Privatisation grounded

Airport investment terms need to be made more attractive

India’s key regional airports are bursting at the seams and yet the scheme to partially privatise them has received a tepid response. This paradoxical situation is the result of a poorly designed tender process. The principal sticking point is the limited scope of privatisation. Under the scheme, announced as far back as 2013, revenue generation for a private participant is restricted only to terminal operations. It is no surprise, then, that the tenders for the Ahmedabad and Jaipur airports closed on October 20 without a single bid.  This even though the Airports Authority of India (AAI) had relaxed many guidelines for these two airports, such as extending the terminal management bid for 15 years, fixing the rent the operator would pay the AAI based on revenue per passenger, and stipulating that the AAI would make all the capital investment. These modifications, however, did not address the key issue. Since profits from such operations will necessarily accrue with a significant time lag – as they typically do in any transportation business – the private sector is unlikely to take the bait.

The mountain of infrastructure-related bad debt held by the banking system will surely act as a cautionary tale here. Until footfalls in expanded airports reach critical mass, private players will look to income from other avenues to bridge the gap – principally from real estate development – and will prefer to have a say in the capital investment too. It is instructive that the new Railway Minister Piyush Goyal has recognised this issue in the new contracts that are being offered for station development schemes. In other words, private players prefer to go in for the kind of contracts that aim at full privatisation through an operation, management, development agreement of the kind that is in place for airports in major cities. Moves of this nature are, however, fraught with the kind of moral hazard that makes them risky as the regime approaches another parliamentary election year. Questions about private players reaping the benefits of heavy public investment and charging passengers high user development charges are bound to arise. Indeed, this was one of the key reasons the Chennai and Kolkata airports, developed at considerable cost by the AAI, were not handed over to private players, although the AAI’s own management left much to be desired. 

Though the political compulsions to do nothing are compelling as 2019 approaches, the civil aviation ministry urgently needs to address the issue of regional airports for several critical reasons. First, robust private participation in augmenting and expanding regional airport capacity will provide the much-needed infrastructural ballast for the civil aviation ministry’s creative plan to expand regional connectivity, under the acronym UDAN, announced in April this year. Second, a successful privatisation model will do much to restore confidence in the viability of the public-private partnership investment model for infrastructure. And third, the overcrowding in airports is reaching a crisis point – Pune is operating at almost triple its original capacity, Lucknow at almost double, and hubs such as Goa, Calicut, Jaipur and Trivandrum are reaching these levels. The Centre for Asia Pacific Aviation reckons the country’s 40 largest airports will exceed their capacities in 10 years and predicts a bill of $45 billion for augmenting capacity till 2030. This is no small ask and cannot be achieved without private participation.