4 min read.Updated: 01 Aug 2013, 11:32 PM ISTP R Sanjai
Workers are against the move because of the fear of job losses while airlines are worried charges will rise
Mumbai: The government is in a hurry to privatize six of India’s airports despite two of them having been extensively modernized recently and the not-so-good experience of handing terminals over to private control.
Labour unions are against the move because of the fear of job losses while airlines are worried that charges will rise, stretching them even further financially.
The civil aviation ministry and other key government bodies want to privatize at least six airports—Chennai, Kolkata, Ahmedabad, Jaipur, Lucknow and Guwahati—by December, according to two government officials.
The plan has been revived after being stuck for years and the original idea was to complete the process by March 2014, but now the government wants to get it done by the end of this year, they said, speaking on condition of anonymity.
The ministry is in talks with related agencies for finalizing bidding criteria, documents and consultants to execute a privatization plan that envisages giving 74% equity in the airports to selected private companies while 26% will remain with state-run Airports Authority of India (AAI). If the plan goes through, this will be the second round of airport privatization in India—in the first one, the government privatized airports in Delhi, Mumbai, Hyderabad and Bangalore.
India has said it needs to invest ₹ 1 trillion over the next five years in its decrepit infrastructure, which is seen as a drag on economic growth, and is looking to the private sector to share the burden. Growth slumped to a 10-year low of 5% in the year ended March.
GMR Group and GVK group invested at least ₹ 12,000 crore each in the New Delhi and Mumbai airports, respectively. Greenfield airports were built in Bangalore and Hyderabad at a total cost of ₹ 4,000 crore. GVK now owns the Bangalore airport. GMR built and runs the Hyderabad one.
The move comes shortly after the modernization of airports at Chennai and Kolkata by AAI at a cost of ₹ 2,400 crore each.
AAI employees aren’t too happy about the plan as they fear job losses. Labour union leader S.R. Santhanam said his grouping would oppose the privatization plan. It had been decided in 2007 that the Chennai and Kolkata airports would not be privatized and would instead be modernized by AAI, he said.
“The government is planning to expedite the privatization process despite protests by the AAI employees union," said one of the government officials cited above. “Senior officials from the Planning Commission and cabinet secretary Ajith Kumar Seth are taking active interest to conclude it before or by December. The modalities of the privatization are yet to be finalized."
With Chennai and Kolkata airports already having been modernized, the process will involve private entities being given management contracts. The process will see private players get a 74% stake and access to various facilities. “They might get access to (the) land of these airports too," added the first official. Companies involved in the first wave of airport privatization were allowed to develop land in and around the airport.
Airlines may also oppose the move on concerns about higher charges, experts said. The privatization of the Delhi airport has led to a 380% rise in fees, according to airline executives.
Privatizing the airports will hurt airlines as the developers will try to maximize profit, said a senior airline executive who didn’t want to be named.
“Theoretically, the new owner of these six airports will charge the same as other AAI airports. But you will see the private developers influencing the ministry to tailor the bid document in such a way that they will make money by monetizing land and various other revenue streams," said the executive.
Some experts are critical about the plan being conceived in haste.
With Chennai and Kolkata airports already modernized, what value will a private firm bring, asked a senior airport consultant who didn’t want to be named. Instead, the government should empower AAI, he said.
The consultant and the airline executive mentioned above claim land is at the heart of this rush to privatize airports.
“There is a need to first understand the pitfalls of earlier privatization of airports. Monetizing airport land is at the centre of this privatization agenda," added the consultant.
A better option would be to empower AAI, he said, and added, “Give AAI the mandate to either recruit the best talent—which the private sector player will recruit anyway—or give a management contract to the private player, since they are supposedly so efficient in managing the airport."
Privatization needs to be seen in the context of boosting infrastructure, said Saikat Chaudhuri, assistant professor of management at the Wharton School, University of Pennsylvania, who closely follows the Indian aviation sector.
One of the reasons India’s economic growth has slowed is because the country hasn’t addressed its infrastructure gap.
“As such, I agree fully that airport development and privatization need to be accelerated, along with other hard and soft infrastructure. Hopefully, they will learn from past experience," he said. “But the general path of careful privatization is the one that I agree with, as this will bring in new funds, besides improving efficiency and effectiveness."
According to Chaudhuri, the key is to identify the correct partners, have the appropriate business model and institute proper oversight.
It is likely the move is also motivated by the government’s drive to attract foreign capital.
The government is looking to privatization to speed up the pace of capital investment and infrastructure development, said Angela Gittens, director general of Canada-based Airports Council International lobby group.