The finance ministry has objected to the concession agreement for the greenfield Bangalore airport project, saying it impinges on the sovereign right of the country to decide on aviation matters.

The ministry has decided to call the stakeholders in the project, including Bangalore International Airport Ltd and the civil aviation ministry, for a discussion on the concession agreement next week.

Finance ministry sources said the concession agreement had given BIAL the right to be consulted on any negotiations on civil aviation issues between the Centre and other countries. The Centre will also provide a suitable compensation if there are changes in the civil aviation policies that affected the financial viability of the project.

The sources said it would be difficult to go ahead with the project unless the agreement was re-drafted, because it was biased in favour of the project promoters.

The agreement has also laid down that since no other airport will be allowed to be set up within 150 km of the new airport, the existing Hindustan Aeronautical Ltd (HAL) airport in Bangalore, which caters for 2.5 million passengers annually, will have to be closed down.

In the process, any compensation to be paid to airlines for termination of bilateral rights will be borne only by the Centre.

However, the ministry feels that such a protection from business losses will tantamount to giving a guarantee for the project. The ministry has already held discussions with officials from the civil aviation ministry and BIAL on the issue.

The Bangalore project is the first greenfield airport project in the country and will set a precedent for Hyderabad and Goa. But delays have already resulted in deadlines for the project being shifted. The earlier plan was to begin land development work in October 2002. It has now been postponed to 2003.

The shareholders in BIAL include the Karnataka State Industrial Investment and Development Corporation with a 13 per cent equity, the Airports Authority of India (AAI) with another 13 per cent and the Siemens consortium with a 74 per cent stake.

The Siemens consortium comprises Siemens Project Ventures GmbH of Germany, which has a 40 per cent stake, and Larsen & Toubro and Unique Zurich Airport having 17 per cent each.

The civil aviation ministry and BIAL have been holding discussions on the agreement from May 2002. The current agreement is the fourth draft that has been drawn up.

Some of the demands of BIAL have already been accommodated in the Airports Authority Amendment Bill 2003, which has been passed by the Lok Sabha. According to the Bill, greenfield airports will not be under the direct purview of the AAI.

The Bill also paves the way for the levy of an airport development charge at an existing airport for the construction of a new one in the same location.