No inflation gauge link for increasing airport charges

Linking rates to WPI would lead to an increase in charges even after a private operator has recovered its investment

The Ministry of Civil Aviation has done away with the proposal of the Planning 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) in the new model concession agreement (MCA) drafted by the Key Infrastructure Department (KID, Airports Authority of India).

A ministry senior said, “The Airports Economic Regulatory Authority (AERA) would determine the landing and parking charges at the airports identified for privatisation. Linking the tariff to WPI would have introduced an upward bias. Charges would have increased even after the operator recovers investment.” In a meeting chaired by Civil Aviation Minister Ajit Singh, in November last year, the ministry had said it would examine the Planning Commission’s proposal before taking a final decision on the method of fixing landing and parking charges at the airport.

The Planning Commission’s mechanism of determining tariffs had been termed as "flawed" by the International Air Transport Association (IATA).

In a submission to the civil aviation ministry, IATA had said the initial MCA drafted by the Plan panel defeated the objective of public-private partnership and was contrary to the Union government’s rules, which seek to ensure that concession agreements for natural monopolies like airports are not drawn in a way that the concessionaire enjoys “supernormal profits” at the expense of the public.

The redrafted MCA also limits the concession period of the project to 30 years. “The private operator would be awarded the airport for 30 years. Based on the results of a review, he may be granted an extension for operating the airport for an additional 30 years thereafter,” said the official. The Planning Commission had held the airports should be awarded for a period of 60 years.

The ministry has also decided that revenue-share to Airports Authority of India (AAI) by the private operator would be calculated on a shared-till basis. Another ministry official said, “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 AAI.

The Planning Commission had said revenues coming from hotels at the city side of the airport should not be shared with the government.

The MCA has been redrafted for the privatisation of Chennai, Kolkata, Jaipur, Lucknow, Guwahati, and Ahmedabad airports, which are running behind schedule. According to the timeline set by the Prime Minister's Office, the concession agreement was to be finalised by October 15, 2013. But given the delays that has 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.