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Sunday, April 11, 2021

Indian airports’ privatization: A complete analysis of the process

The Union Cabinet gave green signal to the proposal to lease out Jaipur, Guwahati and Thiruvanathapuram airports under the Airports Authority of India through public-private partnership. Is it a good move? Read the full article to know more.

A big change is taking place in the aviation sector of India. The Centre is moving towards privatization of airports. The Union Cabinet on Wednesday gave green signal to the proposal to lease out Jaipur, Guwahati and Thiruvanathapuram airports under the Airports Authority of India (AAI) through public-private partnership (PPP).

Is this a good move? Will this leads towards India having world-class airports in terms of infrastructure? Or it will create a burden on passengers as private players eye to squeeze more money from them? In his article, we shall discuss all the aspects related to this development.

Here’s the issue of privatization of India airports explained in 5 points

1. What is the latest development on this front?

The first round of privatization is on. In the first round, airports in Jaipur, Thiruvananthapuram and Guwahati were cleared by the Centre for operation, management and development by private firm Adani Enterprises via PPP model. These three airports are actually part of the total six facilities that were auctioned last year for the process of privatization. In that process, Adani Enterprises emerged as the highest bidder. In the second round, the AAI has chosen the Varanasi, Bhubaneshwar, Amritsar, Indore, Raipur and Trichi airports.

Contracts for the Lucknow, Ahmedabad and Mangalore airports were inked this year. The Adani Enterprises is yet to take over the operations owing to the Covid-19 situation and therefore disruption of travel.

2. What is the Centre saying?

According to the Centre, this is not a permanent move as the airports are being leased out for 50 years. As per reports, the AAI will utilise the revenue received through this model to develop airports in small cities across the country. The Centre is also saying that privatization of the facilities will enable passengers get better facilities. Prime Minister Narendra Modi’s government plans to privatize 30-35 airports in the next five years.

According to a report, civil aviation minister Hardeep Singh Puri said, “We are going to the cabinet tomorrow with further airport privatization plan. We have got many more airports lined up—dozens of them.” He added: “And the 100 more airports that we will build between now and 2030, I think, will all augur well (for the economy).”

3. What’s the background of the latest development?

The latest announcement comes a year after the Centre had nodded to the civil aviation ministry’s proposal to lease out  Ahmedabad, Lucknow and Mangaluru airports through PPP to the Adani group for 50 years. Following privatization of Delhi and Mumbai airports, given to private companies GMR and GVK, respectively, it was the second big airport privatisation process. The Adani group was selected to operate the three airports, in addition to Jaipur, Guwahati and Thiruvananthapuram, after having bid aggressively in February 2019.

According to the lease terms of the PPP pact, Adani group is responsible for the management and operations of the existing airport assets. They will also take care of the designing, engineering, financing, construction and development aspects of the additional air-side, terminal, city-side and land-side infrastructure for the airports. As per a report, the AAI adopted the per-passenger fee model which is a modification of the revenue-sharing model that was used earlier in privatizing the Delhi, Mumbai, Bangalore and Hyderabad airports.

4. Understanding the revenue-sharing model

The airport operator must pay fixed charges per passenger on a monthly basis to AAI under the per-passenger fee model. If we try to understand this, for example, if 1 lakh passengers use a particular airport facility in a year, the operator will have to pay the charge multiplied by the heads of passengers for the entire year to the AAI. The charges will be paid every month. In this system, the airport operator gets an incentive to grow its revenue as there is no sharing while AAI benefits from the growth in the number of passengers.

5. Is the privatization move good?

There are plus and minus points of this issue. A report suggests that the process of privatization should be more transparent than in the past. The experience of privatising Delhi and Mumbai airports and the failure of Adani to take on the airports it had won in bidding offer lessons. The bidding parameter should not be how much revenue will be shared with the government, rather there should be an element of cost minimisation in the bidding process.

The report suggests, structuring the bid to enhance the revenue for the government is a way to let bidders get an upper hand in the system to win the contract and squeeze passengers for the extra charges. “Instead, the bidding parameters should constrain costs and, on the basis of constrained costs, maximise the take for the government. The share of revenue to be passed on to the government or per-passenger payment to the government, which is revenue share in another guise, does nothing to keep costs down,” the report suggests.

This is indeed a unique development in India’s aviation sector. With travel restrictions on due to the pandemic, we will have to wait and see to know what it takes to fly in and out of a privatized airport. India’s aviation minister said over 50% travel will resume by Diwali and the pre-Covid normalcy will take place by the end of this year.

 

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