Delhi Airport: Plan to lease land to fund modernization comes under scrutiny

Delhi Airport: Plan to lease land to fund modernization comes under scrutiny

Delhi International Airport Ltd’s (DIAL) plan to raise money to modernize the New Delhi airport by leasing out land for development through a subsidiary has attracted the attention of the government over concerns that it could result in a significant loss of revenue for it (the government).

Civil aviation secretary Ashok Chawla has asked senior aviation ministry and Airports Authority of India (AAI) officials to explain the arrangement and submit a report, according to an official at the civil aviation ministry, who did not wish to be identified.

DIAL plans to launch a subsidiary called Delhi Aerotropolis Pvt. Ltd (DAPL), which will secure a Rs2,835 crore refundable deposit for a period of 28 years, apart from a licensing fee, for leasing out 45 acres of land to private developers through a bidding process by September this year. This land is likely to be used for the development of hotels and convention centres.

This financial plan, an official at the civil aviation ministry said, will substantially reduce the revenue share for the state owned-AAI because the security deposit may not constitute revenue under the agreement. “By taking a much higher (security) you are reducing the kitty of lease rental. If you are to give 46% of X amount (to AAI) and you minus a portion out of X, the resulting revenue share will shrink," added the official.

The official said that since airport development bids were won on the basis of the amount of revenue the bidders were willing to share with the government, other bidders that lost out could “turn around and ask why" the government was allowing itself to be done out of revenue.

Under the existing agreement with DIAL, promoted by a consortium led by GMR Infrastructure Ltd, AAI receives 45.99% revenue from the airport operator for the 30-year period, for which the airport has been leased out.

The GMR group’s chief financial officer (strategic finance) Madhu Tredal confirmed that the group was looking to raise funds through securitising the deposit because raising Rs7,000 crore (required to develop and upgrade the airport) entirely from the market wasn’t feasible when the annual revenues from the Delhi airport stood at about Rs600 crore. The total cost of modernizing the country’s second busiest airport is estimated to be over Rs8,800 crore spread out over several phases. “We have received clearance from the board (of DIAL for the leasing out of land for hotels) and we are going ahead with it," he said.

Tredal said the company plans to borrow roughly half of that estimated development cost from the banks while the deposit coming from the proposed land lease will also be invested in the airport project. “It’s intelligent business planning," he added.

That move has, however, not gone down well within the establishment. “While they may have a rational argument, it is against the basic premise of winning the airport on higher bid (and higher revenue sharing)," the official at the civil aviation ministry added.

Rahul Chandran contributed to this story.