Bangalore international airport gets 10-yr fee waiver

As the much-awaited Bangalore international airport heads towards a financial closure, followed by commencement of construction work, the Government of India has decided to breathe easy on Bangalore International Airport Ltd (BIAL) by not only allowing a 10-year "grace period" for the concessional fee but also grant it the freedom to obtain this fee from the users of the airport, at any given time.

What this means is that the promoters of the airport retained the right to pass this concessional fee on to the users of the airport, without any intervention from the Union government.

It may be noted that the concessional fee has been fixed at 4 per cent of the total revenue earned by the airport every year.

According to sources, "Having agreed upon such a framework, we are likely to come up with a draft of the concession agreement among the promoters of the company and the Union ministry of civil aviation during this week. However, the final agreement would be signed during financial closure."

This request from the state government to grant BIAL the right to pass this concessional fee on to the users of the airport comes in view of the financial implication that it would have on the company.

"We made this request so that BIAL would have the right to show this (concessional fee) as an operating expense. It means that along with other revenues, BIAL will have the freedom to pass this fee to the users of the airport. For instance, if the turnover of the airport is Rs 100 crore per year, the concessional fee will amount to Rs 4 crore. With this understanding, BIAL would be able to show this Rs 4 crore as an operating expense. We have asked the Centre to permit them to show this as an operating expense and this has been agreed upon," the source explained.

The source added that an understanding of this nature has been reached because once BIAL is well established and decides to pass this burden on to the users, the government of India should not intervene in the matter.

"How BIAL would go on to collect this fee from the users is upto them," the source said.

Though an understanding has been reached in principle, it needs to be formulated so that both the government of India and the BIAL have a clarity on the issue when it comes to the concession fee and the manner in which it is calculated and passed on to the users of the airport.

"Since it is a concessional agreement for 30 years, we want to ensure that both parties have a similar clarity on the smooth functioning of the airport," the source explained.

The concept of the concessional fee was brought into picture by the ministry of finance, which has said that it would implement this arrangement for project under the infrastructure sector.

According to the source, the ministry of finance made a special request to the state government to accept this concept so that it becomes easier for the Centre to implement the same in other airports.

"The ministry of finance has understood that the concessional fee cannot be implemented by weakening or jeopardising the business case of a promoting company. So, the concept of a 'grace period' has been brought in," the source said.

Going by the current understanding between the BIAL and the ministry of finance, which will now be formulated, the concessional fee would be payable from the first year of operation itself.

Though there is a 10-year holiday for this fee, it would continue to accumulate. But for the next 10 years, BIAL would pay a 4 per cent concessional fee along with one-tenth of the accumulated concessional fee, every year.

Effectively, BIAL would end up paying the accumulated concessional fee for the first 10 years, in the next 10 years, without any interest burden.

A crucial board meeting of the directors of the company has been scheduled for September 13.

Interestingly, the financial arrangers have also agreed to cooperate for a financial closure in November, so that construction work could start by December.

This meeting would take stock of the current situation and is expected to reach a consensus on working towards reaching favourable position for most of the pending work.