Shorter concession periods for Chennai, Kolkata airports likely

AAI to take final decision on the issue

The ministry of civil aviation is planning to reduce the concession period for the commercial contracts floated for operating food and beverage (F&B) outlets, retail units and duty-free shops at Chennai and Kolkata airports.

While earlier the plan was to award the contract for non-aeronautical facilities for 10 years, the government is examining possibilities to bring it down to two years to allow the private party that wins the management agreement to renegotiate terms for commercial ventures.

“We have to bid out the contracts for essential services such as F&B at least till the time the private player winning the management contract stabilises operations. Instead of awarding the commercial contract for a 10-year period, we can bid it out for two years or five years. We are exploring the options,” informed a senior official in the ministry.

While the Airports of Authority of India (AAI) would soon decide on the issue, a reconsideration of the tenders floated for commercial contracts is underway as management agreements for the two airports are also being bid out simultaneously to private concessionaires.

Private companies, interested in bidding for the privatisation of Chennai and Kolkata airports, have expressed concern saying it would prove difficult to negotiate terms with a firm which has been awarded the commercial contracts by AAI.

“AAI would award the commercial contracts for a period of 10 years. So whosoever is awarded the management contract on a public-private partnership basis (for 30 years) for these airports would find it difficult to negotiate terms with the firm awarded the contract for non-aero revenues. There are bound to be legal issues,” said a senior executive on condition of anonymity.

 

Taking cognizance of the overlap in interests, the ministry is now looking at ways to reduce both the scope as well as the concession period for the commercial contracts. The official added, “The tenders for commercial contracts for F&B, retail, duty-free at Chennai and Kolkata were floated in August last year, before it was decided to award management contracts to private players. We are examining possibilities to reduce the scope and award the contract only for essential services such as F&B outlets so that neither the private concessionaire nor the consumers are at a disadvantage.”

 

In a letter to the Prime Minister, written earlier in September this year, Janata Dal (United) President Sharad Yadav too had criticized the ministry of civil aviation for bidding out separately contracts for non-aeronautical facilities at Chennai and Kolkata. “Auctioning of these facilities separately will result into disadvantageous position to the AAI. The airports and their non-aeronautical facilities as a package should have been given together which would be more profitable”, Yadav said in his letter. While the ministry has decided to go ahead with bidding out non-aero ventures and management contracts separately, the tenders for commercial facilities will be tweaked to limit inconvenience to consumers and the private operators.

 

Earlier this year, the government said that airport operations and maintenance through PPP contracts will be introduced in Chennai, Kolkata, Lucknow, Guwahati, Jaipur and Ahmedabad. The government is working with a tight schedule awarding these projects before the end of the current fiscal, based on a deadline set by the Prime Minister's Office.

 

As many as twelve companies including Infrastructure Leasing & Finance Services (IL&FS), Essar Infrastructure, Tata Projects, Tata Realty and Infrastructure, GMR Group, Reliance ADAG, Sahara, GVK, Fraport AG and Essel have evinced interest in bidding for the privatization programme of the Chennai and Lucknow airports.

 

To address concerns that privatization of the six brownfield airports may result in higher charges for passengers, the tariff to be levied post privatization would be determined prior to awarding the projects. Any price increase would be linked to the wholesale price index to ensure certainty regarding charges even after the private concessionaire takes over operations.