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Yet another bailout
March 02, 2009
Last week, the government announced that we, the passengers, would be bailing out Delhi International Airport Limited by paying Rs 200 if we take a domestic flight out of Delhi airport and Rs 1,300 (which sounds pretty exorbitant) if we take an international flight out of the capital. Even as the ministry of civil aviation tries to blunt or sort of overlook the implications of this, I am pretty certain that passengers are being asked to do something they actually should not have to do.
In May 2006, after a fairly messy bidding process, the Delhi airport was handed over to DIAL for modernising, handling and management. The consortium led by the GMR group estimated that the master plan they had developed would cost them Rs 8,975 crore (Rs 89.75 billion).
Funds were to be raised partly through equity, borrowings and refundable security deposits of around Rs 2,739 crore (Rs 27.39 billion) from commercial property development in what was called a "hospitality district".
This entire plan of raising Rs 2,739 crore (Rs 27.39 billion) through inviting bids from hoteliers and real estate developers was to be carried out through last year.
Because of disagreements with the ministry of civil aviation (a long dispute played out over this proposal from the second half of 2006 and went on till mid-2007), the exercise got delayed.
By the time DIAL got the final nod to go ahead with its plan, the economic situation changed dramatically. Real estate prices took quite a beating as did the liquidity position of developers.
Lenders have become more and more wary of lending to investors and entrepreneurs. In other words, a similar exercise today is expected to fetch DIAL at best around Rs 900 crore (Rs 9 billion) due to a lack of interest but even more to a simple inability to raise the funds required. There is likely to be a shortfall of around Rs 1,800 crore (Rs 18 billion).
What's more, the lenders of DIAL had made the lending -- close to Rs 5,000 crore (Rs 50 billion) is to come from debt -- somewhat contingent upon DIAL's ability to raise money through commercial development.
In other words, if the security deposit money does not come through, the financial basis of the entire project could collapse like a pack of cards.
And that's where the proposed additional development fee comes in. The ADF will be charged till the airport got ready and will help DIAL bridge some of the gap.
The Damocles' sword hanging over the airport authorities is to get it ready before the larger-than-life Commonwealth Games in 2010 (most of the world is, however, largely uninterested in the Games, a concept that has long outlived its relevance).
In any case, the pace at which other facilities for the Games are being readied makes one wonder what one will do with an airport alone.
Nonetheless, the sword of the Games hangs over every neck. After the airport is ready, DIAL will charge a user development fee, the quantum of which is yet to be decided.
DIAL, of course, justifies the levy which, it says, will be charged for a 36-month period (the ministry says it's for six months subject to review by the Airport Economic Regulatory Authority, AERA): "These funds will be used exclusively for funding aeronautical assets that would be transferred to AAI on the expiry of DIAL's lease.
The limited-period ADF will help meet the funding gap in the project cost and will help banks lend money for the project."
But as I see it, there is no reason for passengers to be asked to pay first ADF and later UDF. Looked at from the other point of view, had DIAL made a killing on the real estate bids, would it offer to pay every passenger Rs 200 or Rs 1,300 as the case may be? This was never part of the initial bidding conditions, process or bid documents.
So, if the tide has turned, it is really DIAL's problem. All the consortium members should be asked to bridge the gap by putting in more equity. They can, for instance, pledge a majority of their shares, if required, just like all companies in India are doing.
If, however, there is simply no way out -- and the government is adamant that if nothing else the airport must be ready by the time of the games -- then there is no justification for DIAL to charge a UDF once the facility is ready.
By then, the economic situation may well have taken a turn for the better and passengers would have done their bit to see that they indeed have a better airport than what AAI has managed to serve up for many years.
Why should they then be asked to pay yet another fee? It may well delay the break-even of the project. But that quite frankly is a hit the consortium needs to bear since there are really no guarantees in projects of this nature. Just as passengers are to be saddled with this development fee and have to grin and bear it, DIAL should also learn to do the same.
Senior government officials with whom I discussed this are privately in agreement. But they have decided to wash their hands off the issue by leaving the task of settling these unpleasant matters to the new AERA and its chairman.
They say that the levy of the fee has been approved, subject to many conditions, only for six months and would be reviewed by the AERA, which is expected to start functioning by the end of March or early April.
Meanwhile, not to left behind, Mumbai airport -- which has been adopting a sort of me-too approach with DIAL -- has also proposed a similar development fee (this too is inexplicable since they have no deadline to meet and have so far spent around a third of what Delhi has).
Senior MIAL executives have been spending inordinate amounts of time in Rajiv Gandhi Bhawan, trying to convince officials that they too deserve this bonanza. Thankfully, their pleas have fallen on deaf ears so far. But as with all official decision-making, one simply never knows when and how the tide will turn.
Postscript: This is the last Out Of The Blue column that will appear in Business Standard. I hope you enjoyed reading it as much as I did writing it.
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