New Delhi: India’s airport regulator wants operators of the facilities to exclude the value of land when calculating tariffs, which could lower costs for passengers and carriers. The airport operators are opposed to any such move.
GMR Infrastructure Ltd, which runs the Hyderabad and Delhi airports, and GVK Power and Infrastructure Ltd, which runs the Mumbai and Bangalore airports, say the measure will reduce the return on their investments.
Yashwant Bhave, chairman of the Airports Economic Regulatory Authority, or Aera, and other officials of the watchdog body held a meeting with operators to discuss the matter in Delhi on 25 January.
The Aera proposal would make the Hyderabad and Delhi airport projects unviable, said Kiran Kumar Grandhi, managing director, Delhi International Airport Pvt. Ltd and Hyderabad International Airport Pvt. Ltd, according to the minutes of the meeting that were posted on the Aera website at the end of last week. “The authority’s approach regarding ring-fencing of land at market value may not be in consonance with the above position.”
Rajiv Jain, president, Mumbai International Airport Pvt. Ltd, also said such a move “would lead to an uncertain position”, according to the minutes.
As an incentive to private operators, governments make land available to them at prices well below the market rate. This land is then sold in turn to hotels and other such businesses, generating a manifold return.
Aera wants this revenue deducted from tariff calculations. For instance, if an airport is built for Rs 3,000 crore and 50 acres of land is sold to hotels for Rs 500 crore, the tariff is currently based on a Rs 3,000 crore project value.
While deciding the return on investment for airport operators, the regulator is proposing that commercial land at market value should be excluded from the regulated asset base. In the example above, this would mean that the regulator wants tariffs to be based on a Rs 2,500 crore project value. But the operators say such land sales should not be used to subsidize airport development.
Bangalore International Airport is “concerned” and “would request the authority to reconsider its approach,” according to director Hari Marar. GVK, which bought a controlling stake in the Bangalore airport in 2009, is embarking on a Rs 1,000 crore expansion plan.
Bangalore got 500 acres and Hyderabad 700 acres for development on commercial grounds. Aera says the land was given in the “public interest” and proceeds from it should contribute to airport development and reduce the burden on passengers.
“The government had given land for airport development after acquiring it in public interest,” Bhave said in the recorded minutes. “The authority is keen to ensure that investments are made in the airport infrastructure sector and is of the opinion that a fair return on equity consistent with the risk profile would be a good way to ensure this.”
Responding to arguments from airports that airlines don’t necessarily pass on cost reductions to passengers, Bhave said airport charges in the country were already significant.
“The airlines are operating in a competitive environment. It is expected that in such an environment they would pass on the benefits of lower airport charges to the passengers,” he said, according to the minutes.
Charges such as user development fee, passenger service fee and development fee constitute a significant portion of airport charges, he said.
Airports in India are still monopolies unlike cities in the developed world, where there may be more than one such facility, which leads to competition.
The proposal will bring returns down, said an official with an airport operator who did not want to be identified. “Why should one invest in airports?”
The regulator may, however, have already made up its mind.
“Chairperson (Bhave) felt that the authority’s order has addressed the various issues raised herein on the basis of the material available before it,” according to the minutes.