Steady on course

Last week, Parliament's Standing Committee on Transport, Tourism and Culture tabled its recommendations on the airport modernisation programme.

In essence, the committee felt that modernisation of the existing infrastructure cannot cope with the projected growth in traffic, particularly in Mumbai. It is far better to build new airports in both cities.

Its views on who should build these are not explicit, but its expressed belief that government estimates of resource requirements are somewhat inflated suggests that it is not quite persuaded about the need for private participation.

On Tuesday, Ajay Prasad, secretary in the ministry of civil aviation, provided welcome relief to proponents of the government's current policy on airport modernisation.

As it stood, the programme envisaged private participation in the revamp of Mumbai and Delhi airports, by way of special purpose vehicles, in which 26 per cent of the equity would be commanded by the Airports Authority of India.

With a 74 per cent stake, the private parties, essentially consortia of domestic and foreign entities, would manage the upgraded facilities. Over a year ago, nine consortia submitted expressions of interest.

A couple of months ago, the whole process was re-structured and fresh bids were sought. The secretary has specified certain new conditions, such as an increase in the capital requirements for eligible bids, but by and large the policy remains unchanged.

The prevailing policy is based on the unassailable logic of numbers. This year, all Indian airports will pass through about 61 million passengers (41 million domestic and 20 million international).

Out of this, Mumbai airport will account for about 10 million domestic and 6 million international passengers while Delhi will account for about 8.5 million domestic and 5 million international passengers.

Comparing these figures with major Asian airports, Singapore processes about 35 million passengers a year, while Bangkok and Dubai are at around the 25 million mark. The economics of airport operation are heavily skewed towards numbers.

At current levels of traffic and expected growth rates, it will be some years before Mumbai and Delhi can support two profitable airports. More so as they will continue to have a sizeable share of domestic passengers, which is not the case for the other airports mentioned. This means far lower revenue opportunities from non-aviation businesses.

Of course, an argument can be made that activity on new airports should begin well ahead of the time when traffic warrants them. But, in the Indian context, this will also mean substantial new investment in supporting infrastructure and connectivity, which is outside the purview of the aviation sector.

The only reasonable approach under these circumstances is to make investments in capacity expansion and efficiency improvements of the existing facilities, so that they can accommodate the expected growth.

But, within this broadly sensible position, there are some sour notes. The concession terms envisage a reversion of the facility to the Airports Authority of India at the end of the maximum concession period of 60 years.

Given the record of this agency in running the country's airports, one would have thought that privatisation would provide the opportunity for a quick and merciful end to its existence. The prospect of it running airports 60 years hence is an unwelcome legacy to bequeath to future generations.