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Stiff terms may block privatisation runway

September 17, 2003 09:25 IST

Does the clearance of the privatisation of the Mumbai and Delhi airports after five years of dithering indeed herald a brave new world for Indian aviation?

On the face of it, the task seems quite arduous as preliminary estimates reveal that creation of "world class" airports would need investment of close to Rs 6,000-Rs 7,000 crore (Rs 60-Rs 70 billion).

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The catch is that unlike an earlier proposal, where the Airports Authority of India would have invested in their upgradation from its Rs 2,000 crore (Rs 20 billion) reserve, the current proposal does not have such a provision.

"It is unlikely that any private player will invest such huge sums. In the Kuala Lumpur, Singapore and Sydney airports, the government agencies made initial investments, after which private operators completed the process," an AAI official said.

The investments are necessary as both the airports are based on an archaic 1942 architectural model.

For instance, the Delhi airport requires a new international terminal. Though the current international terminal can be used as a domestic one, AAI officials say the massive renovation required would be equivalent to building a new terminal.

The Mumbai airport, on the other hand, definitely requires a new domestic terminal. The existing international terminal is also totally saturated and has to be upgraded.

An international terminal at Charles de Gaulle airport, inaugurated in June this year, cost 750 million euros [around Rs 3,825 crore (Rs 38.25 billion)].

To make matters worse, the concession agreement, too, may not be investor-friendly. In fact, the civil aviation ministry is proposing, besides the levy of an annual concession fee, a 4 per cent share for AAI in the total revenue of the airports.

The picture becomes grimmer if one looks at the financial situation. The revised estimates of profits (before tax) of 2003-03 as compared with 2001-02 reveal that the profits have fallen for both the airports.

For the Delhi airport, the profits have come down by 11.6 per cent from Rs 224.22 crore (Rs 2.24 billion) in 2001-02 to Rs 198.17 crore (Rs 1.98 billion) in 2002-03.

For Mumbai, they have fallen by 7.1 per cent from Rs 331.40 crore (Rs 3.31 billion) in 2001-02 to Rs 307.84 crore (Rs 3.08 billion) in 2002-03.

Therefore to make sustainable profits, the private player would at least need to be given some leeway about tariffs.

AAI officials say that this will prove to be another hurdle as any hike in airport charges is severely opposed by the ministry.

The AAI had sent in a proposal to increase charges by 10 per cent in April 2003, but the ministry not only turned this down but prohibited any such hikes for the next one year.

Studies show that Indian airport charges are low compared to Europe and America and they have remained so primarily because of the government-owned airlines raising a hue and cry every time these are increased.

AAI officials estimate that the charges should go up by nearly 200 per cent if the private operator hopes to make operating profits.

The cabinet has set up an empowered committee to take a decision on the tariff regime. A civil aviation economic regulatory authority will also be set up to oversee the tariffs that will be charged at the various private airports.

Land availability will be another obstacle in the case of the Mumbai airport. The airport encompasses 1,850 acres of land of which 150 acres is occupied by illegal slums.

The Airports Authority of India Amendment Bill 2003 passed recently by the Parliament may improve matters as it has a provision for an Airport Appellate Tribunal, which gives AAI the power to evict illegal encroachers.

Due to these deterrents, industry watchers are slightly wary about the entire process. "It is a welcome move but since the government has been so indecisive about it till now, we are slightly wary. Also the entire process is subject to the final decision of the empowered committee of ministers and hence it is likely that the deadline of April 2004 will not be met," said a representative of an international airport consulting firm.

Amrita Dhar in New Delhi