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News updated at 8:24 PM IST

Government open to 100 percent private equity in six airports

New Delhi, Aug 29, 2013 (IANS) 19:16 IST
The government is willing to allow 100 percent equity by private companies to manage six government-owned airports.

Under PPP model, management and operations of Chennai, Kolkata, Ahmedabad, Jaipur, Lucknow and Guwahati airports will be awarded to private players for a concession period of 30 years from the Airports Authority of India (AAI).

"The government is open to discuss the prospect of allowing 100 percent equity in the airport's operating company by private players," sources in the civil aviation ministry said.

"If an understanding on the same is achieved then unlike the existing operation, management and development agreement (OMDAs), the AAI will not hold any equity in the managing company, but will have revenue share from the operating company."

According to the sources, request for qualification (RFQs) will be issued soon for companies which are interested in Chennai and Lucknow airports. This will be preceded by the issuance of request for interest (RFI) and request for proposal (RFP).

However, in the previous cases of Delhi, Mumbai, Hyderabad and Bangalore airports, the AAI will not hold equity in the managing company.

The AAI currently has 26 percent equity each in Delhi and Mumbai airports and 13 percent each in Hyderabad and Bangalore airports under the operation, management and development agreement (OMDA) which it had signed with the private joint venture (JV) partners.

AAI gets 49 percent share in the revenue generated by the Delhi and Mumbai airport's operating company.

Apart from allowing 100 percent private equity, the government is mulling pre-determined airport charges that will be levied once the airport operations are awarded under the OMDA.

This will allow greater transparency in fixation of passenger charges after a recent hike in levies at Delhi and Mumbai airports.

"AERA (Airport Economic Regulatory Authority) is looking into the matter so that once the final tender is issued every detail of revenue generation is clear to all parties," the sources added.

AERA is the market regulator which determines aeronautical and non-aeronautical charges at airports which handle at least 1.5 million passengers annually.

Once finalised, RFQ document would be issued by the Key Infrastructure Development (KID) Cell of AAI. After RFQ, which is a response-seeking process to identify the participants for the bidding, Requests for Proposal (RFP) document would be issued giving out the details of the privatisation process.

Asked why the AAI would not have any equity stake even after spending thousands of crores for modernisation and upgrade of these six airports, the officials said it has no say in operation and management even at the existing private airports, so why should it invest in equity.

AAI has 26 per cent share in private airports of Delhi and Mumbai and 13 per cent in Hyderabad and Bangalore. AAI modernised Kolkata and Chennai airports at a cost of Rs 2,325 crore and Rs 2,015 crore respectively and upgraded the infrastructure at remaining four airports at a sizeable cost.

The privatisation bid has come under severe criticism from airlines, apart from the global airlines' body IATA.

Indian airlines have said their financial bottomlines had been adversely affected due to major hikes in landing, parking and navigation charges at Mumbai and Delhi airports.

Earlier, the Airports Council International (ACI), global airports body, was also critical of any long-term privatisation. Its Director General Angela Gittens had told PTI in June, "I don't know how much the AAI was involved in the decision-making process. Sometimes, it makes sense to outsource certain areas at least for some time."

"When you privatise something, it is not necessarily forever. It is a breathing spell... To give time to catch your breath," Gittens had said.

Earlier this month, the International Air Transport Association (IATA) sent a letter to Civil Aviation Secretary KN Shrivastava saying privatisation of airports "will only serve to fuel a further round of increases in the airport cost environment, adding to costs for passengers and the airlines".

In the letter, IATA's Regional Vice President (Asia Pacific) Maunu von Lueders said the airlines were "justifiably concerned with any unnecessary private shareholding that may increase the focus on profit-maximising and as a result increase cost to the users."
"The need for private sector funding is not obvious since the airport upgrading has already taken place with full funding provided through AAI," he said.

If external management expertise was required for managing these airports, it could be achieved without transferring ownership to the private sector. "A better way" could be through awarding management contracts to an entity with expertise in this domain, Leuders said.

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