Dial an opinion

Attorney General Milon Bannerji's opinion on the Delhi International Airport Limited (DIAL) matter may well be correct in its reading of the technicalities, but it has serious implications for all past and future public-private-partnerships that the government has signed (and will sign), in which prospective investors are asked to bid on a revenue-share basis. At the heart of the issue is the fact that the GMR group won the bid for re-building/modernising the Delhi airport by promising to share 46 per cent of its revenue with the government-owned Airports Authority of India (AAI). DIAL, the joint venture with GMR in which the AAI owns a 26 per cent stake, has however come up with an interpretation which, while sticking to the 46 per cent revenue share, seeks to define in a clever way what the common divisible pool of revenue is. Thus, DIAL has created a subsidiary which will operate the cargo business that is expected to contribute between a fifth and a fourth of total revenue "" since only the dividends paid out by the subsidiary will be ploughed back into DIAL, it is possible that the AAI's revenue-shares will be seriously impacted.

Similarly, on part of the land leased to it by the AAI and which can be used for commercial purposes like hotels and shopping malls, DIAL is taking large up-front deposits equal to 8 per cent of the total rental payable by developers for 58 years "" this, too, reduces the amount payable to the AAI if deposits are kept out of the divisible pool, and also provides DIAL with most of the pool of capital needed to build the airport. While the ministry of civil aviation has been fighting this interpretation of the contract, the country's top legal officer has now opined that DIAL's actions are correct in law and that raising deposits to finance projects is common business practice. That raises the question as to whether the government had good legal advice on the drawing up of the contract; interestingly, it will be recalled that the technical expertise used for assessing the different bids was also found to be defective.

The attorney general is probably correct in his technical interpretation of the contract, since the bid documents had mentioned (though only in a footnote) that the taking of deposits was an option; but actions have to also stand the test of ordinary logic. If the GMR Group won the bid on the basis of its offer to share 46 per cent of revenue from all airport-related activities, then anything that diverts receipts into other pockets vitiates the bidding process. After all, if other bidders had known that it was possible to re-define what the common divisible pool would consist of, they might well have outbid GMR. To cite a similar example in the ports sector, in 2002 the Chennai Container Terminal Limited wanted to pass of the amount it had to pay (following its winning the bid) as a cost so that this could be used to hike user tariffs further, but the regulator dismissed this as illogical since, if this were to be accepted, other bidders could bid even a 99 per cent revenue share and win the contract. If it is assumed now that the attorney general's view is upheld and that the AAI and the ministry of civil aviation are asked to withdraw their objections, it is easy to imagine the consequences for other PPP projects where too the bids are on the basis of revenue-share.