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Business News/ Politics / News/  Govt to spell out its stand on airport equity returns by Feb
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Govt to spell out its stand on airport equity returns by Feb

Govt to spell out its stand on airport equity returns by Feb

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New Delhi: The civil aviation ministry will make its stand clear on the rate of return that airport operators can seek to generate on the equity brought in by them by early next month.

The ministry has asked the Airports Authority of India or AAI to hold talks with investment banks such as SBI Capital Markets Ltd to recommend a plausible return, according to two government officials who did not want to be named.

The aviation ministry is considering working on two different slabs for returns on equity invested in existing airports and those built from scratch depending on the risk level, said one government official.

The risk, for example, could be more for an airport built from scratch compared with an existing facility like Delhi, which has an existing revenue stream. A higher risk would merit a higher return.

GMR Infrastructure Ltd-led Delhi International Airport Pvt. Ltd (DIAL) has sought a return on equity investment from Airports Economic Regulatory Authority, or Aera, of about 24% besides an 800% increase in airport tariffs.

Aera has rejected that request and granted it a 16% rate of return besides a 340% increase in airport tariffs spread across two years. The final order on the move is expected only after all stakeholders including airlines send their views.

An Aera official said the ministry has said it too will give its final views on equity returns by the second week of February after which the regulator will finalize its position on DIAL tariffs. “It is always good to have a clear and transparent view," this official said.

Economic regulation of airports was one among dozen key issues in the aviation sector that needed to be resolved within a specific time frame, the Prime Minister’s Office (PMO) said in a letter to aviation ministry.

The December letter that was reviewed by Mint, asked the aviation ministry to frame “an economic regulatory policy for fixation of airport tariffs within three months".

Last week, the ministry held a one-day conference on economic regulation of airports that was attended by airport operators, airlines and lenders.

The conference was meant to “help the government formulate an appropriate policy on the subject, to formulate a balanced view on economic regulation for competition consumer protection, viability of airport and inflow of investment in the airport sector", according to the invitation letter sent by the ministry to stakeholders. Aera has said it will also follow a so-called single-till policy while framing airport tariffs, a move that has been opposed by private operators, who say this would not be viable for them. Airlines and passenger associations have welcomed the move as this ensures lower tariffs than the so-called dual-till method.

Under the so-called single-till model, airport charges are fixed by taking into account all principal airport activities, including aeronautical or flying-related activities and non-aeronautical activities such as commercial use of airport space. The dual-till model, on the other hand, considers only aeronautical activities.

While India has a stated policy for greenfield, or new, airports, it has failed to specify the contours for computing economic returns from such projects. “The policy would be for future airports," the second government official said. “We haven’t written to Aera so far as what we say becomes binding on them."

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.

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Published: 23 Jan 2012, 10:50 PM IST
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