Home » Land acquisition can be a deterrent: Experts

Land acquisition can be a deterrent: Experts

Land acquisition can be a deterrent: Experts

Our Experts

Arun Chandran, Director for Aviation (region- Australia, Asia Pacific and Southern Africa), Rail & Transit (India) at Parsons Brinckerhoff

Satyendra Pandey, Manager – Research & Consulting South Asia, Centre for Asia Pacific Aviation

Vikram Sharma, Managing Director, Supreme Infrastructure VK Shrote, COO, Hincol

Views are personal

What are the major opportunities in airports sector for vendors/contractors this year?

Chandran
With the election round the corner, not much is likely to happen with respect to new airport infrastructure in India this year. Among the few aviation opportunities that exist a major one is the Navi Mumbai greenfield international airport project for which the tenders were floated. Though this has been in discussions for some time now, the land acquisition process is yet to be completed. Pune and Nagpur are two other airport projects which may possibly ahead. The status of the privatisation of six Airport Authority of India (AAI) airports is uncertain and on hold. The Kushinagar international airport project is also under tender but whether it will move forward this year is to be seen.

Sharma

This sector has grown at a CAGR of more than 14 per cent in the past decade and gives enormous opportunities to vendors/contractors. The airport or the aviation sector of India is the fastest growing market in the world. As per a recent study, the traffic is expected to increase more than three times in the coming decade. This will create multiple opportunities for players who are poised well to take this challenges.

Pandey
This year, there will be significant opportunities in the airport sector. Privatisation of 15 AAI airports is underway and the tender process has commenced for the first six of these: Chennai, Kolkata, Ahmedabad, Jaipur, Guwahati and Lucknow. Further, the construction of up to 18 greenfield airports has received in-principle approval. As these airports come up, opportunities in airport retail and cargo will also evolve.

Shrote
The airport industry looks promising with many international airports like Navi Mumbai, Kannur, Ankleswar, Pune etc, and about 50 Tier-2 and Tier-3 airports. These would open up business opportunities and Hincol, a joint venture company of Hindustan Petroleum Corporation, is well placed to cater to the bituminous product requirements with its technological support from Colas SA France.

The Prime Minister has announced 50 new low-cost airports in Tier-2 and Tier-3 cities in the coming years under public-private partnership (PPP) mode. Will this be an opportunity for you?

Chandran
Talks about low cost or regional airports have been happening for a few years now. The traffic and number of passengers flying out of Tier-2 and Tier-3 cities needs to increase and a sound pricing strategy would be a good enabler for this. A number of regional airport projects were announced by states but looking at their current status, a revamp in the operation mechanism is required. The Kushinagar airport for example saw issues like non-participation earlier and the viability gap funding was introduced. The Gulbarga and Shimoga airport projects are on hold due to various issues. Most other proposed PPP model airports have been stalled. We are yet to see that one successful regional airport project that will enable the developers, financiers, etc to regain some confidence in the model and participate. This means that feasibility and financial viability have to be carefully worked out and the government needs to assess the situation and take measures to establish an enabling environment. We hope such announcements get converted into reality and these projects happen in the future. These will be seriously thought of as an opportunity once a few projects get started.

Pandey
The 50 new low-cost airports announced provide an opportunity to enhance regional connectivity and to test the low-cost airport concept in India. That said, demand continues to be a challenge especially given the extremely price sensitive Indian traveller. Airlines using these airports would have to have well thought out strategic plans. Addressing structural issues in Indian aviation such as high ATF taxes, and a push by the Centre for a cabinet approved well defined aviation policy may further help these airports develop to their full potential. CAPA believes that airport development should be carried out within the framework of a national master plan which identifies clear economic reasons for building a new airport. A long term perspective must be taken for each airport – ideally over a 30-40 year horizon.

With the new land acquisition law in place, what are the challenges for greenfield or expansion projects in airports?

Chandran
Land acquisition issues have garnered much attention in the past due to the various controversies and major delays they have caused on some major projects. The new act is a big step towards bringing transparency in the process. With respect to compensation, rehabilitation and resettlement, it is more humane and protective towards landowners. However, for the industry, specially with respect to development of new infrastructure, the new law is quite restrictive. One, it is likely to increase the project costs manifold and may make such projects economically unviable. Second, we can expect more delays now as the process will get stretched. The present uncertain atmosphere as the states and central government implement it and all affected parties grapple with its implications will not do much good in an environment where projects are already severely affected.

Sharma
The bill stipulates that for PPP model, the consent of more than 70 per cent of landowners must be in place. Also, the onus of getting consent will be on the project owner, and hence the role of the government will be just of a facilitator for cases where consent is pending due to a group of landowners. Another major challenge in front of the project developer will be the Resettlement and the Rehabilitation (R&R) of the displaced people. Since the value of the land on which the project is ought to be developed will increase significantly, there will always be a sense of dis-satisfaction for the displaced people. Further, due to increase in the cost of the land, the costing and the funding plans of the projects under planning phase will have to be reworked.

