The development of Mumbai?s airport has taken another big hit with Housing Development and Infrastructure (HDIL) announcing on Wednesday that Mumbai International Airport (MIAL) had terminated the slum rehabilitation project it had been awarded in 2007.

MIAL had planned to start building a new terminal ? the third at the airport ? and to expand the existing runway in a couple of years. However, with the slums unlikely to be cleared by then, a new terminal and a longer runway could take many more years. That means the pressure on Mumbai airport will remain since passenger traffic is tipped to grow at 7-8% per annum. Terminal 2, which is scheduled to open in September this year, will take the total passenger handling capacity to 40 million.

A statement from MIAL said HDIL had been assigned to complete the rehabilitation within four years or by 2011. However, MIAL said HDIL continuously failed to perform and MIAL issued a ?cure notice? in June 2011. ?Because of non-performance of HDIL, the MIAL board took a decision to terminate the agreement and, accordingly, in the month of February, 2013, MIAL terminated the said agreement,? the statement said, adding that prior to terminating the agreement, MIAL had invoked performance securities.

Of the 1,700 acres of land available for developing the airport and commercial amenities, 170 acres can be used by the GVK Group-controlled MIAL for commercial development. The revenues earned from building hotels, office and exhibition centres were to be used to cross-subsidise the airport?s aeronautical revenues. The slum rehabilitation agreement was key to this. Of the 276 acres of slums to be cleared, HDIL was to be given 65.2 acres as part of its transfer of development rights (TDR) and not compensated otherwise. Of the remaining land, 105 acres of land was to be utilised by MIAL for commercial development while the remaining 106 acres was to be utilised for future expansion of the runway and possibly another terminal.

MIAL sources said that the termination of the slum rehabilitation contract may not have any immediate impact on the augmentation of aeronautical capacity at the airport, but it would continue to delay GVK?s long-term expansion plans and plans of earning revenue from commercial use of airport land. ?The Terminal 2 which will be opened by September will not be affected by the termination of the contract,? said a person in the know of the development. ?However, the pace of growth in traffic at Mumbai is such that in the next two to three years, we will have to look at further expansion.?

?The current situation with the slum rehabilitation will naturally delay future expansion of aeronautical facilities but even with HDIL in charge of slum rehabilitation the process was not moving at a desired pace,? the person added.

The slum rehabilitation project now faces further delay as it gets embroiled in a legal tussle with HDIL claiming the termination is ?untenable?. ?The company has been advised by their legal counsel that the said notice of termination is not tenable in the court of law and has initiated legal remedies available to it,? HDIL said in a statement.

Meanwhile, the government of Maharashtra is still to finalise an eligibility criterion for slum dwellers to get apartments; a survey to identify ?eligible? slum dwellers has also not been completed. In June last year, civil aviation minister Ajit Singh and Maharashtra chief minister Prithviraj Chavan had said that no deadline had been set for the completion of the slum rehabilitation project as further legislative changes may be required.

HDIL has refuted MIAL?s charges. ?We have met all our obligations in terms of delivering apartments for the slum dwellers,? said Hariprakash Pandey, VP (finance) said on an analyst call on Wednesday. ?We have already handed over 1,000 apartments through MMRDA to MIAL for the Sahar Elevated Road and another 7,000 apartments are ready for the last two years, which are pending transfer as the state government is yet to clarify on the eligibility criterion of slum dwellers.?

Passenger traffic in the Mumbai airport has grown rapidly since 2010. The Mumbai airport handled 6% more traffic in 2011-12 at 30.97 million passengers as compared to 29.1 in the previous year. As per data available, MIAL handled 14.42 million passengers from April to September 2012.

The new Terminal 2, which will open in September, will augment the airport?s capacity to handle 40 million passengers. However, the airport developer GVK also wants to increase the runway capacity of the airport.

?We want to increase the number of traffic movements per hour to increase the number of aircraft that can use the runway,? GV Sanjay Reddy, vice chairman of GVK Group, said earlier this year at the Routes Asia event held in Mumbai. ?We are consistently pushing it up and the maximum we have reached is 46 movements per hour. We want to keep it consistent beyond 45 and move to reach 50 movements per hour.?

HDIL?s Pandey said the impact of the termination notice so far was Rs 442 crore which has been written off as this was treated as an identified source of revenue. ?Around 27,000 apartments are under construction for which all the approvals and TDR are in place; we will continue to use that,? Pandey added. HDIL has spent Rs 4,500 crore to Rs 5,000 crore on the project so far, which includes land cost, construction cost, project specific interest capitalised and approval charges. However, Pandey said the company will not be investing any more in land for the Phase 2 and 3 of the project. HDIL had bagged the project in October 2007 from GVK led MIAL to eventually free 276 acres of encroached airport land by slums. It was to take rehabilitation of one million people, with around 85,000 hutments.