Airport Privatisation Plan Is Not Taking Off And This Is Why

The United Progressive Alliance (UPA) era model under which India’s two biggest airports, Delhi and Mumbai, were offered to private developers, has been junked under the Narendra Modi regime. It must be remembered that the model used for both these airports has proved to be a bonanza for the Airports Authority of India (AAI), which owns and operates the maximum airports across the country and devises the concession agreements for inviting private sector participation in airport development.

In 2016-17, the AAI earned over Rs 3,800 crore or almost a third of its total revenues from Mumbai and Delhi airport incomes alone. But this bonanza has come at a cost: frequent squabbles over airport capex between private parties and the AAI and increased user charges. And these are the pitfalls, which the new airport concession model being worked out, seeks to avoid.

So what the AAI is now trying to do is bringing in private airport developers for smaller airports without asking them to invest in the capex of these airports and reworking the revenue share model. Senior officials of the ministry of civil aviation have said that new concession agreements for airports at Jaipur and Ahmedabad will be released by mid next month and another three airports will then be considered for similar PPP models.

What they have not said is the continuous back-and-forth on airports, inviting private parties and changing concession agreements has already made a mockery of the entire process.

As this piece says, the latest attempt at roping private parties earlier this year, to operate Jaipur and Ahmedabad airports ran aground since only one bidder finally put its hat in the ring. This marks yet another flop show, as unsuccessful attempts by AAI to get private parties interested span the entire four years of the Modi government.

So now, the AAI is adding a carrot: bidder will be allowed to make use of the airside and car parking spaces in addition to the terminal and cargo areas. Secondly, AAI pays a fee to the private developer for operating and managing these two airports and in exchange, gets a revenue share based on a per passenger basis for passengers going through each airport. This is against the earlier plan of a share of the gross revenue earned by airports at Delhi and Mumbai.

But let us hark back to the entire airport privatistaion process and its many failures. In 2015, the governments of India and Singapore signed a memorandum of understanding for Singapore's Changi Airport to come in and help AAI operate and manage two airports - at Jaipur and Ahmedabad. This was seen as the first instance of a government-to-government agreement to develop airports in India, without the AAI having to float a tender. During PM Modi's visit to Singapore then, the two governments signed a pact which would have enabled Changi Airport to get the O&M (operation and management) contract for a fee. An AAI official had clarified then that the arrangement did not provide for any revenue sharing between the two parties though an equity participation was not ruled out.

What Changi was being offered was chance to manage the retail space inside the terminal building and car parking space. The airside operation was to stay AAI at all times and Changi was expected to augment revenue within the airport terminals. But Changi did not come on board. Before the Changi fiasco, the government had planned to also bid out other airports including Guwahati and Lucknow airports – it pruned the list to two but failed at that too.

Whether the latest round of concession agreements, for just two airports with revised conditions, succeeds now is anybody’s guess. Both these airports are expected to witness a significant jump in traffic. Analysts have said that passenger traffic has already jumped by more than 2.5 times at Jaipur airport in the last five years to 4.7 million annual passengers in 2018. And traffic at Ahmedabad has more than doubled from 4 million to 9 million between fiscal years 2012-13 and 2017-18. In calendar 2018, the traffic projection is 12 million passengers, which will rise to 16 million by 2022. Already, three fourths of the airport’s capacity is in use, one can imagine what will happen when passenger footfall rises exponentially, as projected.

In August this year, it had become clear that the government was scrapping earlier plans to invite private developers to pick up equity stakes in the two airport projects of Chennai and Kolkata. This, after months of back and forth over whether the plan to privatise some airports should move forward at all and which all airports should be included in this list. At that time, it was also decided to try out an operation and maintenance contract model for Jaipur and Ahmedabad.

So why did the government chicken out of PPP model for airport development? A senior ministry official had explained earlier: "Unlike other airports under AAI where private parties have been allowed, significant investment has already been made by the AAI in these four airports at about Rs 5,000 crore. Privatisation is usually done to attract investments, but since significant money has already been invested in these projects, we have put the entire process on hold. Besides, there were some employee issues too".

AAI Chairman R K Srivastava said AAI expects to invest upwards of Rs 20,000 crore in upgradation of existing airports and in creating additional airport infrastructure for regional connectivity over the next seven years. "We will fund some of this requirement through internal accruals and the remaining by raising debt," he said without elaborating.

Not just the privatisation of airports, the National Democratic Alliance government has also scrapped an earlier plan to corporatise and eventually list AAI on the bourses. This comes amid a growing chorus for letting AAI remain a state-owned entity so that it can "perform its sovereign functions well".