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Unexpected turbulence

india Updated: Mar 06, 2009 13:19 IST
HS Bhatia
HS Bhatia
Hindustan Times
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The Ministry of Civil Aviation’s plan to introduce a special airport development fee (ADF), of Rs 200 and Rs 1,300 from domestic and international passengers respectively, at Delhi Airport is an unwarranted heavy tax on air travel. It can have an adverse effect on air traffic growth and tourism in India.

On the basic air ticket price, there are already various additional taxes. To add another will make air travel prohibitive. More important, it will send out the wrong message, apart from setting a precedent of taxing consumers whenever there is a cash shortage and imposing ADFs at all airports where modernisation is taking place.

The Civil Aviation Ministry had been dragging its feet for the last year-and-a-half on setting up an independent regulatory authority for the aviation sector, which is essential to control prices due to the monopolistic nature of business at the airports. As a traveller doesn’t get these services elsewhere, the need for such a regulatory authority heightens.

Despite intermittent promises made by the government, the Ministry has so far turned a blind eye to price control and issues related to the development and operation of airports with Public Private Partnerships (PPPs). One can’t say whether this omission is deliberate or not, but it’s a serious lapse in the PPP model of financing airport projects where large private investments are being made.

The Delhi International Airport Pvt Ltd (Dial) needs to answer some questions. How did the Delhi project, with an estimated cost of Rs 5,500 crore as per GMR’s original business model, escalate to a whopping Rs 11,000 crore? As per the original agreement, GMR is expected to pay the Airport Authority of India (AAI) 46 per cent of the turnover and profit-share on 26 per cent equity. With the increase in cost, and after paying the AAI all its shares, how does Dial propose to operate the airport? The balance left with Dial will hardly be enough to service its debts and loans and meet all operating expenses. It may be necessary for the GMR to justify this rise in the cost, considering that its loans were taken from public funds and also because the AAI holds 26 per cent of the equity. So, any change in the revenues generated can affect the returns of the AAI.

Further, will this rise affect the charges to airlines for their use of airport facilities? Also, was the levy of the ADF and its quantum accepted by the government in GMR’s original proposal? If not, then the government seems to be giving undue benefits to Dial. This can lead to an infringement on the agreement. The Civil Aviation Ministry must keep in mind that GMR had won this concession by virtue of its proposal being financially most beneficial to the government. Any additional benefits, if given to Dial, may not keep GMR’s bid the lowest any more.

Recently, a proposal giving additional land for commercial purposes at the Delhi Airport to generate upfront cash didn’t find favour with the Dial board. It was seen as a possible infringement on the terms of agreement between Dial and the AAI. If the government feels that there is a genuine increase in the project’s cost, it may consider giving the Dial a soft loan out of the 46 per cent turnover the AAI is receiving from the Delhi Airport at a low rate of interest and on deferred payment. It will relieve any undue burden on air travel and negate adverse consequences on the growth of traffic and airline operations.

HS Bhatia is a former Member of the International Airports Authority of India