Sunil Jain: AAI's back in control

RATIONAL EXPECTATIONS

When the country's biggest and busiest airports at Delhi and Mumbai were privatised a few years ago, Singapore Changi Airport, ranked among the top two airports in the world by Skytrax for over six years consecutively, walked out of the bidding process, arguing it was unfair. Zurich, ranked number six, wasn't there, either. Frankfurt Airport was there, but as a minority partner of the GMR consortium, which won the bid for the Delhi airport.

So what would you say if you learnt that Changi's bidding again, so is Zurich and Frankfurt's back, but on its own instead of as a minority partner? What makes this all the more commendable is that the airports they're bidding for are relatively small ones. Amritsar airport, one of those being bid for, had a revenue of just Rs 21 crore in 2006-07 "" admittedly, this is a fast-growing airport since the previous year's revenues were just Rs 15 crore, but compare this with Delhi's Rs 669 crore and Mumbai's Rs 665 crore, and you realise there's really no comparison. Udaipur's revenues were even smaller at Rs 7 crore in 2006-07. Even more amazing is that the two airports aren't really being privatised in the sense you understand it, in the manner that Delhi/Mumbai or Hyderabad/Bangalore have been privatised with the private party mostly fully in control of the daily operations and strategy subject to some overall supervision of the Airports Authority of India (AAI).

Since it's getting a bit confusing, maybe it's better to step back a little and review what's happened in the sector so far. The NDA, it's well known, started the process of privatising airports at the four metros and began things in Delhi and Mumbai. The UPA decided to go ahead but, under pressure from the Left parties, gave in to the unions' demand and decided that both Kolkata and Chennai would be expanded/modernised under the AAI. It was agreed that other non-metro airports would also be modernised by the AAI (this obviously applies to the airports the AAI owns and not to airports such as the Hyderabad and Bangalore ones, which are owned by the state governments, or the new Noida one, which Uttar Pradesh Chief Minister Mayawati wants).

Since anyone who's travelled by air knows just how well the AAI runs an airport, there was considerable opposition to allowing the AAI to run the airports even though it had already begun work on expanding their capacity. The Committee on Infrastructure presided over by the Prime Minister decided that an Inter-Ministerial Group would recommend the modalities of how the operations and maintenance of these airports were to be handled. The IMG, headed by the aviation secretary, decided that while the AAI would handle everything after a passenger had checked in, the private sector player would handle everything before that "" essentially that involves running the airport, ensuring it's clean, the escalators are working properly and things like that. In addition, the private sector firm would also run the cargo operations and develop the city side hotels and shops.

The reason why the IMG came up with this proposal was that it still lay within the framework given to it, that the AAI was to be in charge of the airside operations of the airport. After all, in the airports run by the AAI, it never did the cleaning, the maintenance, the car park and other such services on its own "" it outsourced them. So, the IMG argued, instead of giving 10-12 contracts which need to be monitored separately, why not just give one big operations and maintenance contract to a big firm? It would bring in a lot more efficiency and would be more accountable.

Following this, the AAI put out a Request for Qualification (RFQ) and a Preliminary Information Memorandum (PIM) giving details of what the private firm was expected to do. About 24 bids were received for the two airport projects and 10 consortia were shortlisted. Since there have been serious problems in the newly privatised airports, the RFQ said a draft concession agreement would be prepared as well. In some airports, like Delhi, the dispute over how "revenue" is to be defined has meant the airport consortium has to change its financing plans "" the latest plan is likely to be submitted to the ministry of civil aviation in a month or so. In others, like Bangalore and Hyderabad, the high User Development Fee (UDF) has got everyone's hackles up. The new draft concession agreement, hopefully, would have tackled issues such as these, perhaps by putting indicative ceilings for charges before inviting bids (see "Rethinking Regulation," 5/5/08).

Problem is, now that the Left parties have brought up the issue with the Prime Minister, it appears that even this limited privatisation of operations and maintenance may just be given the go by "" indeed, Civil Aviation Minister Praful Patel's statements a few weeks ago indicate as much. Apart from the fact that this means non-metro citizens will continue to be at the AAI's mercy, the other thing that the minister needs to ask before giving in is why the AAI and the Left parties are so upset with the proposal "" after all, since most of the operations and maintenance work at the airports was outsourced anyway, there are no union jobs that are at stake.