Reduced UDF may hit KIA's eastern tunnel project: BIAL

The Rs 1,200-crore eastern tunnel connectivity proposed as a third access to the Kempegowda International Airport (KIA) is likely to be shelved if the user development fee (UDF) is drastically reduced.

KIA operator, Bangalore International Airport Limited (BIAL) has indicated that the project will be in jeopardy and will have to be dumped due to an anticipated revenue shortfall.

The Airports Economic Regulatory Authority (AERA) is expected to announce a reduced UDF for the control period till 2021, levied from departing passengers.

The tunnel is part of a massive Rs 12,000-crore KIA expansion plan, the funding of which will trigger a hike in UDF in the control period from 2021 to 2026. To reduce this “tariff shock” to passengers, BIAL has sought AERA to retain the existing UDF rates till 2021.

Stakeholders at the AERA consultation meet last month had contended that KIA passenger traffic far exceeded the projected levels and BIAL actually made profits.

Hari Marar, BIAL’s Managing Director and Chief Executive Officer refuted this claim, dubbing BIAL as only the “custodian” of the airport. “Any difference in projected revenue and actual revenue will be ‘trued’ up entirely in the next control period,” he explained.

The excess revenue collected is subtracted from the aggregate revenue requirement (ARR). “As much as 92% of the internal accruals (profits) has been ploughed back into the airport operations in the last 10 years. Only Rs 90 crore has been released to shareholders as dividend,” said Marar.

Aeronautical tariffs for airports are levied for five-year periods called “control period.” The city airport’s first control period ended in 2016 (financial year). But since the UDF was not revised in time, KIA operator, BIAL levied the first control period rates even for the second control period (2016 to 2021).

However, AERA was established only in 2009. Marar said, “During the pre-control period, BIAL had actually ended up at a loss. The current domestic UDF of Rs 316 is not hurting anyone. Maintain the same tariff for the remaining 2.5 years of this control period (2016 to 2021 financial year).”

A reduced UDF, he contended, will not reduce airfares as airline fares are dictated now by dynamic-pricing mechanisms.