Mumbai cancels duty free operators' contract

Duty-free operations in Delhi and Mumbai appear to be in disarray with contractors in both airports accusing the joint venture airport developers of overcharging them.

Meanwhile, after a spate of arguments, Mumbai International Airport Limited (MIAL), a consortium of India's GVK Airports Company and the Airports Authority of India (AAI), terminated the contract with ITDC/Aldeasa yesterday.

ITDC/Aldeasa, a joint venture between state-owned Indian Tourism Development Corporation and Spanish company Aldeasa, had bagged the contract for duty-free operations at Mumbai airport for Rs 571 crore in February.

Operations were to start in June. Instead, two weeks ago, Aldeasa wrote to MIAL saying that the contract value should be reduced to Rs 250 crore.

The latest contract bid was almost eight times ITDC's previous duty-free contract with the Mumbai airport authorities.

ITDC/Aldeasa said that going by the infrastructural constraints they would not be able to break even before two years.

In 2006, Mumbai airport generated duty-free revenues of Rs 35 crore to Rs 45 crore.

"The company had aggressively bid in line with Delhi duty-free operations, which were bagged for around Rs 500 crore. But a relook at their numbers suggested that the revenues earned would not be commensurate with the contract value at least for some time," said a source close to the developments.

The sources said MIAL refused to concede on the grounds that reducing the contract value would make several other players who had bid eligible for the contract. ITDC/Aldeasa executives could not be contacted and MIAL declined to comment on the development.

Now that the contract has been terminated, MIAL has the option of either calling for more bids or awarding the contract to the second highest bidder.

Significant names who had bid for the Mumbai airport included the DFS Group, the Nuance Group, the AG-Shoppers' Stop joint venture, the Alpha Airports-Future Group joint venture and the Dufry-Interglobe joint venture.

Currently, duty free operations are virtually non-existent at the Mumbai airport.

In a similar situation, Alpha Future, one of two duty-free operators in Delhi airport, has been in talks with developer Delhi International Airport Limited (DIAL), a joint venture between Hyderabad's GMR group and AAI, demanding a nearly 43 per cent reduction in the contract amount of Rs 500 crore.

Like ITDC/Aldeasa, Alpha said the bid amount is not commensurate with the revenues generated from duty free operations now.

Alpha Future is a consortium between UK-based Alpha Airports and Kishore Biyani-promoted Future group and has a 39 month contract with DIAL.

According to sources, the amount was 13 times more than what ITDC used to pay for its duty free operations in Delhi.

Duty free operators at Delhi airport earn close to Rs 120 crore annually and the amount to be paid to DIAL every year comes to more than Rs 100 crore.

Currently, duty free at Delhi is being handled by two entities "" Dubai-based Flemingo, which is on a previous contract with Airports Authority of India, and Alpha Future.

Duty free operations in India generate revenues of below $2 per passenger compared to $ 20 in Singapore's Changi.

THE Foreign Investment Promotion Board (FIPB) has, in a meeting on November 16, rejected two separate proposals by Flemingo Duty Free Shop Pvt Ltd and Flemingo (DFS) Pvt Ltd to undertake additional activities of cash and carry wholesale trading in addition to operating duty-free shops in India as well as selling duty free goods to hotels against duty credit. Company sources said they had already withdrawn the application as the policy regarding its proposed activities was not clear.