New Delhi: The civil aviation ministry has formed a committee to review a plan by the GMR Infrastructure Ltd-led operator of the New Delhi airport to half own a company that will run retail and duty-free shopping space at an airport terminal under construction.
The proposed structure of the retail business at the Capital’s airport is a departure from the practice of leasing out such space to a third party in return for a rental or lease fee. Instead, the operator, Delhi International Airport Ltd (DIAL) plans to award retail concessions based on a revenue-sharing model with the winning bidder required to form a 51:49 joint venture with the airport firm for at least 10 years that can be extended by another five years.
DIAL won 30-year rights in 2006 to run New Delhi’s Indira Gandhi International Airport in return for a pledge of around 46% of its revenue from the airport to the government’s airports regulator Airports Authority of India (AAI).
This proposed structure for the retail and duty-free space, analysts insist, will reduce the revenue that DIAL shares with the government as part of a May 2006 privatization contract. Mint first reported this story on 13 April.
This is the second time in three years that a proposal floated by DIAL has come under government scrutiny for possible revenue dilution.
Opposition from parts of the government over a plan to lease out government-owned land to hospitality companies by taking large upfront security deposits led to a delay of about two years in closing the plan.
This time, the DIAL move has ruffled the government more as prior board approvals were not sought. “They should have first taken the in-principle board approval before going ahead,” said a senior government official, who did not want to be named because of the sensitivity of the matter.
The committee, comprising senior aviation ministry and AAI officials, will submit its report within the week after which the retail space proposal will be discussed at the DIAL board.
A second government official confirmed the plan to study the scheme.
DIAL, which has maintained that the plan is within the terms of the privatization contract, said the proposal was being put before its board of directors. On Wednesday, a spokesman said on email: “AAI’s revenue will not be affected as a result of the joint venture model being followed by DIAL. The JV model (as is often successfully used in airports across the world) was chosen to give confidence to investors and to show our commitment.”
DIAL is a consortium led by GMR Infrastructure, which holds a 50.1% stake in the venture. The other partners are Frankfurt airport operator Fraport AG, a unit of Malaysia Airports Holding Bhd, private equity firm India Development Fund (IDF), and AAI. While Fraport and Malaysian Airports’ unit hold 10% each, IDF owns 3.9%, and the rest 26% is controlled by AAI.
Delhi airport, which handles over 22 million annual passengers, has seen its revenue rise steadily over the past three years, growing from Rs526 crore in fiscal 2006 to Rs823 crore in 2007-08. In the same time period, the share of its aeronautical revenues or those derived largely from airlines has decreased from 45% to 38%, highlighting an increase in non-aeronautical revenues such as that from duty-free sales, food and beverage, car parking and other services.
In October 2010, when a new terminal—T3 (terminal 3)— opens at the Delhi airport, it will be the largest such terminal in India and have some 20,000 sq. m of retailing space (equivalent to three football fields). DIAL expects its non-aeronautical revenues to rise even more then. About a quarter of the international travellers out of India use the Delhi airport and the T3 terminal is designed to handle 34 million passengers a year.