Even as the Airports Authority of India (AAI) remain undecided over funding of the hotel project at the Indira Gandhi International Airport in New Delhi, the logjam over the issue may delay the hotel project and it may not come up in time for the Commonwealth Games in 2010.

As per plans, a 3,000-room hotel complex was to be built at the 5% area, which the developers of the Delhi airport developers are allowed to undertake for commercial development.

Last year, Delhi International Airport Ltd (DIAL) had created subsidiaries and tried to develop a hospitality district on 45 acres of the approximately 250 acres of airport land that it is allowed to develop by taking security deposits toalling Rs 2,750 crore from realty developers.

This move was opposed by the AAI as it felt that DIAL, the developers of IGI, was taking revenue away from the AAI by forming subsidiaries. The government-owned airport developer contended that the deposits DIAL took were too high and is a part of its revenue and not deposits that were to be returned.

At present, the national capital, which is to be the venue of the Commonwealth Games in 2010, is facing an extreme shortfall of 30,000 hotel rooms. The hotel rooms which were to be built in the hospitality sector will go a long way in filling the shortfall. But due to the delay, many including the real estate developers believe the hospitality district will not come up in time for the Games.

The GMR Infrastructure Ltd-led Delhi International Airport Ltd (Dial) consortium, which is modernising India?s second busiest international airport by traffic had planned to raise around Rs 2,800 crore in debt from land lease rights for some 45 acres of airport land through a subsidiaries, Delhi Aerotropolis Pvt Ltd, to fund the airport?s development. The ministry and AAI have asked the airport developer to come up with other means to fund the expansion even though the attorney general has approved the airport?s funding plan.

According to sources, the deposits were refundable after 30 years and the real estate developer were expected to pay a token annual licence fee. But, the plan was abandoned after fierce opposition due to fears that the financing model would bypass the revenue-sharing agreement between the publically-owned airport operator and DIAL.

DIAL is now in the process of coming up with an equity sharing proposal where all the stakeholders in the airport would have to pay an equitable share depending on their shareholding to fund the expansion. The funding is a necessity as developer fears that the banks who have promised the rest of the funds may back out without this money.

DIAL believes it cannot raise such large debt by itself as after sharing 46% of revenue and paying all its expenses, it would be left with limited reserves to service remaining debt leaving its debt service ratio coverage severely stretched. DIAL, has however,indicated that bridge financing being applied now to fund airport construction will be removed as soon as the real estate plans are cleared by the government.

The airport is leased to DIAL until 2036, extendable by 30 more years, under a concession agreement that seeks nearly 46% of gross revenues for state-owned Airports Authority of India (AAI) that was operating the airport.

In February, DIAL and the government decided to break the impasse and infuse fresh equity into the project as an alternative solution to taking security deposits. But now, the operator has approached the government once again to raise funds through a new financial structure which is still being worked out. Under this, DIAL will transfer land lease rights of some acreage to another subsidiary while retaining ownership. The subsidiary would then construct hotels in 45 acres of the land without giving it out to a property developer but, later, hand over the management of the hotels to a private player.