Private players should infuse Rs.50,000 cr

Minister of State for Civil Aviation Dr Mahesh Sharma, in an exclusive interaction with Infrastructure Today, shares his views on how the Indian civil aviation sector will rank third by 2020, benefits of modernization of airports through PPP model, and the steps taken by the Ministry to help Air India.

Is the civil aviation sector, particularly considering the financial constraints, in a makeover mode?
At present, the financial status of the aviation industry is not sound. We have to recognize the potential of the industry. India can be a proposed hub. In global aviation ranking, the Indian aviation sector stands at ninth position. The Government is planning to elevate its position to third by 2020. Key factors, the Aviation Ministry has to address, are non-availability of airstrips and the tax structures, particularly, the airport taxes and cost of Aviation Turbine Fuel (ATF).

The 12th Five-Year Plan envisages an investment requirement of Rs 67,500 crore to meet infrastructure requirements of the airport sector alone. Airports Authority of India (AAI) is expected to provide about Rs 17,500 crore. The balance, Rs 50,000 crore, is expected to be invested by the private sector and may require significant participation of global investors as well. Many airport projects are coming up in various parts of the world. Financial resources of major airport developers in the world are certainly limited, and hence our policies have to be good enough to attract the major airport developers across the globe. The aviation sector needs more investments in other segments like general aviation, maintenance repair and overhaul (MRO), cargo and airlines.

What are the benefits of modernization of airports through PPP model? Which are the airports that will be modernized and what is the timeframe?
Some of the airports are to be modernized through Public-Private Partnership (PPP) route. At present, Request for Qualifications (RFQs) for operation, management and development of airports have been carried out at the four airports of Chennai, Kolkata, Ahmedabad and Jaipur. The last date of receipt of RFQ is May 26. We have to set a timeframe for the modernization of these airports, but it is difficult to stick to it as it requires approval at various levels, including that of the Cabinet. But, the Ministry has set the target of one year for the completion. To improve funding requirements of the aviation sector, it is proposed to simplify (the same) through IT applications. DGCA will issue licences online. E-freight clearance will improve cargo movement and attract more investments. MRO policy, civil aviation policy and policy on economic regulation will give clarity for long-term investments. ATF price in India is one of the highest in the world, it has to be rationalised to compete with other neighbouring countries.

Earlier in the Parliament you had mentioned that there will be no privatisation of airports. What will be the next step on PPP model?
We have never said that we will not privatise or go for PPP model. Till date, we don´t have a policy decision (on privatization of airports).

What are the steps taken by the Ministry to help Air India?
The Government is concerned about the financial health of Air India. We want to update its services and make it competitive. The Union Aviation Ministry is not an Air India ministry. We have to work in the interest of the Indian aviation industry. As a social commitment, we want Air India, the national carrier, to function in a better way in order to give edge to its competitors. The Government has proposed certain improvements in order to bring profitability to the national carrier. The Government has already started working on improving the performance of Air India. We have been paying hefty interest amounts. We are replacing it by a forex loan, so the interest amount will be 3-4 per cent. Apart from this year, we have saved around Rs 900 crore out of ATF fuel price regulation.

What are your views on the swinging air fares by various airlines? What are the steps taken by the Ministry to regulate them?
Fares should be rational, and irrational multiplication should be limited. It´s a matter of concern for all of us. We need to study international guidelines on fares. Some passenger might be in an emergency or may be in trouble if he/she has to pay hefty amount as fare. This is not right. We are finding ways to regularise fares.

How will PPP in development serve public interest?
The quality of airport infrastructure contributes directly to the country´s economic growth and international competitiveness by facilitating smooth and efficient movement of people, which in turn will enhance trade and tourism. After PPP in airports, it is noticed that, service quality at airports have gone up and non-aero revenues have increased. Ultimately, the Government spending on airports has come down. The Government has earned revenues of around Rs 10,000 crore in the last five years, which includes revenue share and tax besides creation of direct and indirect employment opportunities.

Which are the private players willing to participate in the PPP model?
GMR Group, GVK Group, Adani Group, Badra Group, Zurich Airport, Egis India, Essel Infratect, Flemingo, PNC Infratect Ltd, Siemens, Tata Group, Cochin Airport Ltd and ACTNBV are the private players who are willing to participate in the PPP model. They have started participating in global bidding and managing airports of global standard at Sebu in the Philippines, Istanbul, Malaysia, etc.

