Kerala Chief Minister Pinarayi Vijayan on Monday accused the BJP-led central government of a scam. In essence, in tendering five airports’ operations to Adani Enterprises.
Decision to Privatize Six Airports
Following the Union Cabinet’s decision in November 2018 to privatize six airports owned by the Airports Authority of India (AAI), the Public Private Partnership Appraisal Committee (PPPAC) met in December 2018 to recommend the proposal for final approval. The Finance Ministry’s Department of Economic Affairs (DEA) and the NITI Aayog made key suggestions to improve criteria for selecting bidders.
The suggestions included the requirement of prior experience in operation and management (O&M) as well as providing the total project cost up front for each of the airports, to better determine the financial capability of interested players.
The Finance Ministry recommended not to award the same player more than two airports, out of a total of six for privatization. However, this was among some of the key suggestions the government panel ignored for public private partnerships.
Floating of Tender
After that, the AAI floated a tender for operation, management and development under the PPP mode for the Lucknow, Ahmedabad, Jaipur, Guwahati, Thiruvananthapuram and Mangaluru airports. Surprisingly, in February 2019, the authority declared Adani Enterprises Limited as the highest bidder for all six airports.
The DEA and NITI Aayog distributed the detailed notes of the proposal on the six airports to all the concerned ministries before the PPPAC meeting. In its note, the DEA noted explicitly that the six airport projects amount to highly capital-intensive projects. Hence it suggested to incorporate the clause that no more than two Airports will be awarded to the same bidder. Duly factoring the high financial risk and performance issues.
Points Raised by DEA & Niti Aayog, Ignored by PPAC
Further, the DEA pointed out that although GMR was the only qualified bidder for Delhi and Mumbai both the airports were not given to the same company. However, the PPPAC referred to a decision, the Empowered Group of Secretaries (EGoS) took. That “no need for restriction on the bidding on number of airports or their awarding to a single entity.”
Moreover, the NITI Aayog highlighted the need to have players with prior Operation and Management (O&M) experience. It cited the Model Request for Qualification (RfQ) that requires an applicant without O&M experience to either tie-up with an entity or engage qualified personnel with the requisite experience. However, the PPPAC again rebutted, quoting the EGoS decision — “prior airport experience is not a pre-requisite for bidding nor a post-bid requirement. This will enlarge the competition for brownfield airports which are already functional.”
Again, this decision did not follow the earlier practice. In the first phase of privatisation, Delhi, Mumbai, Bengaluru and Hyderabad airports each had to find a foreign player with O&M experience to comply with RfP norms. The dropping of O&M experience as a pre-requisite questioned the jurisdiction of EGoS. While the CEO of NITI Aayog headed it, the Union Cabinet constituted it to take decisions “on any issue falling beyond the scope of PPPAC”. However, as per PPP guidelines, O&M standards fall under the scope of PPPAC.
No Estimation of Total Cost
The DEA also criticised the missing of a “critical” detail such as the “total project cost” from the RfP document. The DEA stated that it is not advisable to keep the project cost open ended. Essentially, they require the panel to frame the eligibility criteria in terms of technical capacity, financial capacity and O&M experience and other financial covenants such as bid security, performance security etc. The DEA pointed out that these are always in percentage terms of the estimate Total Project Cost.
Further, the DEA rejected the Ministry of Civil Aviation’s (MoCA) explanation that they cannot calculate total project cost for the entire period of 50 years of lease. On the ground that these were brownfield airports and all the required data should be available. Nonetheless, the PPPAC went along with MoCA.
The DEA was also concerned regarding the criteria of per passenger fee (PPF) for determining the winning bid. It said that the current PPF should be set as a reserve price.
Benefits of this Move
Reportedly, AAI will earn about Rs 1,300 crore annually from the privatisation of the six airports. Airports Authority of India chairman GP Mohapatra said that the authority will use the earnings to develop airports in the country’s interior. This was the government’s first airport privatisation attempt. After the GMR and GVK groups won the right to manage Delhi and Mumbai airports in 2006.
The government has adopted the revenue-per-passenger model. This is different from the revenue-share model that had led to a spike in airport charges at Delhi and Mumbai. The government expects this will keep airport charges under control.