Why are private consortia of Delhi and Mumbai airports averse to CAG audit?

New Delhi: Why are the private consortia which operate and manage India's showpiece airports at Delhi and Mumbai dead set against an audit of their books by a public auditor? Both have been citing presence of external auditors and a well-placed, existing mechanism for audits to deny any need for a fresh audit and this seems to be a valid enough argument at first glance.

Why are private consortia of Delhi and Mumbai airports averse to CAG audit?

AAI has been pushing for CAG audit of Delhi and Mumbai airports

Operators of both airports also argue that the Airports Authority of India, which owns 26% equity stake in each airport and is the body seeking an audit by the Comptroller & Auditor General (CAG), has not made known any doubts nor sought any clarifications from the board of directors of either airport.

When AAI representatives on the board of the two airports have been silent for years on any alleged financial irregularities, why should the AAI now push for a CAG audit? Also, why is there talk of a CAG audit now when the airports were handed over to private consortia years back - almost a decade back in the case of Delhi?

These are valid arguments but they still do not address the real issue: why should DIAL and MIAL (Delhi and Mumbai airports respectively) be scared of opening their books to the CAG? Is it because of earlier scathing observations by CAG on how reluctance of the private developers to make adequate investments in their respective airport projects lead to hapless passengers bearing the burden instead?

Both the airports levied user charges at different periods of time for both international and domestic passengers in a bid to bridge the investment shortfall. But now, in the case of DIAL, CAG probably wants an audit for alleged diversion of revenues which may have taken place when DIAL formed joint venture companies for non-aeronautical functions with third parties, with minority stakes.

DIAL was formed in 2007 with GMR-led consortia holding majority 74 percent stake and AAI holding the remaining 26 percent. The concession agreement for the Delhi airport mandates that with 26 percent equity participation, AAI gets 46 percent share in airport revenues.

The CAG had made scathing observations on the same issue in its 2012-13 report too, where it had termed these JVs a "violation" of the terms of the airport concession agreement. The auditor had also alleged then that there was no way of knowing how much revenue from these subsidiaries was actually flowing to DIAL (and therefore coming to AAI as per the revenue share formula).

Once again, the CAG may have found something amiss with DIAL's 11 joint venture companies - these were formed for outsourcing various non-core operations at the airport like parking, food and beverages, cargo etc. The CAG perhaps believes that through these JVs, a part of the revenue which should have accrued to AAI is being diverted since the government does not audit these JVs and what they share as revenue with DIAL.

DIAL did not respond to Firstpost's queries today but it had earlier said that the airport concession agreement (OMDA) allows DIAL to make investment in JVs of non-aeronautical businesses. It had also said then that these JVs were in accordance with the provisions of Companies Act, where after the approval from the board of directors, investments in JVs as a minority share-holder could be made. Till end of last year, DIAL had divested its stake in two out of 11 JVs but all others continued to be operational.

So can DIAL be accused of diverting revenues away from AAI? If the formation of JVs is not barred under the airport concession agreement, then perhaps not. And it is well known that no airport operator performs all non-aeronautical functions by itself - these are usually outsourced to competent parties.

An industry veteran pointed out that in initial years, when these JVs were formed, it is possible that AAI's revenue share was impacted because "instead of getting Rs 46 for every Rs 100 earned by these JVs, AAI would have been given Rs 46 from every Rs 100 shared by these companies with DIAL. But this shortfall should have been overlooked since the airport has done really well and overall revenues have been increasing. A third of AAI's total revenue last fiscal came from DIAL".

Therein hangs the real question. Should any revenue shortfall from these JVs be overlooked merely AAI has been receiving far more through revenue share in DIAL than it was making when it was operating the airport on its own? AAI earned close to Rs 8,300 crore total revenues last fiscal of which close to Rs 2,500 crore came from Delhi airport alone.

This tug of war between AAI and the consortia which operate Delhi and Mumbai Airports respectively is a classic case of trust deficit between partners. The AAI has been asking GMR-led consortia which operates the Delhi airport and the GVK-led consortia which operates the Mumbai airport for allowing the Comptroller and Auditor General of India (CAG) to audit their books since 2013.

According to sources in the know, the first such request was made almost three years back and at that time, the AAI had subsequently sought the approval of the ministry of civil aviation before going ahead with this. The ministry, sources said, sought the views of the Planning Commission which stated categorically that a CAG audit is valid since these airports involve investment of public money. But as is the case with most "sensitive" decisions in the Government, the ministry and AAI dragged their feet and the issue remained unresolved till now.

Only now have DIAL and MIAL invoked the dispute clause in the concession agreement while opposing the AAI demand for a CAG audit.

As we pointed out earlier, Delhi and Mumbai airports have both had a nasty brush with CAG's scathing comments in the past as well, which explains their wary stance this time around. In 2014, CAG had objected to the PPP model for Mumbai airport, saying risks had not been properly transferred to the private party as the project cost doubled and the funding gap was filled up by passengers through development fee. It has levied similar charges at DIAL too.

In the case of MIAL, CAG had said the project cost "more than doubled from Rs 5,826 crore to Rs 12,380 crore" but was restricted to Rs 11,647.46 crore till March 2014 by AERA. Though the project cost doubled, "the concessionaire did not appear to have faced financial vulnerability for the same, as the funding gap was being largely absorbed by the passengers through levy of development fee (DF), though such levy was not in the OMDA."

The CAG had also noted in this report that the revenue share of AAI was "set to decline with the outsourcing of activities as noticed in the case of domestic and international cargo activities and the airport hotel project".

Whether CAG will audit either or both of these airport projects may actually depend not on whether the airport developers allow it but on the view courts take in similar matters. CAG Shashi Kant Sharma has been quoted saying last month that here have been "irregularities and trust deficit" in certain audits of PPP while asserting that CAG can audit power distribution companies for example despite these being private entities.

The issue of auditing the accounts of discoms is pending in court as companies have opposed Delhi Chief Minister Arvind Kejriwals request to CAG for conducting their audit.

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Updated Date: Feb 08, 2016 17:11:54 IST

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