Why India's revised policy for privatising airports is faulty
The jury is still out on whether the per-passenger model is better than the revenue share one for awarding airports to private players with the consensus tilting in favour of the latter
In 2019, the government proposed changing the policy for awarding airports to private promoters following the public-private partnership (PPP) model. It proposed that whichever bidder was willing to pay the authorities the highest per-passenger revenue would be awarded the airport for operating it.
Before this change, airports were awarded to the highest bidder following the revenue share model. Hence, a consortium led by the GMR group won the right to develop the Delhi airport as it had the winning bid agreeing to 45.99% of its gross revenues being given to the Airports Authority of India (AAI). Similarly, a consortium led by GVK won the right to develop the Mumbai airport as it had the winning bid agreeing to give 38.7% of its revenues to the AAI. Both the airports were handed over to private players in 2006.
According to ICRA, 25% of AAI's revenues comprised the revenue share from privatised airports (Delhi and Mumbai) in FY18.
In January 2013, the Lok Sabha was informed that the AAI had earned revenues of over Rs 3,015 crore in the past four years from the Delhi and Mumbai airports as part of its share from the operators of those two airports.
The AAI received Rs 1,674.62 crore from the GMR-led Delhi International Airport Ltd (DIAL), including revenue of Rs 544.29 crore in 2009-10. It got Rs 1,341.19 crore in the past four years as its share from the GVK-led Mumbai International Airport Limited (MIAL), including Rs 396.68 crore in 2009-10.
However, in 2019 the government decided to move to the per-passenger revenue model. According to this proposal, the maximum blended aeronautical yield in rupee per passenger terms was to be predetermined by the concession authority at the beginning of the concession period.
A view of the GMR-operated Delhi airport. Image courtesy: Wikimedia Commons/Deepak G Goswami
This new proposal has been used for awarding the upcoming greenfield airport in Jewar to a consortium led by Zurich Airport which agreed to pay a fee of Rs 400.97 per passenger using that airport. The Zurich Airport agreed to pay the Noida International Airport Limited (NIAL) this amount. This was the highest by any of the four bidders in the fray. Adani Enterprises Limited quoted Rs 360 per passenger and DIAL made a bid of Rs 351 per passenger.
Similarly, the Adani Group won the bid for six AAI airports quoting a per passenger (domestic) fee of Rs 177 for the Ahmedabad airport, Rs 174 for the Jaipur airport, Rs 171 for the Lucknow airport, Rs 168 for the Thiruvananthapuram airport and Rs 115 for the Mangaluru airport.
However, the jury is still out on whether the per-passenger model is better than the revenue share one with the consensus tilting in favour of the revenue share model. Satyendra Pandey, Managing Partner, Airavat Transport and Technology Ventures, says that to fully understand the advantages and disadvantages of the per-passenger fee model one has to revisit the intent versus outcomes of airport privatisation in the PPP model.
"These outcomes have never been formally examined and words such as world-class infrastructure continue to be thrown around. Additional phrases such as strict monitoring of the quality of services are consultant speak masquerading as evidence of regulatory oversight," he argues.
Pandey adds that an argument put forth is that the per-passenger fee model does away with regulatory uncertainty. "What it fails to disclose is that this uncertainty emanates from the airports' misinterpretation or at best mischievous interpretation of rules. The airports' ability to deploy resources and their ability to attract talent far exceeds that of the regulator," he says.
An artist's representation of the Jewar airport
Former AAI Chairman VP Agarwal agrees with Pandey as he points out that the per-passenger model has drawbacks.
"At first glance, the per-passenger model looks very transparent as the airport operator pays the partner the agreed amount per passenger which can be easily monitored. But the model could act as a deterrent to the future development of the airport where it is being applied given the complex equation between non-aeronautical and aeronautical revenue sharing which goes into deciding what the airport will pay the authorities," Agarwal says.
Agarwal gives the example of the AAI, which he says was a cash-rich organisation earlier but is today running from pillar to post to raise funds as it is literally starved of money. "From revenue share, you could fund the smaller airports as the revenue share was good. Revenue is yet to flow from six airports recently privatised," he says.
Agarwal does see one advantage of the per-passenger model though: the number of years for which the airport is given out has been reduced to 40 instead of 60 years. This allows the authorities to review the arrangement earlier in case they find that things are not going as planned.
(Cover image courtesy Wikimedia Commons)