The real estate developers wanting to develop the hospitality district in the airport land may now pay lesser security deposits and higher lease rentals according to the latest proposal from the GMR group that heads the consortium developing the Delhi airport.

This development is a shift from an earlier proposal and the issue has essentially taken a full circle. The airport developer had earlier wanted companies associated with the real estate development to pay a higher deposit and a lower lease rental, which was opposed by the Airports Authority of India (AAI) pointing out that would reduce rent from realty developers and hence result into significant revenue loss for the government.

The dispute between AAI and GMR began last year when the former floated a subsidiary?Delhi Aerotropolis (DAPL) for the hospitality district. As per the plans, DAPL was to receive deposits of about Rs 2,835 crore in lieu of leasing land to developers.

After several flip-flops, the government seems to be finally coming around to the view that some amount of security deposits may be necessary to bridge the funding gap for this Rs 8,900-crore project.

Till now Rs 2,750 crore of the total project cost, which was to come from commercial developers building the hospitality district, has not been tied up due to sharp differences between the government and the airport developer over how such monies should be raised.

The new plan of GMR brings down the deposit amount and raising lease rentals. It will be partly funded by equity infusion from the stakeholders.

The issue threatened to cause major problems for the airport developer as some banks, those agreed to fund the Rs 8,900 crore airport development, threatened to pull out their money if the airport developer was not able to tie up the Rs 2,750 crore needed to fund the hospitality district.

Last year, the government had categorically stated that security deposits are a strict no-no since this model would dilute the revenue it would get from DIAL, forcing GMR to look for alternative sources of funding and ultimately delaying the entire modernisation project.

The government remained unconvinced despite the Attorney General opining that GMR?s proposal on raising deposits was well within the operation management development agreement (OMDA) signed between the two parties.

Some time back, the government had even agreed to look into a proposal that sought additional equity from all stakeholders to bridge this Rs 2,750-crore gap

This would mean that AAI would have to pay around Rs 1,000 crore which was not agreeable to the public airport developer.

Sources say that though the government has released a part of the Rs 715-crore share in additional equity for the project, it is now looking for ways to avoid pumping in the remaining money. So, various funding models are under consideration -each includes a mixture of security deposits and rentals from prospective commercial developers.

Not just security deposits, the government is also open to the idea of levying an airport development fee for passengers using the Delhi airport – Rs 200 for domestic travel and Rs 1,000 for international passengers. Though no final decision has been taken on levying ADF at Delhi, any such proposal is sure to cause the government some embarrassment since it has been actively discouraging similar fees which new airports in Hyderabad and Bangalore have proposed to recover costs.

Under the concession agreements the government has signed with both GVK and GMR, the developers are entitled to an ADFUDF levy from the date of finishing the first phase of development on the respective airports.

Earlier, it was decided that all the stakeholders in DIAL would bring in funds in proportion to their equity holding in the company to part finance the project. This arrangement was opted after AAI raised its objection to GMR?s plan to collect security deposits from realty developers. DIAL is a joint venture between GMR (50.1%), AAI (26%), Fraport and Malaysian Airports (10% each) and IDFC (3.9%).

?AAI has said it would not pump in Rs 1,000 crore for the proposed real estate project. This would further hold the hospitality project at the airport,? a GMR official said.

The agreement between GMR and AAI stipulates that the latter will receive 45.9% of the revenue collected by DIAL.

DIAL had earlier planned to build 3,000-room hotel complex at the capital?s Indira Gandhi International (IGI) airport before the Commonwealth Games in 2010 but this seems to be fast becoming a pipe dream considering the government policy to drag its feet on making a decision on the issue.