Business Standard

Navi Mumbai airport faces land hurdle

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Cost may go up by Rs 5,000 crore as farmers demand more compensation; Cidco mulls soft loan, option to attract bidders.

City and Industrial Development Corpo-ration (Cidco) is exploring multiple options including a soft loan and viability gap funding to developers to make proposed project viable.

These options are being considered with project affected farmers jacking up the price of land which is being acquired for the airport. Cidco had initially estimated that first phase of the project, which can handle 10 million passengers annually in the first phase, will cost Rs 5,260 crore.

Last week, Larsen &Toubro chairman expressed fears that the Navi Mumbai airport cost may go up by another Rs 5,000 crore because of land acquisition cost and thus raising questions over project viability. Cidco is yet to finalise its revised cost estimate.

"The government and Cidco are jointly looking at various options to make the project viable. Currently, negotiations are underway for the acquisition of land. Further, Cidco will submit request for qualification document to the government's steering committee next Tuesday,” Pramod Hindurao, chairman of Cidco told Business Standard.

Hindurao said Cidco will issue request for qualification (RFQ) on receiving clearance from the committee. The process is used to short list potential bidders.

and GMR groups, which run airports in Mumbai, Delhi, Bangalore and Hyderabad, are keen to bid for Navi Mumbai project. Apart from them and Infrastructure, Hindustan Construction Company, and are said to be interested in this project. A Reliance Infrastructure spokesperson said it is too premature to comment on a project. Other companies did not respond to email queries.

The Navi Mumbai airport will be spread over 2,054 hectares. Recently, the state government decided to transfer 150 hectares under its

possession for the project but the Cidco still needs to acquire 424 hectares (1,047 acre ) for which notices have been served under the Land Acquisition Act, 1894 to local villagers. These villagers are demanding a compensation of Rs 20 crore per acre.

The cost of acquiring private land will be loaded into project cost.

"If the cost of land acquisition makes the project unviable, the government may consider treating this cost as a soft loan to be paid after the project turns break-even,'' said a government official.

Cidco may also propose viability gap funding model to make the project attractive to the bidders. When Mumbai and Delhi airports were privatised, one of the main bid conditions was revenue share between developer and the Airport Authority of India. However, for greenfield airports this is unattractive option as airports take few years to construct and revenue earning can happen only after the commissioning.

In case of Hyderabad airport, which is a greenfield project, GMR has to share four per cent of revenue with central government.

However, there is a moratorium for first 10 years which means the amount is paid from eleventh year onwards.

Cidco is examining both revenue share model and viability gap funding (VGF) option which can be used to select the developer.

"It will take four-five years to construct the airport. It will take time to earn money. The government should factor a moratorium period in bid condition,'' said an executive of one of the interested companies.

A suggestion has also been made that government allocate traffic between Mumbai and Navi Mumbai airports. "However, GVK group could oppose such a plan in case it loses the Navi Mumbai airport bid,'' he added.

“Developers will also seek firm assurances of securing right to way (access) through affected villages before bidding for the project,'' another executive said.

A source said Mumbai International Airport Limited (in which GVK has 50.5 per cent stake) has the right of first refusal for the Navi Mumbai project.

"Navi Mumbai airport will be a strategic project for GVK. The airport will be developed in phases. Infrastructure and connectivity to the new airport will also take time. The group can develop low cost terminals or move the entire cargo operations from Mumbai.

However, other developers will not have such option and will have to invest large sums to create facilities which compete with Mumbai airport,'' an aviation expert noted.

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