New Delhi: The Prime Minister’s Office has sought updates from the civil aviation ministry on the determination of tariffs to be charged by Delhi International Airport Pvt. Ltd, or DIAL, suggesting the government is keeping a close eye on the process.

Soaring charges: Passengers at the Delhi airport. DIAL, the operator of the Indira Gandhi International Airport, had sought a nine fold tariff increase from the Airports Economic Regulatory Authority. Photo: Hindustan Times

Aera is expected to decide on the matter in a few weeks, with the end of this month being the deadline for comments on the tariff increase proposal.

The PMO’s request, according to a 28 January letter reviewed by Mint, seeks “updated status regarding tariff determination for DIAL” and was a follow-up to the meeting held in August by Prime Minister Manmohan Singh’s principal secretary on the matter.

Aera has told the aviation ministry that the timeline will depend on the quality and quantity of responses received to its proposal, said a government official who declined to be named.

The regulator had postponed the last date for submissions to the end of the month after the aviation ministry said it could only send its views by then.

The regulator and DIAL also have significant differences over how the tariffs should be calculated, according to the consultation paper on the regulator’s website. These include whether DIAL should get returns on the security deposits it has raised from the airport land and the rate of return on equity it should be granted.

DIAL had leased out 45 acres of land and raised security deposits of Rs 1,471.51 crore to part-finance the Rs 12,700 crore project, on which it wants a return of 24%. Similarly, it has asked for a return of 24% on the equity it has brought into the project.

Aera has rejected the demand for returns on security deposits and proposed a 16% return on equity.

The government official cited earlier said it was impossible to grant returns on land as this could invite the scrutiny of government auditing agencies.

“By doing so, the regulator would be saying that the land given to DIAL was a free gift from the government, which they could use for any purpose they want to,” this official said. “If that is the case, then it means (that)by putting in just Rs 1,700 crore in the project, they got Airports Authority of India (AAI) equity of Rs 670crore, development fee from passengers of about Rs 3,400 crore and land deposits worth Rs 1,471 crore, and with all this they built a Rs 12,700 crore project?”

The 200 acre airport land available to DIAL for commercially development is valued at about Rs 20,000 crore.

A DIAL spokesman confirmed the airport operator has sought to expedite the project. “We have requested honourable PM to advise Aera/MoCA (ministry of civil aviation) to expedite tariff determination in view of continuous losses,” he said.

To a question whether the operations management development agreement (OMDA) allowed it to get returns on security deposits, DIAL said, “OMDA is silent on the issue of deposits. However, the OMDA is clear that non-transfer assets... cannot be used to cross-subsidize the aeronautical charges. Given this logic, if deposits used for funding RAB (regulatory asset base) are given zero returns, it will tantamount to 100% cross subsidy.”

OMDA is the 2006 privatisation agreement between government and DIAL.

DIAL said while it was not mandated under OMDA to use the deposits, it did so to ensure the project didn’t suffer and that it used all possible funding avenues before resorting to charging an airport development fee from passengers.

An expert said the tariffs were a test case for the regulator. “It has to give a reasoned opinion which can stand scrutiny by all parties concerned,” said Robey Lal, a former AAI board member. “I have a reasonable amount of faith in Aera.”

tarun.s@livemint.com