New Delhi: In a move that could potentially put the government in direct conflict with the airport regulator, the civil aviation ministry is proposing new guidelines that will spell out the specific framework for economic regulation of new airports, a key concern for airport investors.
The move comes at a time when serious differences seem to have surfaced between the regulator and the ministry over tariffs for various airport services, and ahead of plans to set up at least 10 new airports, including the one at Navi Mumbai, to absorb the projected fourfold increase in passengers to 580 million by 2016-17.
“We are holding a seminar and discussions with all stakeholders on how to encourage investment in airport infrastructure. We want foreign direct investment to come in. Secondly, the discussions are also around what should be the future approach to economic regulation of the greenfield airports. Investors will come when they are attracted by the opportunity. These two issues are linked to each other,” said a top ministry official, who did not want to be named.
The proposal is at an early stage of discussion, a second government official said.
While India has a stated policy for greenfield airports, or construction of airports from scratch, it fails to specify the contours for computing the economic returns from the project. As a result, private operators have complained that the Airports Economic Regulatory Authority of India (Aera) has made its own interpretations while vetting the tariff claims for various airport services.
Indira Gandhi International (IGI) Airport in New Delhi. File Photo/HT
“The moot point remains that having set up a regulatory authority for tariffs for major airports, is it (ministry) trying to set up a new tariff regime for new major airports or a new tariff for smaller airports,” said Robey Lal, a former Airports Authority of India board member. “If they are discussing bypassing a regulatory body set up only in August 2009, that shows poor planning on the part of the government.”
Large airports, such as those in Delhi, Mumbai, Bangalore and Hyderabad, with an annual passenger air traffic of 1.5 million, are regulated by Aera. An Aera official said they would react once they are officially informed of the proposal.
“The aviation industry in India (both domestic but increasingly also international) is moving strongly in the low-cost direction, which will make high aeronautical charges to recoup costs difficult to implement. Also, a single-till approach is not something investors look toward favourably,” said an official with a foreign airport operator, who declined to be named, referring to interest in bidding for the Navi Mumbai airport.
A single-till approach of economic regulation, preferred by Aera, helps keep tariffs for passengers lower than the dual-till approach, favoured by airport operators, which results in higher tariffs and thus more profit.
“The policy should cover (the single and dual) till approach—how do you treat land banks and returns on equity investment,” said an official with a private Indian airport, who did not want to be named.
Airports typically get land from the state government at a negligible cost to allow them to subsidize the construction of the airport and keep the charges on airlines and passengers lower, said a person familiar with the subject, who declined to be named.
Airports are resisting this move.
Lal didn’t agree that the single-till approach was unviable for airport operators. “The rules governing operations under a single till are very clear,” he said. “Therefore, it is for the developer to present a business proposal that takes into the requirement of the single-till.”
According to Lal, the government should look at the larger framework. “Would the tariff regime change in areas like the North-East states? What about existing smaller airstrips being upgraded? When Aera was under consideration, there were only 11 major airports. Two years later, there are 14, and there are more coming as traffic grows. There should be a consistent policy for all of them, from minor to major to existing to new. Navi Mumbai, when it opens, will open as a major airport from Day 1.”