Expertspeak: On matching expansion

Although a few airport projects were completed last year, most were by AAI. The tremendous pressure on the existing airport infrastructure is a reason why more private participation is needed, says Kumar Ramesh.

Air traffic growth slowed down in 2007; airlines faced a tough time from 2008 onwards due to the recession and slump in tourist traffic. This is not a deterrent, as abundant scope and growth opport­unities are still untapped in airport infrastructure.

With Rs 32,000 crore towards airport infrastructure development in the 11th Five-Year Plan, Indian pass­enger traffic is expected to grow at about 12-15 per cent and cargo traffic at a consistent 18-20 per cent during the period, putting enormous pressure on existing infrast­ructure. The investment in airports from 2007 to 2010 was Rs 40,000 crore, which is divided into three areas: greenfield airports, modernisation of existing airports, and modernisation of non-metro airports. The Indian airports are not equipped to handle this surge in traffic. To achieve a balance between traffic growth and infra­structure, the government has to rely on private investors who can step up to the airport infrastructure challenge. Though most of the investments are expected to be utilised for con­struction of new airports, a considerable portion of the investment is expected to flow into the modernisation and upgradation of existing infrastructure. These bro­wnfield activities should provide plenty of opportun­ities for investors.

Greenfield airports: For greenfield airports in the country, 100 per cent FDI is allowed through the auto­matic route. In Bangalore and Hyderabad, the gov­er­nment has initiated the construction of greenfield air­ports on a BOOT basis, with private sector participa­tion. The project at Bangalore will cost Rs 1,400 crore, while the Hyderabad project will cost Rs 1,760 crore. In both these projects, AAI holds 26 per cent equity and the remaining 74 per cent is held by private stakeholders.

Modernisation: The existing international airports in Delhi and Mumbai are being restructured and mod­ernised through private sector participation. In the joint ventures, AAI and other government PSUs hold 26 per cent equity, with the remaining 74 per cent being held by the strategic partner. As per the current policy of the government, FDI in existing airports has a sectoral cap of 49 per cent. The development plans for Delhi and Mumbai airports envisage an investment of Rs 5,270 crore and Rs 6,130 crore respectively (totalling Rs 11,400 crore) during the period of 2006-07 to 2013-14 for their development.

The PPP model is likely to peg foreign direct inv­estment (FDI) levels at 49 per cent, with the private sector partner being allowed to pick up 74 per cent equity in the project. AAI has decided not to seek any budgetary support for the modernisation process that is expected to cost between Rs 7,000 and Rs 8,000 crore.Five international airport projects have been under­taken under the public-private partnership (PPP) mode: devel­op­ment of Cochin, Hyderabad and Bangalore intern­ational airports; and the modernisation of the Delhi and Mumbai international airports.

The appro­ximate cost of Phase I of the five projects is $5 billion. The government's 11th Five-Year Plan (2007-2012) had a budget of $1.9 billion for the development of airport infrastructure. Modernisation and expansion of Chennai and Kolkata airports is underway and the AAI has committed around $780 million to both the projects. The AAI is also upgrading and modernising 35 non-metro airports in the country at an estimated cost of $1 billion.

Cross-ownership: AAI had decided to impose cross-ownership restrictions between Delhi and Mumbai air­ports, which include:
1. Any common ownership by successful bidders with common prime members through concession period.
2. Any common ownership or common involvement by an airport operator via participation through a service performance contract.

Airline participation: Equity ownership in the JVs by scheduled airlines, cargo airlines, and their group enti­ties is restricted to five per cent.

However, group entities of scheduled airlines and cargo airlines, that were existing airport operators as on the date of issue of this document, are exempted from this restriction.

Foreign ownership: The JVC would be subject to a 74 per cent foreign ownership limit as per the prevailing Foreign Direct Investment guidelines on sectoral limits (and as amended from time to time).
Immediate opportunity: Thirty-five other city air­ports are proposed to be upgraded through PPP mode, where an investment of $357 million is being considered over the next three years.