Alok Sinha, the newly appointed Chairman of Airports Authority of India (AAI), in conversation with Garima Pant says a private player has more freedom to exploit the non-aeronautical resources and provide better services.
For the six major airports developed by AAI, the bidding process has been postponed the third time till mid-March (since November 2013 when the process was formally started). What are the reasons for the delay?
The due date for Request for Qualification (RFQ) application has been postponed to mid-March. The Inter-Ministerial Group (IMG) constituted for the purpose had deliberated on this issue and advised the finalisation of the Model Concession Agreement (MCA) first. The MCA is being examined/evaluated by various government agencies involved in the development of the six airports through PPP. This process is taking some time so as to arrive at a Concession Agreement with most appropriate terms and conditions. We would like to finalise the MCA and share it with the prospective bidders/stakeholders for a feedback before receiving the RFQ application.
Is AAI being used merely as a glorified construction company, meant to only construct airports?
The core strength of AAI lies in creating and managing the airport infrastructure as well as in providing air navigation services. This has been amply demonstrated in the Airport Service Quality (ASQ) Index for all the major airports of AAI, including the six airports proposed for Operation, Management and Transfer (OMT) through PPP mode. To enable AAI to maximise the non-aeronautical revenue through its existing assets and the land bank, it was envisaged that AAI should adopt PPP mode for efficient operation of its airports. The revenue generated by this arrangement can in turn be used for development and activation of new airports and increase air connectivity in Tier-II and Tier-III cities in the country. Accordingly, development of select airports through PPP has been taken up. This is in consonance with the government's policy on airport infrastructure wherein the objective is to create airport capacity ahead of demand and further to give market orientation to the sector, bridge the resource gap and encourage greater efficiency and enterprise in the operation, development and management of select airports through the introduction of private capital and management skills.
What about the resistance from within AAI towards the privatisation of airports?
There are certain apprehensions from some quarters of employees against the process of privatisation. AAI is fully committed to safeguard the interest of its employees and in the OMT Agreement appropriate clauses to this effect have been provided. It will be ensured that indiscriminate increase in User Development Fee (UDF) and Airport Development Fee (ADF) does not take place, by incorporating suitable terms and provisions in the MCA.
Airport projects in India account for just one per cent of $385 billion worth airport development works which are underway around the world, according to a recent report by Centre for Asia Pacific Aviation (CAPA). How can this slow pace of development be overcome? The CAPA "Airport Construction and Capex Data Base" is a compilation of projects either in progress or planned for and with good chance of completion.
In India, capital investment to the tune of $15 billion (approximately) is expected in the civil aviation sector. It will be apt to compare the investment in airport infrastructure in the previous periods. Capex on airport infrastructure was only Rs 6,893 crore in the 10th Five Year Plan which had gone up to Rs 36,000 crore in the 11th Plan. The targeted capex in the 12th Five Year Plan is Rs 67,500 crore, which is expected to be majorly contributed by the private sector due to reformed regulatory practice enabling low barriers of entry. With this investment, there would be sufficient capacity to meet the requirement by 2020 at the airports.
The major challenge for airport expansion, upgradation and development in various parts of the country is the non-availability of land and the difficulties in land acquisition. With the new Land Acquisition Act effective from 1 January 2014, it is expected that the public resentment will reduce and the process of land acquisition will be expedited, so that the planned infrastructure development works proceed (normally).
Despite slowdown in traffic growth in many of the airports during the last two years, air traffic shows signs of surge in this fiscal and is expected to bring in the required investment in airport infrastructure development, thereby exhibiting the resilience of the aviation sector in the country.
The growth of the aviation sector needed to be equitable and inclusive providing connectivity to Tier-II and Tier-III cities and remote and difficult areas. But aviation experts have opined that the slow pace of airport growth in India is due to lower than expected growth in non-metro and regional airports. What's stopping players from looking at the greenfield airports?
The traffic data of 2012-13 shows that the double-digit growth has taken place only in the non-metro airports viz, Gaya, Jodhpur, Tirupathi, Mangalore, Bhopal, Port Blair, Srinagar and Bhubaneswar whereas in all the metro airports, the growth was negative during the above period. In this fiscal also all the airports which recorded double digit growth are non-metro airports.
However, for private players to invest in non-metro and regional airports there is a need to benchmark the scale of operations and provide scope for sufficient non-aeronautical revenue generation. It is expected that with the present growth pattern, many Tier-II and Tier-III cities may cross the benchmark level giving impetus for construction of many greenfield airports and development of brownfield airports, thereby contributing to inclusive growth of the civil aviation sector in the country.
The concept of low-cost no-frills airport is to minimise the cost on building infrastructure and thereby reducing operating cost for the airport operator and the airlines as a consequence. This overall reduction in costs will result in lesser charges for the passengers. Low cost terminal with modular concept for future expansion, minima-based regulatory and security infrastructure would be the guiding factors for developing airports in Tier-II and Tier-III cities, under the policy to promote regional and remote area connectivity in the country. Reduction in taxes/VAT on aviation fuel by state governments would be of great help in development of greenfield airports. With this framework, it is expected that more players will come forward for investment in Tier-II and Tier-III city airports/regional airports.
This low cost no-frills airport model is expected to have significant impact on future growth of the aviation sector in the country, as this is expected to incentivise the low cost carriers in particular, due to substantial reduction in the airport charges, thereby contributing to rationalising the cost incurred by airlines and also de-congesting traffic at non-metro airports. The three main objectives of the low cost no-frills airport model would be to make it cost effective, scalable and be replicable in development of the aviation sector in the country.
For construction of a greenfield airport, the requirement of initiation/starting time is comparatively more considering the need to obtain various regulatory clearances. The fund flow, traffic generation, traffic stabilisation, etc are various unpredictable factors in the case of greenfield airports, whereas in the case of Delhi and Mumbai certain level of assured traffic was available to start with.
Land acquisition is a challenge across the country, hampering infrastructure projects including building of new airports. What can be done to tackle this issue?
Quantum of land requirement for airports is large, particularly in the case of greenfield airports. The new Land Acquisition Act is an opportunity as well as a challenge. With the increase in the compensation amount, it is expected that the public resentment against land acquisition may reduce thereby expediting the land acquisition process but at the same time the project cost will increase and may render it as non-viable.
Land acquisition is a state subject and is to be dealt by the concerned state governments. Through regular interaction, the state governments can be engaged in the process of development of airports, so that the land acquisition issues can be dealt expeditiously. Priority will be given to activate non-operational airports, since the additional land requirement in these airports is comparatively less.