Home / Politics / Policy /  CAG says govt partial to Mumbai airport

New Delhi: The government’s auditor has highlighted “undue benefit" to the tune of at least 5,887 crore, given by the civil aviation ministry to Mumbai International Airport Ltd (MIAL), which runs the airport in India’s commercial capital, in a move that could further embarrass the Congress-led government that has, since 2009, unsuccessfully battled corruption allegations in the organization of the Commonwealth Games, and the allotment of spectrum and coal mines.

In a draft report, the Comptroller and Auditor General (CAG) emphasizes the cosy relationship between the ministry and MIAL, a consortium controlled by GVK Power and Infrastructure Ltd, during the ongoing modernization of the airport that started in 2006.

“The civil aviation ministry and Airports Authority of India failed to monitor the project effectively leading to undue benefit to the private concessionaire while the project kept getting delayed," the Comptroller and Auditor General (CAG) said in a report titled Draft Performance Audit Report on Implementation of Public Private Partnership project in Chhatrapati Shivaji International Airport.

To be sure, while this report incorporates the responses of the civil aviation ministry, it will have to be sent again to the ministry before it is finalized and presented in Parliament.

The current report incorporates some of the comments of the Airports Authority of India, as a representative of the ministry and a stakeholder in MIAL, but CAG doesn’t seem to be satisfied with them.

Under the agreement, the project was to be completed by 2010 but is three years late.

The aviation ministry did not impose penalties on the Mumbai airport for these delays as has been mandated under the agreement and instead, allowed MIAL “in August 2010 to reschedule works to 2013", said the report, a copy of which has been reviewed by Mint.

A detailed e-mail to MIAL spokespersons on Monday seeking comment, and subsequent calls and messages remained unanswered.

A spokesperson for the civil aviation ministry did not reply to a questionnaire sent on Monday and did not offer an immediate comment on Wednesday.

In recent years, CAG has finalized reports alleging that the ministry favoured private companies managing the New Delhi airport. The Delhi airport is managed by a consortium headed by GMR Infrastructure Ltd.

According to CAG, the initial cost of the Mumbai project was 5,826 crore which increased to at least 11,647 crore till the time of the audit ending 2012.

Passengers ended up bearing the burden of this additional cost as the government allowed the airport to levy an additional usage fee on passengers.

“As per initial financing plan project cost of 5,826 crore was to be financed entirely through equity, internal accruals and debt, 3,400 crore were taken as DF (development fee) from public," CAG noted. “It was also noticed that the debt of MIAL has not altered even as the project cost nearly doubled. This indicates that the finance risk for the project was not appropriately transferred to the concessionaire."

AAI said in its comments to CAG that the development fee had been approved by India’s airports regulator and that the agreement between the ministry and MIAL didn’t have any provision for monitoring the project cost.

The report added that while the government, which through the Airports Authority of India owns 26% of MIAL, wanted to bring in more equity, this proposal was rejected by GVK.

“It appears that government of India, acting through AAI, was ready to infuse more equity ... the private party was not willing to take risk which is not acceptable," the report said.

The GVK Group has interests in the energy, resources, airports, transportation, hospitality and life sciences sectors. It has a consolidated debt of around 20,000 crore. The conglomerate is in discussions with investors to sell stakes in its airport business to retire a portion of its debt.

The auditor also pointed out that in land-scarce Mumbai, a calculation mistake by the government granted MIAL an additional 126 acres.

The agreement allows the use of a little less than 10% of the total land granted for commercial purposes.

MIAL ended up with 2,001 acres against the 1,875 it should have had and was allowed to commercially develop 191.2 acres against 179.8 acres, the report added.

It wasn’t clear whether money from the development of the extra 11 acres would be used to subsidize the burden on passengers and airlines, or simply bolster the profits of MIAL.

The auditor estimated the earning potential of 196.1 acres of land over a 60-year lease period at 104,897.81 crore.

That translates into 535 crore for every acre of land and 5,887 crore for 11 acres. AAI said in its comments to CAG that a proper calculation of the land could be conducted only after the removal of slums and other encroachments on certain portions of the land meant for the airport.

CAG also said in its report that it had issues with the creation of subsidiaries by MIAL. The airport operator has created eight such without the permission of AAI and “outsourcing of activities by MIAL to these subsidiary companies on revenue sharing arrangements detrimental to AAI’s interest..in the long run cannot be ruled out," the report said, citing a dip in cargo revenues.

MIAL shares 38.7% of its revenues with state-owned AAI and outsourcing of work to subsidiaries could result in dilution of overall revenue pie. The auditor also rejected AAI’s explanation that MIAL was yet to enter into any agreements with the subsidiaries.

CAG had pulled up GMR for a similar attempt.

The Public Accounts Committee, headed by the Bharatiya Janata Party’s Murli Manohar Joshi, is vetting a special audit on the matter of the Delhi airport operator’s subsidiaries that was ordered after CAG’s report.

CAG, in its report tabled in Parliament in 2012, had said the ministry allowed Delhi International Airport Ltd (DIAL) “post-contractual benefits (that) violated the tendering process by which the joint venture partner was selected".

DIAL and the government have denied the charges.

Shares of GVK closed at 8.66, down 0.43%, on Wednesday, while the BSE Sensex closed at 21,171.41 points, down 0.39%.

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