Single, dual-till issues to dominate Aera hearing

Single- and dual-till issues to determine airport tariffs will dominate the hearing on March 16 of the discussion paper on the regulatory process being framed by the Airports Economic Regulatory Authority of India (Aera).

The single-till norm could reduce aeronautical charges (a component of the overall airport tariffs) as compared to dual-till in which the surplus from non-aeronautical revenues subsidise aeronautical activities.

The tariff regulator says one of its mandate under the Aera Act is to ensure financial viability of the airports.

Airport developers, however, are expected to make a pitch for dual-till norm, as experts say, they are keen on keeping the large non-aeronautical revenues outside of regulatory process for their benefit.

Aera Chairman Y S Bhave told Business Standard: “The fair rate of return as a financial anchor and interest of passengers and cargo as physical anchors are the underlying factors in the proposed regulatory framework and philosophy. One of the parameters to determine tariff is the quality of service for passengers consistent with the charges. The accuracy of traffic forecast is another.”

The consultation paper mentions 16 per cent rate on investment for airports as indicative and for discussion. This has also been accepted by the Planning Commission as well as the Tariff Authority of Major Ports. “Depending on the debt-equity ratio and marginal corporate tax rates, the return on equity would be different (and normally higher) but consistent with the risk profile of the airport project,” the paper adds.

Aera also says in its discussion paper that it would expect all investments proposed to be included in the regulatory asset base, “provided they have been made after effective user consultation”.

No depreciation on assets funded out of pre-funding receipts would be considered for the purpose of tariff determination, it adds.

To measure the quality of service to determine the tariffs, Aera proposes specific service parameters to be monitored at major airports.

Further, to adequately protect the interests of users, Aera says performance below specific service parameters would result in rebate to users through reduced aeronautical tariffs in future years. The authority plans to monitor the performance standards as may be specified by the Centre.

In case of non-aeronautical revenue, Aera would review the bottom-up projections of airports, in conjunction with review of other forecasts for operating costs and traffic and capital investment plans relating to non-aeronautical investments. Further, Aera would reserve the right to determine the final forecast to be used for tariff fixation.