New Delhi: The Union government has asked the GMR Infrastructure Ltd-led Delhi International Airport Ltd (DIAL) consortium that is modernizing and expanding the New Delhi airport to freeze development plans for a proposed hospitality district until further direction.
The decision by the civil aviation ministry has been taken weeks after the government's chief legal counsel, the attorney general of India, advised it that legally there was little wrong in DIAL’s plans to lease out land to hoteliers, retail and realty majors in return for at least Rs2,835 crore in deposit and yearly rentals. The ministry is opposed to this financial structure.
The ministry said that while it has received the attorney general’s opinion, the larger question of whether the financial model will impact the income of airports regulator Airports Authority of India (AAI), which is to receive nearly 46% of the airport’s annual revenues, remains unanswered. If DIAL receives a deposit, annual revenues will be correspondingly lower, the ministry fears.
“After (the attorney general’s) opinion, we are examining it (DIAL’s plan) further and we have asked the original consultants ABN Amro Bank and Amarchand Mangaldas (the financial and legal consultants, respectively, to the airport implementation) on how they see the interpretation of the document and what is going on—particularly in the light of the opinion,” said civil aviation secretary Ashok Chawla, responding to a question on whether DIAL could go ahead with its plans to secure deposits for part-funding the first phase of the airport modernization, ending 2010.
“Also, AAI will ensure that till the matter is finally settled, nothing further happens in relation to the hospitality district,” Chawla added.
The hospitality district entails the construction of nearly 3,000 hotel rooms in time for the 2010 Commonwealth Games on about 45 acres of land by private developers.
The government’s concern is that if it allows for the existing plan to go ahead, then it will not have any moral authority to stop other operators in a public-private partnership from doing so, say analysts.
According to attorney general Milon Banerjee, the legal contract that the GMR-led consortium signed with the government in 2006 for developing the New Delhi airport does not bar DIAL from having subsidiaries—proposed for cargo, commercial development?and?duty-free?shops—implementing parts of the project as long as DIAL is in full overall charge and the overall responsibility remains with it.
DIAL is mandated to develop 5% of the over 5,000-acre airport land for commercial activity. Several hoteliers responded to tenders floated earlier this year by DIAL; the consortium was expecting to process the applications around September. A GMR official, who did not wished to be named, said the company hasn’t received any communication from the government so far but would be willing to wait for “two-three weeks” more on the hospitality district for any suggestions.
A New Delhi-based analyst said that while it is a fact that there would be a revenue loss—the larger the security deposit, the lower the revenue—to AAI, the new row shows that despite the ministry involving some of the best financial and legal consultants since the idea of restructuring the New Delhi airport was first floated in 1995, the government has not been able to guard its interest. “If you and I sign an agreement and if you have not guarded your interest, you can't go to town putting spanners (in the works) later,” said Gurcharan Bhatura, secretary general of aviation think tank Foundation for Aviation and Sustainable Tourism. “If an issue has been examined by the attorney general who was approached for his advice and he has a point that there is nothing wrong with the approach, then it is maybe appropriate to allow a contract to carry on. Otherwise the prospective investors will be wary of India where contracts (are) examined for long period(s), and still could be changed after signing of agreements. This may not be a good message for the investors.”
Another analyst with an international consulting firm, who asked not to be identified, said the best way for dispute resolution was to seek arbitration as mentioned in the contact. “The rules of the games have been set with the agreement and not by anything else. If both of them (the government and DIAL) have an issue, they should invoke dispute resolution clauses in the agreement... Disputes happen in every major project, but it is how you handle it that matters,” he said.