New Delhi: After the government auditor recently questioned the collection of development fees at private airports, the airport regulator has asked Airports Authority of India (AAI) to consider investing more equity in Mumbai airport so that passengers need not be taxed more for its development, two government officials said.
If AAI agrees, GVK Power and Infrastructure Ltd, the majority owner in Mumbai International Airport Pvt. Ltd (Mial) with a 50.5% stake held by a subsidiary, may have to infuse more money so its holding is not diluted. AAI has a 26% stake in the airport company.
Mial invested about Rs.12,300 crore in the modernization of Mumbai airport through a mix of equity, debt and land lease. It wants to collect a development fee from passengers of about Rs.3,400 crore, of which the Airports Economic Regulatory Authority (Aera) has approved for about Rs.1,400 crore.
The balance requirement will need fresh funding but the key question is whether passengers should pay for the development of the airport, which will be complete in 2014, or if the existing stakeholders can add funds.
Aera in late August wrote to state-owned AAI asking if it was in a position to pump more equity into Mial’s equity base of Rs.1,200 crore, the two government officials mentioned above said, declining to be identified.
With the Comptroller and Auditor General (CAG) criticizing the clearance given for the collection of airport development fees from passengers in public-private-partnership projects such as the Delhi airport, there is a rethink in the civil aviation ministry on the levy, one of them said.
A public accounts committee headed by Murli Manohar Joshi, a leader of the principal opposition Bharatiya Janata Party, is examining the CAG’s report, which alleges that the government gave post-contractual benefits to Delhi International Airport Pvt. Ltd (DIAL).
The aviation ministry is thus exploring if Rs.1,000 crore in equity can be brought into the Mumbai airport project, and if AAI can bring in Rs.260 crore with its 26% stake.
This will mean GVK would have to infuse about Rs.500 crore in equity if it does not want to dilute its stake in Mial.
Bid Services Division (Mauritius) Ltd has a 13.5% stake in Mumbai airport and ACSA Global the remaining 10%.
The aviation ministry’s view now is that the “public should not suffer”, the government official quoted above said. “AAI has indicated it maybe in a position to give about Rs.200 crore.”
The second government official confirmed the parleys between AAI and the ministry.
“Since the development fee is the last resort of financing, other avenues of additional financing must be explored. In case more equity is obtained then the development fee will be less,” this official said, adding the airport also has the support of profit under “retained earnings” amounting to Rs.500-600 crore on its balance sheet.
A Mial spokesperson did not offer any comment for the story. An email sent to the spokesperson remained unanswered.
Delhi airport, in which AAI holds 26%, had brought in a total equity of Rs.2,400 crore to fund the project. When the funding requirement escalated, AAI refused to give more equity citing a fund crunch as it is modernizing some 35 non-metro airports across the country.
While the development fee at Delhi airport “is difficult to revisit”, said the first government official, since the matter is with PAC, the Mumbai airport is being discussed keeping the recent developments in mind.
GVK increased its stake in Mial from 37% to 50.5% in 2011 and plans to sell some stake to private equity players to raise Rs.3,000 crore to reduce its debt that had taken to buy the additional stake, according to a 9 August report by Mumbai based brokerage ICICI Direct.
The holding company, GVK Power and Infrastructure, had a debt of Rs.14,000 crore in March. In fiscal 2012, it had a revenue of Rs.2,500 crore.
A private equity deal meant to retire part of this debt is yet to materialize.
On Friday, the airport tariff regulator asked the Mumbai facility to sharply scale back its demand for an increase in aeronautical charges, Mint reported on Saturday.
GVK shares rose 2.61% on the BSE on Friday to close at Rs.14.53, on a day when the benchmark Sensex fell 0.69%.
“I should think that the airport operators should be looking at recovering their costs in the long term by increasing volumes and number of passengers, thus increasing revenue, rather the short term way of getting the maximum amount from a small number of passengers,” said Suresh Nair, India head of Malaysian low-fare airline AirAsia.
The airline, which operates 60 weekly flights to five Indian cities, stopped flying to Hyderabad, Delhi and Mumbai citing increased costs. Nair pointed out that AirAsia on 1 October moved its entire operations from Suvarnabhumi International Airport in Bangkok to the old Don Mueang International Airport in the city, which is 30-40% cheaper.
Even a 1% increase in airport costs is a significant burden on airlines, Nair said. “I should think that this factor would be the same or more important for Indian low-cost carriers, who now form more than 70% of the domestic operations in India,” he said.