While some sectors of the economy have seen spectacular success with public-private partnerships (PPPs), some others have witnessed waning interest and controversies. In the second part of an FE series on PPPs, we examine the performance of the airports sector.

Swanky halls, premium shops and free WiFi. On the face of it, India?s experience with using private money to build metro airports appears impressive. But is the euphoria over world-class airports in New Delhi, Hyderabad and, to some extent, Bangalore, giving way to a public outcry over high user charges and regulatory censures over government largesse?

Built by the GMR Group-led Delhi International Airport (DIAL), the capital?s airport boasts of 168 check-in counters, modern five-level in-line baggage system, 78 aerobridges, a multi-level car park and the capacity to handle 34 million passengers every year. However, the Comptroller and Auditor General of India (CAG) recently sparked a storm when it said the airport has the potential to earn R1,63,557 crore over 60 years from the land allotted to it on a nominal lease of R100 per annum.

The country?s top auditor said the government made a big mistake by extending such undue benefits to the firm, a charge DIAL vehemently denies.

In one of its reports, the CAG had also said the Maharashtra government failed to recover R1,120 crore from Mumbai International Airport (MIAL) ? developed and operated by the GVK Group ? towards the rehabilitation of slum-dwellers.

The CAG also said the state government had extended undue benefits to Housing Development and Infrastructure (HDIL) to which MIAL awarded the work of slum rehabilitation, amounting to Rs 187 crore.

The GVK-controlled Bangalore International Airport Ltd (BIAL), which has reported good traffic volume growth and profitability and is now on an expansion mode, is not free of controversy either. The country’s first greenfield airport to be built on a PPP model (the concession agreement was inked in 2004) had run into rough weather even before it opened in May 2008 with industry leaders, airlines and civic groups protesting against the closure of the existing airport located closer to the city. One of the key complaints ? besides congested roads to the new airport located 36 km away ? was the high user development fee charged by BIAL. The protests also led to public interest litigation.

Clearly, the practice of PPP has not been very smooth in the airports business. This is apparent from private developers’ recurring complaints about poor cost recoveries and strident demands for higher airport charges. At the same time, airport operators are finding innovative models to boost revenue. A case in point is Cochin International Airport Ltd which has duty-free shops and raised non-traffic revenues, besides launching an 18-hole golf course in airport land and venturing into renewable energy.

Of course, DIAL has rubbished the CAG report saying that there was no concessional land as part of the operations, maintenance and development agreement. Only 5% of the total land (5,000 acres) at Delhi airport is supposed to be available for commercial operations, it pointed out. The company has also maintained that the transfer deed was part of the concessional agreement and bid and benefits were also available to Airport Authority of India (AAI) as part of their stake in DIAL. AAI is estimated to fetch about Rs 3 lakh crore over the 30-year concession period. Now a Parliamentary panel is examining the CAG report on issues related to privatisation of Delhi and Mumbai airports.

At the other end of the scale, the recent hike in airport charges and user development fees have irked airlines and passenger associations. So, there is clearly a dichotomy between developers’ demand for higher charges and what users think. This puts to question the viability of the PPP model for airport building and the need to find alternative revenue streams.

DIAL’s user development fee (UDF) ranges from Rs 195.80 to Rs 1,068 in the current year and Rs 207.32 to Rs 1,130.85 in 2013-14. ?DIAL cannot run the airport at the cost of passengers. Private developers were given land for almost free of cost. You cannot go on levying new charges to benefit private companies,? said Air Passengers Association of India president D Sudhakara Reddy. Reddy?s concern is shared by industry experts who feel that the PPP model in airports, still lacks transparency and clarity on regulations.

?As far as creating the facility is concerned, the PPP experiment has been successful. At the end of the day, we have four-five good airports, which otherwise seemed difficult,? Vishwas Udgirkar, partner (infrastructure), Deloitte, said. One of the main problems, however, was that ?we have gone for PPP without proper regulations in place,? Udgirkar said. The Airports Economic Regulatory Authority (AERA) was set up after the airports became operational. Now, changing airport tariff poses serious problems for passengers and operators, he added.

The idea of inviting private investments in airport sector was mooted in 1996 by the Airports Authority of India (AAI). So far, the government has privatised five airports including Delhi, Mumbai, Hyderabad, Bengaluru and Kochi. Currently, 60% of air traffic is handled by airports under PPP mode and the rest by AAI.

Since then, private investment in airports has been soaring. According to government reports, during the 11th Five Year Plan, investment made by private airport operators was about Rs 30,000 crore.

The AAI has also spent around Rs 12,500 crore during the 11th Plan on modernisation and expansion of various airports. It is also upgrading and modernising 35 non-metro airports at around Rs 4,500 crore. Of these, 26 have been developed. In the 12th Five Year Plan, the sector is estimated to require investments of Rs 67,500 crore. Of this, Rs 50,000 crore is likely to come from private companies, which, of course, require re-modelling of revenue streams.

According to official sources, the government is now looking at extending the PPP model to Goa, Itanagar and Kannur (greenfield) airports.

Aviation minister Ajit Singh recently met Planning Commission deputy chairman Montek Singh Ahluwalia and advisor Gajendra Haldea to discuss the possibility of maintenance and operation of even Kolkata and Chennai airports. Though AAI is reluctant to have private investment in Kolkata and Chennai, since the modernisation of these projects have been delayed so much, India’s biggest airport operator does not seem to have many options.

The passenger terminal capacity in all airports put together is expected to be 230-240 million by 2012 and by 2017, it would be about 370 million across all airports. It is also expected that there would an additional requirement of 30 functional airports by 2017 and about 180 functional airports in all in the next 10 years.

And the private operators are not looking back in all cases. GVK-operated international airport, having shot past its capacity with passenger volumes of 12.53 million last year, is investing Rs 1,000 crore to expand the existing terminal to handle 17 million passengers by 2015 and plans to follow it up with a second terminal. BIAL reported net profit of Rs 170 crore in the previous fiscal. It is another matter that Karnataka legislature had ordered an inquiry by a joint legislative committee within months of the airport’s opening and the committee recommended action against authorities on many counts including shoddy work and underestimating passenger traffic which required a redesign midway through the construction.

GMR Hyderabad International Airport Limited (GHIAL) was set up with an initial capacity of 12 million passengers and 100,000 tonnes of cargo handling capacity per annum. It has the flexibility to raise capacity to accommodate over 40 million passengers in a phased manner. The airport is witnessing a decent increase in traffic volumes.

(with inputs from V Mahalakshmi at Hyderabad and Rajesh Ravi at Kochi)

Turbulence

* CAG shocker: DIAL can earn R1,63,557 cr in 60 years from allotted land

* Maharashtra failed to get R1,120 cr from MIAL to resettle slum dwellers

* BIAL courted controversy with high user development fee