The sector has plans to make investments of $120 billion in the development of airport infrastructure. How do you see the FDI plans in the sector?
We have a broader policy and accepted FDI in the airport and civil aviation business. It´s an open market now-a-days. But, we are capping it to that status and don´t want to cross that barrier of what the Cabinet has decided under the Government of India. Within that limit, we will use that cap under the betterment of the airports definitely.

For development of greenfield airports, the government has permitted 100 per cent FDI under the automatic route. Under this policy, a new greenfield airport at Durgapur (West Bengal) has been developed with an estimated cost of Rs 280 crore, which is raised mostly through FDI. After the finalization of civil aviation policy that aims at providing stability to the long-term investors, it may improve the FDI inflows.

The Ministry has projected that around 500 airports in all, both brownfield and greenfield, would be required by 2020.

What is the current status?
Presently, India has around 120 airports of these, 80 airports are commercially operational, while 40 airports are lying idle. So, in first phase, the Government has proposed to divide these airports into grade II and III cities for improving connectivity. At the same time, we need to explore the economic viability. That is why we are waiting. We cannot make a firm commitment on the number of airports, like 500 airports by 2020. All this will depend on the demand, potential and the requirements of the airports.

We have three greenfield airport projects in Cochin, Hyderabad and Bangalore operational. In next one year another three greenfield airports- Durgapur, Shirdi and Mohaliùwill become operational. Another 13 airports have been given in-principle approval and are at various stages of construction. These include Navi Mumbai and Sindhudurg (Maharashtra), Kannur (Kerala), Gulbarga, Bijapur, Shimoga and Hassan (Karnataka), Pakyong (Sikkim), Dabra, Gwalior (Madhya Pradesh, Mopa (Goa) and Karaikal (Pudhucherry).

Will ´Make in India´ campaign explore the potential of aircraft MRO business? Will India become an MRO hub?
We have around 23 per cent of the tax structure, and because of our tax structures, the country is losing MRO business. This is true. We should rationalise our tax systems so that we will get a good chunk of our MRO business, which at present is going out of the country. We are in the process. Maybe within a short time, we will be able to work on it with Ministry of Finance to rationalise the taxes. Everything is ready; the process on this will start probably in two months. The proposed MRO policy is aimed at making India as the manufacturing hub and promoting aircraft maintenance and repair at our airports.

Service tax exemption to construction, erection, commissioning or installing of original works pertaining to an airport has been withdrawn in the recent budget.

How will it affect, particularly, investments in the aviation sector?
The proposed service tax exemption will adversely impact the overall sector as this is a very important component of airport development. Companies have to bear additional cost of 14 per cent on the above activities. This may also slow down future investment in the sector.

We have low air traffic density – 72 as compared to 282 in China and 2,896 in the US. How should we tackle this issue?
Till 1997, the new airports were more or less set up in the public sector through the AAI and its predecessor entities. These projects were formulated by AAI on the basis of technical and financial viability and the proposals were considered by the Central Government for necessary administrative approvals and financial sanctions in terms of guidelines as applicable to the investment approval.

However, after liberalization of the Indian economy, the potential in India has around 120 airports which 80 airstrips are commercially operational and 40 airstrips are lying idle. To tap this potential, the government has resorted to implementation of PPP and construction of greenfield airports through private participation. PPP of Delhi and Mumbai airports have led to substantial traffic growth.

After, operationalisation of proposed greenfield airports, the traffic density is further expected to increase. AAI has also taken up up-gradation and modernization of its airports across the country. Traffic density will further improve with the proposed PPP process.

Land acquisition is a challenge. The new proposed Bill could hamper infrastructure projects across India, particularly the quantum of land required to build new airports. How can this issue be tackled?
First of all, this is a demand of all the states.
It was the states which had sought to relax certain provisions in Land Acquisition and Rehabilitation and Resettlement Bill claiming that otherwise all the growth processes will stop. However, there were certain reservations with the public and the Opposition made a hue and cry out of nothing. Basically, this was designed not to help any individual or private organization. The government had made it clear that land acquisition is in the wider interest of farmers.