Shutting down the existing airports at Bangalore and Hyderabad when the new ones start operations now makes no sense to the parliamentary standing committee, which has advised the government to renegotiate with the private operators. It has also opposed user development fees proposed by the two operators. In part, both decisions appear driven by the poor access to the new airports and the recent rapid growth in air travel.
The panel’s suggestions bear testimony to the many flaws in the concession agreements concerned and, in general, to the way public-private partnership (PPP) projects are dealt with in the country. Not just flaws in agreements signed by the states, the Centre’s shortcomings are equally glaring, as in the controversy over revenue sharing from Delhi airport. The big question is why should the government fix terms without fully evaluating their implications? These can be considerable, both the uncertainty that private investors face after the government finds flaws in the deal, and the costs borne by the public due to bad agreements. Enron redux?
The problems won’t end as long as the approach is back to front. Had the long-overdue airport economic regulator been in place, it could have fostered healthy competition among airports and protected user interest while fixing tariffs and service charge—evaluating, for example, whether passengers need to pay both a passenger service fee and a user development fee.
As for air traffic, even without hindsight, it was evident that it would rise rapidly, given the growth of low-cost aviation. It is interesting that the draft agreement with Bangalore International Airport Ltd (Bial) approved by the previous (NDA) government said the government would “endeavour” closure of the existing airport. After Bial objected, the UPA government signed a tightened version in mid-2004 just after it came to power. The hurry to stake claim to progress in infrastructure may have led to a missed opportunity to re-evaluate such a closure, and to expedite establishment of the regulator.
Clearly, traffic projections, on roads or airports, can go very wrong, both in understating or overstating growth. Rapidly growing countries such as ours need to design concession terms for this. And tariffs are best left to the procedural transparency of an?independent regulator.?Any decision to reduce competition, and the supply of infrastructure services, by closing airports or pledging not to construct new roads is a bad idea. Revisiting the model concession agreements for PPP is a good idea.
The controversy may yet have a silver lining. Parliament may feel the need to push through the airport regulator Bill!
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