A high-level panel in the Planning Commission has recommended allowing private airport developers to issue tax-free bonds in the coming Budget, in order to help them gain access to relatively cheaper credit required to step up investments in the sector.
The panel deliberating on a long-term policy for developing airport infrastructure in the country, has proposed that the facility for raising funds through tax-free bonds, now available for public sector agencies like NHAI, Hudco, IRFC etc. should be given to airport developers also.
The proposal, if implemented, would come to the aid of not only AAI and public sector airport developers but could also benefit private companies such as GMR, GVK and L&T that are carrying out expansion and modernisation programmes of major airports in Delhi and Mumbai.
The committee in the Planning Commission also suggested a separate (more liberal) sectoral cap for airport developers to raise external commercial borrowings (ECBs).
The recommendations assume importance as the airport sector is estimated to require an investment of R67,000 crore in the next 4-5 years. With the government expecting nearly 70% of this coming from private sector, an investor-friendly policy is needed.
The state-owned Airports Authority of India (AAI) has also proposed to spend R17,500 crore in the next five years (2012-17).
It may be mentioned that even AAI?s plea for issuance of tax-free bonds was rejected by the government earlier, dashing the hopes of private airport developers.
?The recommendations are in line with the requirements of the sector. This will be pushed after further discussions in the aviation ministry.? said a government official privy to the development.
In February, finance minister Pranab Mukherjee had announced that NHAI, IRFC, Hudco and other major ports could raise R30,000 crore by issuing tax-free bonds during the current financial year.
These bonds are different from regular infrastructure bonds. In regular infra bonds, investors get tax waivers on principal investment but returns are taxed. However, in the bonds to be issued by NHAI, IRFC, Hudco and the ports, returns are tax-free but the invested amount would be taxed.
?Not only public sector airport operators but private developers should also be allowed to issue tax free bonds to fund development projects,? Mumbai International Airport (MIAL) CEO Rajeev Jain said.
The proposal on tax-free bonds and more flexibility over ECB financing would come to the aid of private airport developers who have accumulated huge debt and have also sought government intervention to bring them out of the crisis-like situation.
Meanwhile, the Planning Commission committee has also suggested to put in place a policy for economic regulation in the airport sector for higher private investment.
?We are going to hold consultations with all stakeholders in January as the first step towards making a policy on economic regulation of airports,? said a senior aviation ministry official.
While the government has set up Airports Economic Regulatory Authority of India (AERA) to regulate aeronautical charges at major airports, it is yet to frame policy for fixing various charges like landing, parking and ground-handling.
In the absence of clear-cut guidelines, there has been a delay in revising aeronautical charges at major metro airports.
?A couple of months back when a Court order stopped us from collecting development fee from passengers we faced the threat of downgrade from our lenders. We are still facing financial difficulties as a decision on raising airport charges is pending,? said an official from the GMR group which leads the SPV managing the Capital?s IGI airport.
The group of officers in the meantime asked the government to help private Indian companies like GMR, GVK and L&T when they bid for overseas projects.
In its 92-page report the panel has said that government must support private companies bidding for international airport projects as it enhances India?s prestige in the aviation sector.