Govt wants to peg airport charges before private operators take over

This is to to safeguard passengers against high user charges post award of the projects

To safeguard passengers against high charges once projects are awarded, the civil aviation ministry is considering awarding airport management contracts to private operators in Chennai, Kolkata, Lucknow, Guwahati, Jaipur and Ahmedabad at pre-determined rates, instead of on a cost-plus basis.

A ministry senior said, “We are working out the formula for determining the revenue-share agreement between the private operator and the Airports Authority of India (AAI). What we broadly want is pre-determining rates so that there is some certainty in the charges to be levied on passengers. Airport operators will also be incentivised to increase efficiency when there is a specified limit.”

The model being considered is in line with the Planning Commission’s recommendation to determine landing and parking charges at the six airports identified for privatisation before the award of the project and to link the increase in rates to Wholesale Price Index-based inflation. In December, the ministry said the commission’s suggestion was likely to push up charges, as these would increase even after the operator had recovered investment.

Under the formula being considered now, landing and parking charges at airports will fall about two per cent annually and, subsequently, these will be indexed with inflation. “In any sector, when there is a transition of operations to private operators, state-controlled regulators come in to safeguard user interests. But after attaining maturity and ensuring efficiency, it is best to let market-discovered forces regulate rates,” said the official. The ministry is considering incorporating clauses in the model concession agreement so that the market keeps rates in check. Additionally, work is on to determine the proportion of non-aero-earnings to be included while determining the revenue-share to AAI by the private operator.

Another ministry official said, “Both aero- (landing & parking charges and user development fee) and non-aero-revenue (city-side ventures such as hotels and retail outlets) will be taken into account while determining the proportion of earnings to be shared with AAI. This will lead to cross-subsidisation and guard against an unwarranted increase in aeronautical charges and, consequently, higher user fees.”

According to the timeline set by the Prime Minister’s Office, the agreement was scheduled to be finalised by October 15 last year. But due to differences between the ministry and the commission on the terms of the project award, it is unlikely the awards would be given before the general elections this year, sources said. The model code of conduct, they added, was likely to be in place by the first week of March. The government cannot take any policy decision after that.

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