Here’s something the new civil aviation minister will have to worry about right after taking up the job.

The Delhi High Court has admitted a PIL by the Resources of

Aviation Redressal Association. The petition seeks a stay on the development fee charged from passengers, on both domestic and international routes, by the Delhi International Airport Limited (DIAL). The fee will be levied for three years.

The court has sought a response from Airport Authority of India (AAI) and DIAL?the joint venture between the GMR-led consortium and AAI?by the first week of July. The civil aviation ministry will be right in the middle of this.

Those arguing against the fee say the issue is not the fact of the charge but its timing. Passengers should pay for airport modernisation. But this fee has been charged while the modernisation project is on-going. Passengers are being asked to pay for services that are not available yet.

Those arguing for the charge?in jargon, this is called ?pre-financing charge??say such an option is resorted to when stakeholders have exhausted all other options for financing the project. The government was faced with the prospect of an incomplete airport project as the Commonwealth Games deadline approached. There was hardly any other choice.

Another counterargument on the levy focuses on the ?who?s paying? principle. If DIAL was cash-strapped, why are airline landing and parking charges not being hiked. The burden should be shared by consumers and airlines.

One important point in this debate is that neither of the two important agreements governing the privatisation of Delhi Airport?Operation, Maintenance and

Development Agreement (OMDA) and the State Support Agreement (SSA)?has the provision for levying such a fee.

The SSA says in Schedule 1 (Principles of Tariff Fixation) that aircraft operators, passengers and other users should not be charged for facilities and services they do not use. It also states that within the overall price cap, the JVC, in this case DIAL, will be able to impose charges subject to them ?being consistent with pricing principles and IATA pricing?. IATA has in fact criticised the levy.

Against all this is the fact that bankers had refused to make up for the requisite capital deficit in the project and AAI is not in a position to bring in its share of equity. Proponents of the levy argue that it was to bridge the gap and provide for AAI?s inability to bring in equity that the fee was imposed on fliers. It was done under section 22 (A) of the amended Airports Authority of India Act 1994.

The controversy over the levy can be traced to the the Planning Commission. DIAL?s total project cost was supposed to be Rs 8, 975 crore. Its plan was to raise around Rs 4,800 crore as debt from the market and around Rs 4,000 crore through internal accruals. Of the Rs 4,000 crore of internal accruals, DIAL was to bring Rs 1,200 crore as equity and remaining Rs 2,800 crore was to be mobilised as the refundable security deposit (RSD) from the hospitality district. The idea was to collect advance lease rent for a period of five years and eight months from real estate firms in the hospitality district.

For DIAL, RSD meant access to funds without interest rate costs. But right when bidders were to be awarded the projects, the Planning Commission argued that the collection of advanced leased rentals or RSD for such a long duration would mean that real estate players could negotiate monthly lease rentals at a much lower rate. Since proceeds from hospitality district also formed a part its overall revenues, the commission felt that AAI?s revenues would be considerably impacted.

AAI never formally registered a protest. But certain sections within the organisation agreed with the commission?s views. The commission also argued that AAI should be given a 26% share of RSD to make up for shortfall in revenues. The controversy lingered and the bids were cancelled. This is the reason why imposition of the fee was considered the only option. Funds would otherwise have been available from real estate developers in the form of RSD.

The important question, given the commission?s argument, is why AAI?s commercial interest was not protected at the time the arrangement was being formalised. If the joint venture partners had agreed to such an arrangement, why were Planning Commission objections, which came in the middle of implementing the project, allowed to change the plan? If the commission voiced legitimate concerns, such issues should have been worked out during the initial stages of project development.

This was clearly proof of a confused policy. More confusion followed. DIAL insisted that AAI bring in its matching share of equity if it was opposed to RSD. DIAL knew the government is keen on an early solution. The civil aviation ministry, supporting DIAL?s stand in principle, sought a middle path: reducing the duration of advanced leased rentals to three years from five years and eight months. A re-bidding for the hospitality district was also ordered. But real estate had slumped by then, so bids fetched Rs 900 crore only, as compared to Rs 2,800 crore earlier. A deficit of Rs 1,897 crore appeared.

DIAL having brought in shareholder?s advances to the tune of Rs 1,250 crore, a matching contribution from AAI of Rs 400 crore was sought. But AAI was on a borrowing spree itself and didn?t contribute.

So, in October 2008, the development fee idea was mooted by DIAL. The government had considered various alternatives, including downsizing the project. But the go-head was given to DIAL. Reference was made to similar charges in the case of some airports in Canada, UK and Jamaica.

Now, the matter is in court. The fundamental problem, however, is fights between various departments and the resultant confused policymaking. Passengers are the receiving end of this row. Really, at stake is the future of Delhi?s new airport.

The author is in the business bureau, Indian Express