Here's Indian government's big airport privatisation plan
AAI is examining the feasibility of offering a non-profitable airport and a profit-making airport as a package
The government would soon start the next phase of airport privatisation, with the possibility of six to ten airports being taken up. This was revealed by the Civil Aviation Secretary Pradeep Singh Kharola on February 4. The third phase of airport privatisation would commence from April this year (or the first quarter of FY22), Kharola said, while adding that the government was looking to club a non-profitable airport with a profitable one and offer them as a package.
"The Airports Authority of India (AAI) is examining the feasibility of giving a non-profitable airport and a profit-making airport as a package. We could see six to ten airports being taken up," Kharola said. The government is in the process of identifying the airports that are to be offered through competitive bidding to the private sector for a lease period of 50 years for operation, management and development, IANS reported.
Union Finance Minister Nirmala Sitharaman had said in her Budget speech on February 1 that the government this year would be privatising airports run by the AAI from Tier 2 and Tier 3 cities. The AAIR runs around 100 airports in the country. Civil Aviation Minister Hardeep Singh Puri had observed in August last year that the government should not be running airports and airlines, according to a PTI report. His remarks came in response to the opposition from the Kerala government over the Centre's decision to lease out the Thiruvananthapuram airport.
The process of privatisation of airports under the Narendra Modi government was kick-started in 2018. In February 2019, the Lucknow, Ahmedabad, Thiruvananthapuram, Guwahati, Jaipur and Mangalore airports were privatised and following competitive bidding, the Adani group won the rights to operate all of them. In July 2019, the Centre approved proposals to lease out the Mangalore, Lucknow and Ahmedabad airports to the Adani group. These three airports were handed over to the concessionaire (Adani group) on October 31, 2020, November 2, 2020, and November 7, 2020. They were handed over for a lease period of 50 years. In August 2020, the proposals to lease out the remaining three airports to Adani was given the go-ahead.
The Adani group has emerged as the biggest player in the airports business in India. Image courtesy: Pinterest
"Let me give you the history of airport privatisation going back to when the first two major airports were privatised. I think the year was 2006 (when) Delhi and Mumbai airports were privatised. They were very successful operations. Out of that, I think AAI received Rs 29,000 crore, which it could utilise for the other airport development programmes, etc," Puri said at a press conference in New Delhi on December 29, 2020.
"After Delhi and Mumbai, for many years, there was a stipulation in the contracts that only entities that had private expertise or experience could bid in airport privatisation, which essentially meant that all the others were effectively excluded. Then after that these things were lifted, several other airports got privatised. In November 2018, an announcement was made for six airports to be privatised. All those six airports have now been processed. We are now looking at additional six airports, it could be six-plus, and which we are in the final stages," he added.
Puri also pointed out that the bid for the Jewar airport -- billed as the largest airport in the country when complete -- was conducted in a "very transparent, open and competitive" manner, and "an entity from outside India (Zurich Airport) won the bid".
"We are developing another 100 airports. We will be going forward in developing airports like the Kushinagar International Airport, we are looking at many airports in UP," he said.
"The second phase of privatisation of airports started in 2018. At that time, we had offered six airports on PPP mode. There was good competition. Out of them, three airports have been handed over in a very seamless manner (in such a way) that the change was not even felt by anyone," Kharola said at the press conference.
"The Ahmedabad, Lucknow and Mangalore have already been handed over to the PPP partner and they are running the airports. Three airports remained, out of which a court case was filed on the Thiruvananthapuram airport and the high court ruled in our favour, saying the process had been run in a very, very efficient and transparent manner. So the entire process has been upheld by the high court of Kerala and now all the hurdles for the remaining three airports have been cleared, their security clearance has also been obtained, and we are likely to sign the concession agreement with the three airports in January," Kharola added.
"Out the three airports that were left, the Union Cabinet approved the award in August 2020 and we issued a letter of award in September. The security clearance was received in December and we expect that the concession agreement for these remaining three airports will be signed in the first half of January 2021," said AAI Chairman Arvind Singh said at the press conference.
"As far as the next round of airports is concerned, we are in the final stages of obtaining government approvals and once the approvals are received, I think we will start the process of bidding in the first quarter of 2021," he added.
In 2019, the AAI recommended the privatisation of six more airports -- Amritsar, Varanasi, Bhubaneswar, Indore, Raipur and Trichy. Puri announced on May 16, 2020, plans to begin the tender process for the privatisation of the Tiruchirappalli Airport, Bhubaneswar Biju Patnaik Airport, Amritsar Sri Guru Ram Dass Jee Airport, Raipur Swami Vivekananda Airport, Indore Devi Ahilyabai Holkar Airport and Varanasi Airport “in the very near future”. The ministry of civil aviation (MoCA) said on December 29, 2020, that the modalities for the privatisation of these airports are being finalised.
R to L: DGCA Arun Kumar, Civil Aviation Minister Hardeep Singh Puri, Civil Aviation Secretary Pradeep Singh Kharola, Air India CMD Rajiv Bansal and AAI Chairman Arvind Singh at a press conference in New Delhi on December 29. Image courtesy: Twitter/@MoCA_GoI
The Centre already had a plan to club unviable airports with main airports in the same geography, according to a Business Standard report in September 2020. This would ensure that the government is not saddled with only unviable airports after the profit-making ones are privatised. It will also lead to an improvement in the regional infrastructure.
The Empowered Group of Secretaries (EGoS) had proposed that the Amritsar, Bhubaneswar, Tiruchirappalli, Raipur, Indore and Varanasi airports be clubbed with Barmer (Rajasthan), Jharsuguda (Odisha), Salem (Tamil Nadu), Jagdalpur (Chhattisgarh), Jabalpur (Madhya Pradesh) and Kushinagar (Uttar Pradesh) airports respectively, The Week reported.
There is also a proposal to put a cap of a maximum of two airports on the bidders in order to break an Adani-like monopoly. The Adani group has emerged as the biggest player in the airports business after it not only bagged six airports in the first round of privatisation under the current government but gained a controlling stake (74%) in the Mumbai International Airports Limited (MIAL) from the GVK group and other partners. In August last year, the Adani group announced that it had struck a deal to take over GVK group's stake (50.5%) and control of the Mumbai airport, and this year, it completed an acquisition of a combined 23.5% stake from Airports Company South Africa (ACSA) and Bid Services Division (Mauritius) Limited for Rs 1,685.2 crore, Business Today reported. The AAI holds 26% stake in the Mumbai airport.
This acquisition would also give Adani a control of the upcoming Navi Mumbai airport, in which MIAL holds a majority stake.
According to many economists, private airport ownership brings about a better set of incentives for viable long-term efficiency in the industry, Wojciech Augustyniak writes in 'Impact of Privatization on Airport Performance: Analysis of Polish and British Airports' in the Journal of International Studies.
Improvements in competition and operating efficiency, the introduction of new commercially-focused management styles and marketing skills directed at more consumer-oriented management with better investment decisions, reduction of government financial involvement and public investment in the industry, provision of access to private investment and changing the role of the government from owner and operator to the regulator are some of the aims of airport privatisation. Added to this is the revenue-generation for the government that disinvestment of airports would bring about.
However, the government has to guard against Adani-like monopolies being created that could curb competition and development. Transformation of an airport into a private local monopoly may also lead to increase aeronautical fees to exorbitant levels, too much of cost-cutting, resulting in inadequate investment, poor standards of service, insufficient consideration to non-operational issues such as environmental impacts and maintaining social justice.
(Cover image courtesy Wikimedia Commons/SlowPhoton)