New price model may discourage Navi Mumbai airport bidders

Written by Nirbhay Kumar | New Delhi | Updated: Jul 27 2011, 06:57am hrs
The Airports Economic Regulatory Authority of Indias (Aeras) decision to adopt the single-till pricing model for fixing airport charges could discourage private developers from bidding aggressively for the proposed Navi Mumbai airport.

Private developers and investors such as GMR, GVK and Kotak Infrastructure are concerned over return on their investment in the face of the regulator using revenues earned from non-aviation activities for cross-subsidising airport tariff.

Under the new mechanism, revenues earned from activities like retail, parking, hotel and cargo are combined with aeronautical revenues and charges are fixed based on this to keep the user charges lower.

The private airport companies have gone on appeal against the decision. The single-till model would dampen the investor spirit and developers would have to relook at their strategies, said Sanjay Sethi, executive director and head of infrastructure group at Kotak Mahindra Capital.

The airport regulator had in January come out with its decision to determine airport tariff such as landing and parking fees on the basis of single-till. The private airport companies GMR and GVK had argued for dual-till, a method of calculating tariff keeping the aero and non-aero revenues under separate heads, to keep their return on the higher side.

The two companies have appealed against the Aera decision in the appellate tribunal.

The hearing in the tribunal is yet to start. The matter is subjudice, said Association of Private Airport Operators (APAO) secretary general Satyan Nayar. According to KPMG India director (aviation) Amber Dubey, both the single- and dual-till models exist globally depending on the specific situations of the countries. A hybrid-till as followed in case of Delhi and Mumbai airports is a good middle path, said Dubey.

The Maharashtra government-run City and Industrial Development Corporation (Cidco) is expected to issue a request for qualification (RFQ) for the R9,000-crore Navi Mumbai international airport soon.

A person connected with the new project said the bidding process could start in the next six months. With the proposed airport just 35 km away from the existing Chhatrapati Shivaji International Airport (CSIA), the government has to distribute the air traffic between the two airports in such a manner that they remain commercially viable.

Mumbai will be the first twin-airport system and hence a test case which will be closely watched. Navi Mumbai International Airport (NMIA) will be subject to the single-till approach whereas CSIA is subject to hybrid-till. A reasonable traffic allocation between NMIA and CSIA would help in long-term viability of both the airports, said Dubey.

An airport sector analyst who did not wish to be named said that since airports have long gestation periods, the single-till approach model adopted by AERA would further make it unattractive for investors.

The Aera maintains that the single-till model is best suited for the Indian airport sector. It stresses that there are several examples of private companies operating in the single-till regulatory environment.