Pandey
With the new land acquisition law, airport promoters have to bear the cost related to land and its acquisition. The new law, apart from government’s limited involvement in acquisition and required consent of affected families, also talks about the return of acquired land if unutilised after a period of five years. This may act as a deterrent to investors as multiple regulatory clearances for airports can take significant time – in some cases beyond five years. A few cases that illustrate this are Navi Mumbai, Shimoga and Bellary.

Finally, airport projects have long gestation periods due to the huge amount of capital required for both greenfield and brownfield projects. Costs are recovered via two main sources of revenue – aeronautical and non-aeronautical revenue. The new law regulates the use of airport land for commercial use and will limit the options of generating non-aeronautical revenues or may make it unattractive. Consequently, to ensure an adequate return to investors, either airport charges will go up or the overall viability of projects may come into question.

Shrote
The Land Acquisition Bill could lead to a further increase in prices as the legislation seeks to protect the rights of landowners whose property is acquired for major projects. Hence, it is critical to start the process of identifying and allocating land for future airport development across all Indian states now. The land allocated to the airport should not be released for other projects

What are the major procurement issues related to airport projects?

Chandran
Mining of sand, stone, etc have been banned for environmental reasons. Therefore, their availability for future projects will be a problem. With the development of other airports around the world, the key items that are likely to be imported will be challenging to procure in a tight timeframe. Some measures need to be taken to promote the manufacturing industry for aviation and develop the environment so that imports can be reduced.

Pandey
The tender process of airport projects continues to have challenges. While it is a positive development to see a move away from the "lowest bidder" concept to a more comprehensive review of the expertise, exposure and effectiveness of the firm awarded the contract, the process is fairly subjective.

On the materials and equipment side, the lack of domestic manufacturers producing sophisticated machinery required for airport projects continues to be a challenge. From in-line baggage systems to installations such as visual display guidance systems and jetbridges – majority of procurement has to be done from outside of India.

What norms do you follow while procuring material, equipment or services? Will the soon-to-be-law Public Procurement Bill impact your practice?

Chandran
The Bill specifies open competitive bidding as the preferred method of procurement without defining it more comprehensively. The impact will be similar to the industry as a whole and will be absorbed. With time, any anomalies that exist in the Bill can be further refined to suit the process in our market.

Sharma
The new Public Procurement Bill is expected to bring significant changes in the industry. The Bill calls for more transparency by maintaining checks and preventing corrupt practices. This will promote a healthy competitive environment where all the bidders will be given equitable treatment.

Pandey
The Public Procurement Bill primarily attempts to regulate procurement of goods and services by the Central government with the objectives of ensuring transparency, fair and equitable treatment of bidders, promoting competition and enhancing efficiency and economy. In this regard, it is a step forward.

Yet, a major area that the Bill does not adequately address is a redressal procedure in case of violations of the tender process . The current grievance redressal mechanism is ambiguous and from a first glance appears to be fairly lengthy. Under the Bill, procurement is still down by various ministries and states and not one central body – which brings with it a host of challenges. With regards to services procurement – aviation practices are fairly technical and as such require the authority reviewing the bids to pay attention to the expertise that a firm brings along with nature of prior engagements, exposure and ability to deliver.

What major changes do you expect in the coming years in airport-related projects?

Chandran
We expect to see more low cost airport projects in the future. Until now, the focus has been on iconic structures in the major metros and private parties were brought in for developing impressive structures projected as a gateway to the country. Now, for the new airports, functionality of the airports will be more focused on with the appropriate cost saving mechanisms explored. Sustainable structures that make the airports viable and profitable for the developers and still be comfortable and friendly to users will be how central focus of airport development in the country. The plan to develop the aerotropolis around which the economy is centred is being contemplated in the various forums and these changes can be expected in the coming years.

With most PPP regional airport projects hitting roadblocks, the PPP model for regional airports will need to be reviewed and assessed. A move away from this temporarily may not be a bad start to kick start some of these projects.

Sharma
Due to the factors such as strong passenger traffic growth, recovering economy, rising disposable income in hands of Indian middle class, current low penetration level, the sector is expected to grow rapidly in the coming years. To incorporate the said factors, there are various changes that can be expected in the coming years like: More transparent and faster clearances for regulatory issues; increase in PPP model; and FDI for such projects.

Pandey
The currency fluctuations, coupled with the new land acquisition costs and tempered growth in recent years, has led to an overall fall in investor sentiment. While the aviation sector will continue to grow, the next two years may be challenging. CAPA forecasts that the total passenger throughput at Indian airports could grow to 452 million.

Most of the 35 largest non-metro airports will also require new or additional capacity in the next few years. Over the next 20 years India is expected to see the greatest quantum of investment in airport infrastructure development after China.

CAPA estimates India will require investment of $40 billion in airports by 2025: $20 billion for expansion of current metro airports and construction of second airports in Delhi, Mumbai, Bangalore and Chennai; $20 billion for construction of greenfield airports at 35 non-metro cities.

Comments

Leave a Reply

Your email address will not be published.