties are being asked to come and take up 100% equity on a 30 year lease basis, with no AAI participation. A request for qualification for Chennai and Lucknow airports is being issued shortly.

This novel approach to privatisation could see severe opposition from states such as Paschim Banga and employee unions at many airports and is a clear departure from the model which was adopted for the first two world class airports privatised first by the Indian Government - Delhi and Mumbai International Airports. There, AAI was allowed to hold 26% equity stake and entitled to 46% share in revenues. But this privatisation model saw various hurdles and widespread criticism because of unwarranted charges on passengers when the airport operators failed to make adequate investments. In the new scheme of things, private parties will be hold 100% equity but still have to share revenue according to a formula with AAI.

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[caption id=“attachment_1069937” align=“alignleft” width=“380”]  The Chennai airport is one of the six airports which may soon be given over to private parties for operation, development and management. Reuters[/caption]

A senior official in the Ministry of Civil Aviation said this was being done because AAI did not get any say in managing airports like Delhi and Mumbai since it was minority partner. Also, when additional equity was needed to fund the expansion at the Delhi airport, AAI threw up its hands and this eventually forced the airport regulator to agree to a hugely unpopular Airport Development Fee which was seen as anti-consumer.

“In future, we want private parties to get 100% equity in airports they agree to develop. The revenue sharing model will be devised, there are clearly laid guidelines for that. The Request for Quote (RFQ) for Chennai and Lucknow should be out within a week,” this official said while adding that this process was not really privatisation but merely a contract being awarded to private parties to operate and manage airports on a 30-year lease.

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So why is the AAI being shortchanged? It has spent crores in building and upgrading Kolkata’s Netaji Subhas Chandra Bose International Airport and the Chennai International Airport in recent months. Is AAI incapable of efficiently managing large airports and their expanding demands or is the government sold out to the Public Private Partnership (PPP) model and thus wants all large airports to be managed by private players? Is AAI being used merely as a glorified construction company, meant to only construct airports?

A source in AAI had told Firstpost some time back that being a Government body, AAI often gets stuck in myriad procedures and bureaucracy and decisions get delayed. “We are not good at things like commercial development which means selling space to commercial establishments to generate revenue. This is something the private operator can do much faster.” But AAI’s airport management skills are anyway under a cloud. How can it explain away teething problems at new terminals at both Chennai and Kolkata?

At Kolkata, an airport where a lot of glass has been used to please the eye, glass panels have begun cracking regularly. The new terminal was inaugurated in January this year and cost over Rs 2000 crore to build. Besides cracking glasses, the new terminal building also faces other teething problems such as mounds of garbage lying around because of a shortage of cleaning staff; flyers who change over from an international to a domestic flight or vice-versa also face an ordeal because of the distance between the two terminals.

Similar tales of woes are apparent at Chennai, where again building glass keeps cracking and there are other structural problems. After a five-year wait, the new domestic terminal at the Chennai airport opened its doors to passengers in mid-April in phases. The delay in project completion had resulted in a Rs 200 crore cost overrun, taking the total cost to Rs 2,015 crore against an estimated Rs 1,800 crore. So AAI’s airport management skills are not really world class.

Amber Dubey, Partner at KPMG, had said earlier that “The PPP model for Chennai and Kolkata should incorporate the learnings of the other metro airports. Primary among those are: freeze the tariff policy in great detail well before the bids are called; provide reasonable returns to the operators but keep user charges to the minimum; keep tight control over project cost in future expansions; ensure maximum number of AAI employees are absorbed and not reverted back to AAI. Care should also be taken that a part of the earnings from commercial development of real estate are ploughed back to passengers and not just to AAI. Finally, termination clauses and step-in rights should be well drafted so that in the event of termination, the airports and passengers are not adversely affected.”

Meanwhile, the ministry official speaking today also pointed out that the Ministry was flexible on how much equity private parties would like to hold in airport projects. He gave the example of the Jamshedpur airport where the Tatas have come forward as private player but they want AAI also as an equity partner. “The Tatas want AAI to have some equity in the project perhaps since it is a greenfield airport and they think getting Government clearances would be faster with AAI as a partner. We have no objection to this”.

The official also said that to avoid levy of user charges mid way in these projects, the Government will fix tariffs for first five years at the time of giving away the lease to private developers.