CAG plans another audit on GMR to check its revenues

CAG has already indicated that GMR got a steal in the Deli Airport deal. it is now planning to check if it is really reporting its revenues right

Sindhu Bhattacharya August 17, 2012 18:07:04 IST
CAG plans another audit on GMR to check its revenues

New Delhi: The consortium led by GMR which operates the Indira Gandhi International Airport (IGIA) in Delhi needs to brace itself for more scathing observations from the Comptroller and Auditor General (CAG). The CAG has already submitted a scathing report that questions the "undue favours" shown to GMR (Read here).

The CAG now wants to audit the gross revenues of the airport, which is a joint venture between the GMR-led consortium and the Airports Authority of India (AAI) and is based on a revenue share formula. As per the Operations Management Development Agreement (OMDA), or the concession agreement which the AAI signed with the developer consortium under a public private partnership model, AAI is entitled to 45.99 percent revenue share. AAI has a 26 percent equity stake in Delhi International Airport Ltd (DIAL).

CAG plans another audit on GMR to check its revenues

A fresh audit is being planned on how DIAL reports gross revenue and the revenue share model of this airport. AFP

A senior CAG official told Firstpost on condition of anonymity that a fresh audit is being planned on how DIAL reports gross revenue and the revenue share model of this airport. This audit, which still has to get permission to begin, will examine the criteria for reporting gross revenue by DIAL and whether any upfront fees paid to it are also included in the calculation.

Last year, the CAG had submitted a report in Parliament which said that the joint ventures set up by DIAL "resulted in substantial reduction in annual fees receivable by AAI". DIAL had set up 11 separate joint ventures (JVs) for almost all of its non-aeronautical revenue streams, including cargo, food and beverages, duty-free, and ground handling.

DIAL's stake in the JVs ranged from 26-50 percent and the subsidiaries agreed to pay DIAL a share in revenue of 15-25 percent. CAG's contention is that had DIAL not floated these JVs and conducted these businesses itself, it would have earned 100 percent of the revenues, and 46 percent would have accrued to AAI. CAG said in its report last year that "audit observed that while DIAL was required to pay to AAI an annual fee at the rate of 45.99 percent of its gross revenue, DIAL's agreement with the joint ventures (on cargo and airport parking) provided for sharing of gross revenue on the contracted-out services.... This resulted in substantial reduction in annual fee receivable by AAI".

Meanwhile, the CAG official quoted earlier also justified the 46 percent revenue share model where AAI is expected to benefit to the tune of Rs 3 lakh crore by saying that higher revenue share for the government-owned airports owner was the criteria for selecting successful bidders for IGIA development in the first place. The official refuted any suggestion that AAI was an undue beneficiary because of the revenue share clause in OMDA.

"When bidding was being done for modernisation and development of IGIA under a PPP model, it was clear that whoever offers the highest revenue share to AAI would be selected. The GMR-led consortium itself offered to provide 45.99 percent revenue share, so how can they question it now?"

Deputy CAG AK Patnaik also brushed aside any suggestion that the report on IGIA is mild and does not actually speak of the loss to the exchequer when a report on allocation of coal blocks clearly states this figure at Rs 1,86,000 crore. "We have neither been mild nor harsh. We have followed a set procedure and our report is based on our guidelines," he said.

On why the audit of DIAL is shy of quoting a loss to the exchequer, the official quoted earlier said the two audit reports - on coal and on IGIA - were examining totally different subjects. "In a PPP model, we must examine if there has been any gain to a private party whereas in government's coal block allocation, it is all right to talk of losses."

Among other things, the CAG report on IGIA says that with a private equity investment of just Rs 1,813 crore, the Delhi International Airport raised more than six times as much in debt and fees to run an already running airport for 60 years. In the process it gets to use land with a commercial value of at least Rs 24,000 crore - with the upper end potential earnings going up to Rs 1,63,557 crore, according to GMR's own estimates.

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