Airport management contracts on PPP basis at predetermined rates

New model in line with plan panel proposal to determine landing and parking charges

The ministry of civil aviation is looking at awarding airport management contracts at Chennai, Kolkata, Lucknow, Guwahati, Jaipur and Ahmedabad to private operators at pre-determined rates rather than on a cost-plus basis to safeguard passengers against high user charges post award of the projects.

A senior official at the ministry said, “We are working out the formula for determining the revenue-share agreement between the private operator and the Airports Authority of India. But what we broadly want to do is to predetermine rates so that there is some amount of certainty in the charges which would be levied on passengers. Airport operators would also stand incentivized to increase efficiency when there is a specified limit.”

The new model being considered is in line with the recommendation of the Plan Commission to determine landing and parking charges at the six airports identified for privatisation prior to the award of the project and of linking the increase in tariff to the wholesale price index (WPI). Earlier in December last year, the ministry had raised questions saying that the Plan Comm’s suggestion is likely to lead to an upward bias as charges would increase even after the operator recovers his investment.

Under the formula being considered now, landing and parking charges at airports would decrease by around two per cent annually and thereafter the tariffs be indexed in line with the inflation rate. “In any sector, when there is a transition of operations from the public sector to private operators, state-controlled regulators come into play to safeguard user interests. But after attaining a certain level of maturity and to ensure efficiency in operations, it is best to let market-discovered forces to regulate rates”, added the official.

In line with this idea, the ministry is consequently looking at incorporate clauses in the model concession agreement such that market-discovered forces keep tariff in check. Additionally, work is also on to determine the proportion of non-aero earning that would be included while determining revenue-share to AAI by the private operator.

Another official at the ministry added, “Both aero (landing and parking charges and user development fee) and non-aero revenues (cityside ventures such as hotels and retail outlets) will be taken into account while determining the proportion of earnings to be shared with the Airports Authority of India. This would lead to cross-subsidisation and guard against unwarranted increase in aeronautical charges and consequently higher user fees.”

With also these changes underway in the model concession agreement, the ministry has extended the due date for application for Request for Qualification (RFQ) to March 17. This is the third postponement since November last year when the process for ward of management contracts was started.

According to the timeline set by the Prime Minister's Office, the concession agreement was initially to have been finalised by October 15, 2013. But given the delays that have taken place due to differences in opinion between MoCA and Plan Comm over the terms of the project award agreement, sources said, it is unlikely that the airports can be awarded for privatisation prior to the general elections scheduled later this year. The Model Code of Conduct is likely to be in place by the first week of March, they said, adding that the government cannot take any policy decision once the code is in place.     

Several private and foreign infrastructure firms like IL&FS Transportation Networks, Essar Projects India, Cochin International Ltd, Essel Infraprojects Ltd, GVK, Fraport, Saudi Arabia, GMR Airports Ltd, Sahara Group and Turkish firm Celebi Habacilik Holding AS, have evinced interest in these airport projects. All these airports have already been modernised by AAI at a high cost to the exchequer. The modernisation of Kolkata and Chennai airports had cost the AAI Rs 2,325 crore and Rs 2,015 crore respectively.