PRIVATISATION OF AIRPORTS
The Union Cabinet Recently approved the proposal for leasing out of three airports - Ahmedabad, Lucknow and Mangaluru of Airports Authority of India (AAI) through public-private partnership. The lease had been given to Adani Enterprises Ltd for operation, management and development under PPP for 50 years
In November 2018 and recently in 2019 December, the Union Cabinet has given approval for leasing out six airports of AAI viz. Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru for operation, management and development under Public Private Partnership (PPP) through Public Private Partnership Appraisal Committee (PPPAC).
In February 2019, the Gautam Adani-led Adani Enterprises bagged contract for all six airports. The AAI had chosen the winner on the basis of the "per-passenger fee" offered by the bidders. Adani’s Per-Passenger Fee (PPF) was the highest for all the six airports at Rs 177 for Ahmedabad, Rs 171 for Lucknow and Rs 115 for Mangalore.
On 3rd July 2019, the Union Cabinet had approved the leasing out of Ahmedabad, Lucknow and Mangaluru airports to Adani Group for a period of 50 years. The cabinet is yet to approve the leasing out of the other three.
RATIONALE: How does it Helps?
The PPP in infrastructure projects brings efficiency in service delivery, expertise, enterprise and professionalism apart from harnessing the needed investments in the public sector.
The PPP in airport infrastructure projects has brought World class infrastructure at airports, delivery of efficient and timely services to the airport passengers, augmenting revenue stream to the Airports Authority of India without making any investment, etc. of these, for development of Greenfield Airports at Hyderabad and Bengaluru.
Presently, the airports being managed under the PPP model include Delhi, Mumbai, Bangalore, Hyderabad and Cochin.
The PPP airports in India have been ranked among the top 5 in their respective categories by the Airports Council International (ACI) in terms of Airport Service Quality (ASQ).
These PPP experiments have also helped AAI in enhancing its revenues and focusing on developing airports and Air Navigation infrastructure in the rest of the country.
The increase in domestic and international air travel in India combined with congestion at most airports, and the strong traffic growth at the 5 airports which were privatized over a decade ago has attracted the attention of several international operators and investors. The airport sector is the top contender among infrastructure sectors in terms of international interest.
THE AVIATION SECTOR IN INDIA
The civil aviation industry in India has been growing at the rate of 20 per cent for the past four years making it the fastest growing aviation market in the world. According to reports, India is set to become the world’s third largest aviation market in terms of passenger throughput, much before the predicted timeline of 2024.
Over the next few years, the improving economic growth in India along with encouraging demographic factors such as higher middle class disposable income are expected to result in higher spending on travel as well as increased trade.
The government is introducing policies and initiatives for the longer term benefit of the aviation sector. The launch of ‘Aviation Policy 2016’ with the aim of making flying affordable for the masses, followed by announcement of the regional connectivity scheme ‘UDAN’ in 2016 and the international air connectivity scheme ‘International UDAN’ in 2018, to improve the overall regional as well as international connectivity, establishes the Centre’s resolve to back and improve India’s aviation sector.
International operators and investors prefer Brownfield airport expansion opportunities with having more than 3-4 million passenger capacity. The airport sector may provide an immediate opportunity to attract foreign direct investment (FDI) by adoption of a PPP approach.
The key suggestions by Finance Ministry and NITI Aayog were brushed aside by the PPP Appraisal Committee (PPPAC) which effectively led Adani Enterprises emerging as the winning bidder for all airports.
Finance ministry noted that the six airport projects are highly capital intensive projects, hence it is suggested to incorporate the clause that no more than two Airports will be awarded to the same bidder duly factoring the high financial risk and performance issues. Awarding them to different companies would also facilitate yardstick competition.
The NITI Aayog highlighted the need to have players with prior Operation and Management (O&M) experience.
According to AAI’s reply dated April 8 to an RTI plea filed by Sobhan P.V. of the Airports Authority Employees’ Union, “No study was conducted to ascertain the existing Per Passenger Fee.” The plea was filed after the completion of the bidding process and AAI’s response shows that it had no parameter to judge whether the PPF quoted by the winning bidder was better than what it was drawing at the existing airports.
SHOULD WE HAVE PRIVATE AIRPORTS ?
v Privatisation of airports has been a debateable yet growing trend across the globe. While higher efficiencies, increased competition, improved customer base, and deployment of modern technologies continues to support the debate for privatisation, concerns around expensive financing, difficulty in monitoring performance and reduced government sight catches up and continues to cast doubts.
ADVANTAGES V. DISADVANTAGES
Privatisation and modernisation of airports has not only transformed the passenger experience but has also delivered a substantial dividend to the government, including the Airport Authority of India (AAI).
The modernisation of Delhi, Mumbai, Bengaluru and Hyderabad airports in the last decade have established that privatisation has delivered results far in excess of what would have been achieved otherwise.
Privatization of airports gives the shareholders the incentives to study the processes and introduce automation. Automation makes the airport more reliable and able to operate at a lower cost.
Privatization brings the market mechanism into action. The rates are set based on demand and supply instead of being set by a bureaucrat resulting in loss of taxpayer money.
Privatization of airports leads to more airports in the areas surrounding important cities. The end-result is that airports have to compete amongst themselves. The airlines have the option to choose the airport that gives them a better deal. This gives airports the incentive to operate more efficiently and lower their costs.
Construction and management of airports is a capital-intensive business. The government cannot afford to upgrade all the airports simultaneously. However, private companies can improve the airports and keep recovering the costs from the customers.
Privatisation of airports continue to face tough challenge at the hands of trade unions who echo concerns on job stability and airlines who fear that it will only augment their financial woes with operational costs rocketing upwards.
Privatisation of airports is a daunting task as the civil aviation sector in India is extremely regulated and is under the constant supervision of the Ministry of Civil Aviation, the Directorate General of Civil Aviation, and the Airports Economic Regulatory Authority.
The private sector continues to endure challenges on account of delays in tariff determination resulting in revenue mismatch during the control period, disallowance of expenditure in tariff determination, growth of other transport modes, reduction of flight operations and poor financial health of airlines, macroeconomic events such as change in fuel prices and currency exchange rates, enhanced security measures, change in governments, long-drawn and expensive disputes with the AAI on computation of revenues sharing, and issues of conflict of interest on account of the AAI being a stakeholder in the airport as well as a competitor operating other airports.
Even though they may increase operational efficiencies, the private companies are at a serious competitive disadvantage when it comes to financial structure. As a result, private airports are likely to be more expensive despite the increased efficiency.
WHAT NEXT ?
It has its ‘pros’ and ‘cons’ and it will always be up to the stakeholders to collaborate and implement effective and rational choices that enhance the civil aviation industry, including the quality of airports in India. In essence, the trade-offs, on the whole, would have to be beneficial to all stakeholders and ensure that no single stakeholder is put to a disadvantageous position, including the private sector.
CONCLUSION: Privatisation in many countries, including India, has come arm-linked with controversy. The risks get heightened when decisions on complex financial questions about long-term leases are rushed through in a hurry, without mandatory consultations — something aired in connection with the lease of airports to the Adani group.
SOURCES FOR MORE DELIBERATION
1. Critically examine the idea of the developments of Airports in India through Public-Private Partnership (PPP) model.