Govt sweetens deal for pvt airport developers with new investment rules

index.jpgSource: Business Standard, July 20, 2017

New Delhi: To attract more private players towards operating Indian airport projects, the government has made a policy change that will allow the private party to not have to make any capital investment in the project. Instead, the government–owned airport operator, the Airport Authority of India (AAI), will make the investment and the private player will share the revenue with AAI.

The decision is understood to have been taken after a high-level meeting between the AAI chairman and the Prime Minister’s office after private players appeared reluctant to participate in the bidding process for the operation and maintenance (O&M) of the Ahmedabad and Jaipur airports. Major airport operators said that the scope of revenue generation through only O&M of airport terminals was too low. The new model is likely to enforce more discipline among developers. Over the past decade, private airport operators have run up costs in excess of estimates and then had tariffs changed upwards to compensate. For instance, the cost of modernising the Delhi and Mumbai airports more than doubled to $3 billion each.

AAI has informed that the matter has been re-examined with special reference to project financials of these projects. It has stated that for these projects the successful bidder will not be required to make capital investment and all the capital investments will be made by AAI,” said a document reviewed by Business Standard.

When asked about it, AAI Chairman Guruprasad Mahapatra said that the model will be followed in case of future airports, which will be given to private players for operation and maintenance. “We will invite global tender for O&M of few more airports, we will follow the same model there too,” he said.

An official aware of the development said following unsuccessful attempts to fully privatise major airports in the way of Delhi and Mumbai, the government has decided that private players will be allowed only in O&M of airports where the government has made a significant investment. “Only greenfield airport projects will be given to private (sector) in a concessionary model, for existing airports, O&M model will be followed,” he said, adding that major airports like Kolkata, Chennai, Trivandrum are likely to be the airports for which bid will be called shortly. In late 2014, AAI completed a Rs 2,400-crore upgrade of Chennai and Kolkata airports. Citing the expensive upgrade, the NDA government decided to scrap the full privatisation of major airports in 2015.

The government is trying to attract foreign players to build airports as it attempts to build almost 200 airports in the next 10 to 15 years. “We need almost Rs 2-3 lakh crore to build new airports and most of the investment is going to come from private players,” minister of state for civil aviation Jayant Sinha had said recently.

 

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