New airport projects may be awarded on a revenue sharing basis

New Delhi: The civil aviation ministry on Tuesday proposed a revenue-sharing model for awarding greenfield airport projects to developers that is considered simpler and less prone to disputes about gold-plating of expenses.

According to the proposed model concession agreement, which will be fine-tuned after feedback from industry, airport developers will compete to win contracts based on the amount of revenue per passenger to be shared with the authority that gives the contract, instead of the current norm of developers sharing a part of the profit from the venture.

Profit-sharing contracts are prone to disputes over costs and are no longer favoured in India. Already, the government has moved to auctions involving revenue sharing in sectors such as oil and gas, to replace profit-sharing contracts.

The ministry said in a statement that a reduction in controversies and litigations is likely to attract more investors and lenders to proposed greenfield airport projects such as those in Jewar (near Noida), Bhogapuram (near Visakhapatnam) and Pune. The exact number of greenfield airport projects that are envisaged is not available immediately, but civil aviation minister Suresh Prabhu, who briefed reporters on the new model concession agreement, said it would be announced soon.

“A perspective plan about how many greenfield airports India will need to be built will soon be brought out,” said Prabhu.

Minister of state for civil aviation Jayant Sinha described the new revenue model as revolutionary as it would facilitate the goal of stepping up building airport infrastructure to meet the goal of making air travel more accessible and affordable to people. India wants to achieve the target of one billion passengers a year in 15-20 years, nearly four times the 265 million recorded in 2016-17.

According to the new plan, the maximum charges that airports can levy from airlines—ultimately paid by the consumer—is capped at ₹ 400 and is partially linked to inflation. Airlines, of course, have the liberty to develop real estate and generate other revenue streams from the project to add to their profitability.

Civil aviation secretary R.N. Choubey said the new model discourages padding up of costs, as the idea is not to develop swanky airports but efficient, functional ones that will help meet the policy objective of one billion passengers a year.

“In this approach, there is no incentive for over-building, the cost for which is borne by the ultimate consumer. It is a big thing,” said Choubey.

He said the contracts would also have provisions to “enable developers to handle (business) shocks”.

Experts welcomed the move, but expressed caution saying implementation is the key. “The intent behind the new model concession agreement is definitely positive. There has to be safeguards built into it to ensure that investors who aggressively bid do not leave the project halfway through when economic headwinds change,” said Jagannarayan Padmanabhan, director at Crisil Infrastructure Advisory.