New Delhi: The first order of India’s aviation regulator will allow the Delhi International Airport Pvt. Ltd (DIAL)-run Indira Gandhi International Airport to continue to charge a so-called development fee from passengers to finance part of the cost of building the airport, thereby setting a precedent for other airports.

The new airport is expected to be ready by March 2010.

The Airports Economic Regulatory Authority (Aera) has allowed DIAL to submit its final project cost two months before the completion of the project. This means DIAL will continue to charge domestic passengers Rs200 and international ones Rs1,300.

Setting a precedent: A file photo of the Indira Gandhi International Airport in New Delhi. By granting the airport developer an extension, the regulator has effectively rendered the review of the project cost irrelevant. Amit Bhargava / Bloomberg

Last week, Aera granted DIAL an extension till end-January.

Aera chairman Yashwant Bhave told Mint the extension had been granted because DIAL was not able to determine its final costs yet. No penalties can be imposed by Aera on the operator for the delay, he said.

An analyst said the move could set a precedent on the extent to which airport developers can push the regulator to get what they want.

“It’s like saying you asked for it and we are giving it. What else have they said?" said a New Delhi based aviation analyst who declined to be named. The analyst expressed surprise that DIAL didn’t know its project cost five months before it is scheduled to be completed.

To be sure, Aera has said the civil aviation ministry had approved the development fee only on an “ad hoc basis" and asked that a review of the project cost be undertaken at the earliest so that the development fee can be “finally determined".

However, by granting the airport developer an extension till January, the regulator has effectively rendered the review of costs irrelevant.

“It is difficult to put a number on revised project cost as of today. We will be communicating the...project cost by end of January," a DIAL spokesman said by email. “Certain project packages are yet to be finalized/awarded. Certain project packages already awarded have a variable element to them. Considering various such issues, the...project cost can only be firmed up closer to the project completion."

The International Air Transport Association (IATA) and Emirates Airlines filed with Aera their opposition to the development fee. While IATA said the fee would adversely impact the industry, Emirates said the fee was “discriminatory and not in compliance of ICAO principles" and “they would challenge the charge on the basis of OMDA and financial performance of DIAL". ICAO, or the International Civil Aviation Organization, is a United Nations agency that serves as the global forum for civil aviation. OMDA refers to operation managament and development agreement and refers to the contract signed by the Airports Authority of India with DIAL.

DIAL’s managing director Kiran Kumar Grandhi had told Aera that because of altered macroeconomic conditions, the interest burden on the project had been renegotiated by lenders, raising it from a total of Rs659 crore to Rs831 crore.

The analyst mentioned in the first instance said the regulatory body should take into consideration the end users and seek wider consultation. Between April and September, DIAL has already collected development fee from passengers to the tune of Rs310 crore.

Interestingly, no ceiling was placed on the project cost at the time the contract was awarded, as reported by Mint on 28 August.