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No soft landings here

After more than a decade without any worthwhile investment for developing airports’ infrastructure, India’s aviation sector is on the move again. HS Bhatia writes.

india Updated: Apr 21, 2011 22:47 IST
HS Bhatia

After more than a decade without any worthwhile investment for developing airports’ infrastructure, India’s aviation sector is on the move again. More than five years ago, a bold policy decision was taken by the government to encourage private investment in the sector along the public-private partnership model (PPP).

This opened the gates for attracting private entrepreneurs to invest in airports and airline infrastructure.

The ministry of civil aviation has estimated that domestic traffic in India by 2020 could be of the order of 160 million passengers with international traffic likely to exceed 50 million. India’s aircraft requirement by 2020 is estimated to be 1,000-odd aircraft in a mix, depending on the traffic circuits and economic development of various regions.

The investment projected in airports in the period is of the order $30 billion (Rs 1.35 lakh crore) and investment in aircraft procurement about $90 billion (about Rs 4 lakh crore). Considering such heavy investments, the government decided to induct private equity in the development of the aviation sector, which, till then, had been financed only through the government’s budgetary support.

As a result of the government’s policy to bring private capital for the development of airport infrastructure, Delhi and Mumbai airports have completed their first phase of development with private investment of about Rs 20,000 crore and need investment of a similar order for the next phase of development.

As of now, Mumbai International Airport is already saturated with no possibility of expansion due to land constraints. A greenfield airport (a new airport that’s built from scratch in a new location) in Navi Mumbai has been approved. This will need an additional investment of Rs 11,250 crore.

The two greenfield airports in Bangalore and Hyderabad, developed recently by private groups with an investment of about Rs 15,000 crore, have started operating. In addition, a bigger new international airport for Chennai is being developed at about Rs 10,000 crore to meet the air transport needs of Tamil Nadu for the next 20 years.

With such mind-boggling investments made in airport infrastructure, there is a need for a rigorous regime to ensure that optimum investments are made to provide a host of services to airlines and passengers at a reasonable cost. As airport services fall under the category of a monopolistic regime, most airports in the world where private equity is infused for development and management have been provided an independent economic regulatory mechanism.

India’s civil aviation ministry has also placed a similar mechanism in the form of the Airports Economic Regulatory Authority (AERA).

So far, however, it has not shown signs of safeguarding the interests of airport users. When the cost of the development of Delhi Airport escalated from Rs 5,500 crore to about Rs 11,000 crore, no serious consultation seemed to have been made between developers and users before revising the cost of the project.

The AERA should have asked for a revised economic model from airport operators and made it available to airport users. It seems operators justified the higher cost of the project by appointing consultants after the project cost had escalated.

Greenfield airports today are the movers and shapers of a region’s economy. So it’s important that such airports make maximum use of local materials and surroundings to reduce the recurring cost of energy and reduce the lifecycle cost of the project. In addition, the real value of such airports lies in their ability to enhance the economic value of a region and act as catalysts for economic cooperation.

(HS Bhatia is former board member, International Airports Authority of India. The views expressed by the author are personal.)