Tariff hike at Delhi Airport may impact core sector PPP projects: S&P

The Indian airport regulator's decision on a tariff-increase proposal by the operator of Delhi's international airport is likely to influence infrastructure projects in the country, said Standard & Poor's Ratings Services in a report published today.

According to the report, titled "The Delhi Airport Project: A Case Study Of What Hinders Private Participation In India's Infrastructure Development," the decision is likely to affect private-sector participation in regulated capital-intensive projects in India.

"The potential large increase in tariffs at Delhi airport emphasizes the need for a detailed public-private participation policy and planning at all levels of the government," said Standard & Poor's credit analyst Rajiv Vishwanathan.

"Standardisation of procurement processes; transparency in bidding; proper risk allocation among the different parties in a project; and adequate project preparation and feasibility studies are factors that make infrastructure projects more viable," said Vishwanathan. "Having these factors can go a long way toward building confidence in a project and attracting private funding."

The report explains the need for higher tariffs at Delhi airport and the impact of such an increase on airlines and passengers that use the airport. It also explores the effect of tariff-adjustment delays on the project sponsor. Private sector participants will be keenly watching the outcome, transparency, and timeframe of the regulatory process at Delhi airport.

"In our view, higher tariffs could negatively affect the credit quality and resilience of some low-cost airlines operating out of Delhi," Vishwanathan said. "Large international full-service airlines may reduce the number of flights to the city, but we don't expect them to cease operations to Delhi or move their hubs to lower-cost airports."