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Congress' objection against privatisation of airports is not all that kosher

In February, the government awarded six airports - Ahmedabad, Lucknow, Jaipur, Guwahati, Trivandrum and Mangalore - to the Adani Group on a 50-year lease

twitter-logo Manu Kaushik        Last Updated: August 1, 2019  | 21:02 IST
Congress' objection against privatisation of airports is not all that kosher

The outgoing Airports Authority of India (AAI) chief Guruprasad Mohapatra's statement has kicked up a storm. This is the second round of controversy that has erupted - the first one involved new power secretary Subhash Chandra Garg - ever since the department of personnel and training did wholesale transfers of government secretaries last week. Mohapatra, in a media interaction, said that the government aims to privatise another 20-25 airports in the next phase. The intent to privatise more airports has raised hackles from across different sections, especially political parties, since there are clouds over the last privatisation exercise of the government.

In February, the government awarded six airports - Ahmedabad, Lucknow, Jaipur, Guwahati, Trivandrum and Mangalore - to the Adani Group on a 50-year lease.

In a statement, Congress spokesperson Pawan Khera raised a series of issues pertaining to privatisation of these airports. He said that last week the government amended the Airports Economic Regulatory Authority of India (Amendment) Act of 2008, wherein all such airports which the operators got, based on predetermined fee will be out of the purview of the Airport Authority of India. "This basically means that all five airports handed over to the Adani Group, will have virtually no government control for the next 50 years," Khera said.

The amendments have been passed by the Rajya Sabha and the bill is now pending in Lok Sabha. So technically, it's still not an act of the Parliament that can be enforced. This is the second time the bill has been approved by the Cabinet. Earlier, the bill had lapsed in the previous Modi government because it couldn't be passed in the last year's monsoon session.

Khera further said that the finance ministry had recommended not to award the same company more than two airports out of six airports that were to be privatised. "The government's PPP Appraisal Committee (PPPAC) ignored this recommendation of the finance ministry. Another suggestion made by the Department Economic Affairs (DEA) and the Niti Aayog was the requirement of prior experience in Operation and Management (O&M) and also providing the total project cost upfront for each of the airports to be privatised. The DEA also cited the example of GMR in the past, which was the only qualified bidder for both Delhi and Mumbai airports, but the company did not get both the airports. The PPPAC took protection under a decision taken by the Empowered Group of Secretaries (EGoS), which said that there is no restriction placed on the number of airports to be awarded to a single entity," he said.

Some parts of this statement are true. According to a note from DEA, which falls under finance ministry, the airport projects are highly capital intensive and hence it was suggested that not more than two airports will be awarded to the same bidder because it would lead to high financial risk and performance issues. Though NITI Aayog talked about requisite O&M experience, it added that the bidder can either enter into an agreement with an entity with O&M experience or engage qualified professionals for discharging its O&M obligations.

One can argue that some eligibility criteria were modified which apparently favoured Adani Group but that was clearly not the sole reason why the group bagged the airport projects. Being in the race didn't mean that the Adani Group would win it. The fact that it bid the highest amount for six airports, and thereby taking a bigger financial risk than others, shows that it could utilise the airport assets better, which will ensure higher revenue share for the government.

Khera has also pointed out that the DEA was also very critical on the fact that the detail of "total project cost" was missing from the Request for Proposal document, and the ministry of civil aviation had claimed that it was not possible to calculate the project cost for 50 years.

While these issues are valid, they don't seem to indicate any foul play or favouritism to any particular business group. Keeping the project cost open-ended at the time of bidding is not an arbitrary decision because calculating project cost over the next 50 years can be a daunting task for any arm of the government or private entities. There are ample examples of cost escalations even in infrastructure projects with smaller tenure. Also, these decisions were taken prior to the bidding stage, and all bidders, including GMR, NIIF, Adani Group and AMP Capital, participated knowing fully the terms and conditions of the process.

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