Value expertise

Proposed policy for airport privatisation has some flaws

The details of the private management contracts and bidding for six airports — Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram and Guwahati — have been decided by a high-level committee led by the chief executive officer of the government’s think tank, NITI Aayog. The chosen process is important because relatively recently the government had to deal with the failure of its attempt to sell its stake in the state-run airline Air India, a failure that took place in part because the conditions attached by the government to the process were far too onerous and put off any possible investors. It is important to not repeat that error in other areas, including in this attempt, to privatise the operation of six airports. Now that some of the details of the panel’s recommendations are known, the question that arises is not whether the conditions are too onerous but if the government has been careful enough.

Perhaps the most glaring oddity is that the committee has proposed that no prior experience of the sector will be needed in order to qualify to run the airport. Indeed, it is desirable to keep low entry barriers and to that extent, such a proposal will unquestionably open the door wider to a larger set of bidders. However, the government should be wary of going to the other extreme. To be sure, the government’s experience over the past 15 years with public-private partnerships or PPPs should encourage a more cautious approach. A “prior experience” clause helps weed out rent-seekers, influence-peddlers, and asset-strippers. It does not, of course, have to be limited just to the knowledge of the operations of airports. Any form of experience in the aviation industry should be applicable and relevant — the point is to ensure that those applying are serious about the addition of an airport to their portfolio of assets and that they have demonstrated the capability to stay in a competitive business such as aviation. In this context, the clause that supposedly excludes corporations that also have a stake in airlines is particularly puzzling. It would not only exclude serious players but also seems to take the concept of “conflict of interest” a little too far, ruling out companies that have experience in the ecosystem. Preventing favourable treatment of an airline is what a regulator is there for. 

Previous attempts to bid out Ahmedabad and Jaipur airports failed supposedly because there were concerns regarding insufficient revenue generation from the projects. In order to make up for this past error, it appears that the land use policy will be particularly liberal, allowing the “entire land bank” to be exploited for commercial use. This also merits review. That’s because it contains the potential for allowing this entire process to deteriorate into a sordid land grab. Clear norms for how much land can be used for commercial exploitation, as well as the nature of such exploitation, should be set out in advance. Taken together, what is important is that the government not over-compensate for past failures. Allowing inexperienced players with little understanding of the business nuances might leave the process to be undermined by those who only seek to profit off land speculation.