GMR, GVK can bid for six airports' privatisation

Norms limiting airlines' stake in SPVs managing airports to hurt Tatas

The government has allowed airport operators GMR and GVK to bid for the six airports to be awarded in the second phase of airport privatisation.

Recently, leading companies that attended the pre-application discussions had expressed concern as GMR and GVK already had two airports each in their portfolios, after successful bids, the companies might end up operating four airports each and, hence, run a duopoly between them.

The companies had said while a new entity could win only up to two airports and only one among Kolkata, Chennai and Ahmedabad, there was no such bar on GVK/GMR. While GMR operates the airports in Delhi and Hyderabad, GVK manages the ones in Bangalore and Mumbai.

BONE OF CONTENTION

• GMR & GVK already have two airports each
• If their bids were successful, other companies in the fray said, the two would end up operating four airports each and run a duopoly between them
• There is a bar on companies — but not GMR & GVK — of getting two airports to manage at most and only one from among Kolkata, Chennai and Ahmedabad

“GMR and GVK can each be awarded a major airport and a minor one, in the event of a successful bid. There were some arguments that they should be excluded. We have decided to allow them to participate in the bidding process,” said a senior government official associated with the tendering process.

However, in what may prove a hurdle for Tata Realty and Infrastructure Ltd and Tata Projects Ltd in participating in airport privatisation projects, the request for qualification (RFQ) documents specify the special purpose vehicle (SPV) to be formed to enter into the concession agreement and implement the project wouldn’t include any equity ownership of a scheduled airline, cargo airline or its group entities, exceeding five per cent of the total equity of the SPV. Though Tata Sons does not have an airline now, it has applied to the Foreign Investment Promotion Board and is in the process of setting up an airline with Singapore Airlines.

“They will study the terms and conditions and, if allowed to bid, will do so, subject to the terms and conditions being met,” Tata Sons said in response to a query from Business Standard. Earlier, the company had confirmed both Tata Realty and Infrastructure Ltd and Tata Projects Ltd had bought the RFQ documents in a pre-bid conference for public-private partnership (PPP) for the Chennai and Lucknow airports. Taking cognizance of the concern of private operators over predetermining rates at the airports before awarding projects, the government has decided to compensate operators in case of a revenue loss. “We have revised the bidding documents to bring in more clarity and certainty, both for users and consumers. We have to protect the user, as well as the interests of the concessionaire. While tariffs will be pre-fixed, there will be no tariff shock. The government will compensate so that the concessionaire does not suffer any loss,” said the official quoted earlier.

Earlier this year, the government had said airport operations and maintenance through PPP contracts would be introduced in Chennai, Kolkata, Lucknow, Guwahati, Jaipur and Ahmedabad.

The deadline for awarding the projects in this financial year has been set by the Prime Minister’s Office.

To address concerns that privatization of the six brownfield airports may result in higher charges for passengers, the tariff to be levied post privatization would be determined prior to awarding the projects.

A senior official in the ministry of civil aviation told Business Standard, “If you are going in for bidding, there has to be some certainty in tariff. The AERA (Airports Economic Regulatory Authority) will fix the tariff for five years, which will be reviewed thereafter taking into account capital requirement for expansion works for the next five years. Any price increase can be linked to the wholesale price index so that there is certainty what the charges are going to be like once the private concessionaire takes over operations.”