The fleecing of hapless air travellers by private sector-controlled international airports with UPA Government’s stratagem is entering a critical phase.
The private developers are exuding confidence that they would manage to secure authorities’ nod for hike in ad hoc airport financing charges referred to as user development fees (UDF) or as just development fee (DF).
This optimism is contrary to guarded posture adopted by nascent regulator named Airport Economic Regulatory Authority of India (AERA). It last month said that it would revise these levies imposed by Delhi, Mumbai, Hyderabad and Bangalore airports.
AERA has already issued consultative paper on review of DF levied by Delhi International Airport Private Limited (DIAL). The latter was empowered by the Government to levy DF aggregating up to Rs 1827 crore over 36 months ostensibly to meet cost escalation in modernisation and expansion of the airport.
DIAL failed to submit the final project cost to AERA/Government by August 31, 2009, as stipulated by the Government in its order permitting the company to levy DF with effect from March 1, 2009. On the last due date for submission of cost, DIAL wrote to AERA stating it expected to “complete the final assessment of the project cost by end of February 2010”.
On January 14, 2009, DIAL wrote to Civil Aviation Ministry: “We expect that the project cost will get crystallized by June 2009 and we will be able to give crystallized project cost for verification/vetting by that time.”
In this letter relating to continuation of DF levy, DIAL said: “The present indications are that the final project cost may be of the order of about Rs 10,500 crore as against the earlier estimate of Rs 8,975 crore. This would call for additional funding of about Rs 1,500 crore albeit the true picture would emerge by June 2009. As the project would not be able to leverage additional debt, the additional funding of Rs 1,500 crore will have to be brought in by the promoters from their own sources.”
DIAL has been levying DF of Rs 200/domestic passenger and Rs 1300/international passenger departing New Delhi airport since then. The levy is collected by airlines and transferred to DIAL.
DIAL is a joint venture between GMR Group, Airports Authority of India (AAI), Germany’s Fraport AG, Malaysian Airports and India Development Fund. It was incorporated in April 2006 after the GMR-led consortium bagged the mandate to modernise, expand and operate the New Delhi International Airport, which was earlier owned and operated by public AAI.
DIAL has the right to control and operate the airport for 30 years. This concession is renewable for another 30 years under the Operation, Management and Development Agreement between AAI and DIAL signed on April 4, 2006.
GMR is also lead promoter of another JV named Hyderabad International Airport Limited (HIAL), which has developed the new airport at Hyderabad. HIAL has reportedly demanded 20 per cent hike in UDF for domestic passenger and 100 per cent hike for international passenger.
On October 31, GMR Group chairman GM Rao told reporters that it had applied to the Government for a hike in UDF/embarking domestic passenger to Rs 475 from Rs 375. Similarly, it had sought increase in UDF/embarking international passenger to Rs 2700-2800 from Rs 1000.
The news stories quoted Shri Rao as saying: “We have sent a proposal to the Civil Aviation Ministry to increase the UDF at the Hyderabad airport. It will take 2-3 months for the new charges to be in place. It will come.”
Shri Rao’s statement has baffled analysts. They point out that AERA is not expected to serve as a rubber stamp of the Ministry.
Analysts believe that the regulator has to follow a due procedure of public consultation on review of Hyderabad UDF and arrive at its own conclusions in keeping with its autonomous status. It has not yet issued even the consultative paper review of Hyderabad UDF.
Reverting to Delhi airport, the Supreme Court had last month issued notices to DIAL, AAI and the Government regarding DF levy following a public interest litigation, challenging Delhi High’s verdict upholding the levy.
The High Court held that by virtue of Section 12A (4) of the AAI Act, DIAL had stepped into the shoes of AAI after the privatisation of Delhi airport. DIAL had thus inherited AAI powers to levy DF for the purpose of carrying out its functions.
Analysts contend that legality of DF is only one issue. The other and major issues are that DF and UDF have made air travel beyond the reach of millions. This and other relatively higher levies at greenfield private and privatised airports have driven airlines deep into the red.
Moreover, why did the Government in the first place not allow AAI to levy DF all these years? Why it had to privatise Delhi and Mumbai airports and then allow private operators/JVs to levy DF? Was this post-tender award dole-out disclosed to bidders at the time of bidding competition for award of concessions to operate these two prime airports?
Analysts hope that public interest activists would raise these issues before AERA or in their submissions to the Supreme Court.
UDF/DF is levied in addition to passenger service fees (PSF), which is payable both at private and AAI airports. PSF at private airports are higher than that at AAI airports.
The Government’s State Support Agreements (SSAs) or concession agreements with private airport developers are generally designed to facilitate higher fees and periodic increases.
Take the case of the concession agreement with Bangalore International Airport Limited (BIAL) for greenfield Bangalore airport. It stated that PSF at the time of opening of new Bangalore airport would be higher than the AAI tariff effective 2001 duly increased with inflation index or the then prevailing tariff at other AAI airports. PSF would be inclusive of cost of security expenditure on Central Industrial Security Force (CISF).
Similarly, the SSA for Delhi airport has created highly favourable ground for DIAL to charge tariff from different users of airport services.
According to the ‘principles of tariff fixation’ incorporated in SSA, AERA would fix regulated charges by observing ‘incentives-based’ principle and nine other specified principles.
It remains to be seen whether AERA would toe SSA or find fault with SSA.
While hapless passengers have no option but to bear the exploitative tendencies of airport monopolies, the vocal stakeholders are protesting on behalf of airlines and passengers.
On June 8, 2009, International Air Transport Association (IATA) announced that it had put privatised Delhi and Mumbai airports on “IATA wall of shame” for steep hike in airport charges.
Prior to this, IATA wrote two letters to Civil Aviation Ministry in March and June pleading for rollback of charges.
In letter dated March 13 addressed to Minister of State for Civil Aviation Praful Patel, IATA Director General & CEO Giovanni Bisignani sought Patel’s intervention to “rescind the various increases in aeronautical and airport charges and the introduction of new charges that have taken place in India in the last three months”.
The letter pointed out: “None of the cost increases to the industry were preceded by consultations with airlines-a process that is stipulated in the international policies set out by the International Civil Aviation Organisation (ICAO). Consultation is even more critical during current difficult times and is certainly a pre-requisite in any proper economic regulation, a role that the AERA needs to perform soonest.”
In August this year, credit rating major ICRA Limited had raised concerns over airport charges in a study highlighting “regulatory uncertainty” relating to aviation infrastructure.
It said: “Aeronautical charges (levied on aircraft and passenger movement) are a major source of revenues for any airport. While regulation of aeronautical charges is necessary considering the monopolistic nature of airports, the regulatory framework must also meet the basic objectives of autonomy, transparency and predictability. At present, even as the four major airports at Bangalore, Delhi, Hyderabad, and Mumbai are being run by private operators, an independent regulatory authority for the aviation sector, though constituted, is yet to formulate detailed tariff guidelines.”