Ministry-DIAL revenue share fight snowballs

A dispute between Delhi International Airport Ltd (DIAL) and the Ministry of Civil Aviation over revenue sharing is threatening to escalate into a major controversy, with the latter seeking the view of the solicitor-general.

At the heart of the issue is the percentage of revenue that DIAL will end up sharing with Airport Authority of India (AAI), which according to the contract is to be just above 45 per cent.

According to calculations by the ministry, if DIAL proceeds with its plans, the percentage of revenue it shares will be only 6 per cent.

This has put the ministry in a flap and it has raised two serious objections to DIAL's plans. One, it is objecting to DIAL setting up various wholly owned subsidiaries to handle different aspects of the business, as a result of which revenues from these businesses will not accrue to DIAL and so won't be part of the shared pool.

"This is like hiving off the business and siphoning of revenues", alleges a senior civil aviation ministry source.

Secondly, the ministry is upset with DIAL for calling bids for developing 43 acres for a term of 28 years plus 30 years (assuming DIAL will get an extension and will be able to give an extension for commercially developed land).

So, in the bid, the company has asked bidders to pay the deposit amount on the basis of the revenues that will accrue over 58 years.

"What they are doing is seeking very high security deposit and then asking for low annual rent. What this implies is that AAI will only get a percentage of this low annual revenue and no share in the high security deposit. It's like saying I will give you a Taj Mahal after 58 years but very little annual rent," explains a source.

Ministry sources said DIAL sought legal opinion and got back to say that a security deposit was not revenue. "Even we know this. Our argument is not over this but over their handling of the issue", says a top ministry official.

He points out this issue is very important as it can set a precedent for future airport developments, including Navi Mumbai and Greater Noida, two major projects that will be offered to private developers next.

When contacted, DIAL spokesperson Arun Arora got back with an email reply that said that "Delhi International Airport Private Limited can undertake development of the aero, non-aero and essential services, either by itself or through its subsidiary as per the OMDA (Operation, Management and Development Agreement) agreement with Airports Authority of India."

He added DIAL had issued an expression of interest (EOI) document to develop 45 acres of the hospitality district, including hotels.

Fourty-five developers who submitted expression of interest had been invited to submit a request for proposal (RFP) and that the RFP was prepared "after a thorough assessment and analysis of the market dynamics by international consultants," he said.

The selected developers will enter into an agreement with DIAL and pay an annual rent. The term is for 58 years (28 years, with an option for the developer to renew it for additional 30 years "� co-terminus with OMDA).

He said DIAL will accept refundable security deposit from developers (which is 8-10 per cent of total rental value for the lease period). Delhi Aerotropolis Private Limited (DAPL), a 100 per cent subsidiary of DIAL, would provide infrastructure support like master planning, water, power and so on and would be the infrastructure provider for the entire hospitality district.

The reply said DAPL would recover the cost of sustaining and supporting these activities and this would enhance the attractiveness of the property. He did not specifically answer issues regarding the dispute.