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Undue benefits in aviation

CAG raises level playing field issues in airport PPPs

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The leaked contents of a draft report by the Comptroller and Auditor General (CAG) on the public-private partnership between the and GMR for the Indira Gandhi International Airport, and the development and management of its Terminal 3, are likely to make life even more difficult for the United Progressive Alliance government. If, that is, what has been reported is correct; and if the final report bears out what is contained in the draft report. Several draft reports have been leaked recently. Going by those previous leaks, this leak might be both correct and indicative of what will make it to the final report.

It appears that the draft report raises several significant issues. The contract to run the was awarded through bidding; but the levy of development fees, allowed later, was not a part of the draft development and management agreement contained in the bid documents. This totally undermines the bidding process. If such major rewrites happen to contracts that have already been bid on, the argument for the efficiency of auctions collapses: the ability to lobby the ministry to get bid requirements changed after the auction means that powerful or connected players can make more attractive bids than their more efficient competitors. The CAG correctly points out, therefore, that the ministry’s approval of levying development fees was an “undue” and “post-contractual benefit” given to GMR-owned (DIAL). The airport operator was given the right of first refusal on another airport coming up within a 150-km radius of the Delhi airport and a chance to match the highest bid. This thwarts the bidding process and gives a natural advantage to DIAL on the second airport, the report feels.

Crucially, the CAG is not the first body to come to such a finding. A committee of Karnataka legislators that went into the awarding of the contract to build and run the new Bangalore international airport found that the option to veto a competitor within a 150-km radius was given after international tendering. The committee has recommended appropriate action against those involved. In the case of both airports, of course, it is the policy laid down by the Union civil aviation ministry, then led by Praful Patel, that was followed.  It can well be argued that the Union Cabinet approved the final shape of the agreements governing both the airports. But that only establishes the constructive responsibility of the Cabinet; it does not take away the primary responsibility of the administrative ministry concerned and its then leader. The CAG’s draft report also notes that the relevant regulator approved the levying of development fees, as did the ministry. Thus, the issue now involves virtually every entity that matters — the ministry, the regulator and the Cabinet.  This says volumes about the way the country is being run. Once the final report is submitted to Parliament, Mr Patel must be asked to justify his decisions, which have contributed not just to Uttar Pradesh’s inability to build an airport for Noida, but to Delhi’s airport being among the most expensive in the world for airlines and passengers alike.

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