Losing Authority

Print edition : July 27, 2012

The Airports Authority of India becomes another victim of the governments obsession with modernisation and privatisation.

in New Delhi

Terminal 3 of the Indira Gandhi International Airport in Delhi. Privatisation has made the airport one of the costliest in the world.-V.V. KRISHNAN

In a major embarrassment to the government and the private developers of Delhis international airport, the International Air Transport Association (IATA) recently slammed the airport regulator for allowing an exorbitant 346 per cent increase in the user development fees (UDF) to be levied on passengers.

Speaking at the annual general meeting of the association in Beijing on June 10, the IATAs Director General and Chief Executive Officer, Tony Tyler, criticised the Airports Economic Regulatory Authority (AERA) for failing to protect the public interest and for making Delhi airport among the most expensive airports in the world. The criticism of the government regulator in an international forum raises concerns about the extent to which privatisation and restructuring of airports serve the public interest. The IATAs admonition also raises serious concerns about the flip side of the modernisation and restructuring of airports.

Another significant concern that remains unaddressed as we approach the discourse of modernisation is the plight of the workers of the government entity, the Airports Authority of India (AAI), which is still engaged in significant operations in developing about 60 non-metro airports along with the mega projects in Delhi and Chennai. The trajectory of privatisation, especially in the case of the Delhi airport, points to the undue haste in paving the way for the success of private players, often at the cost of the employees of the existing government entity. Even if one goes by the logic of introducing competition as a method of improving services in a free market economy, a level playing field should be provided to the public sector.

However, the pace of airport privatisation in the last six years has been carried out without giving due consideration to the problems of workers of the government entity. All parliamentary standing committees constituted for the purpose have recommended that AAI workers concerns be taken care of following the modernisation exercise, but critical issues remain unaddressed. The latest in a series of decisions that might bleed the public sector unit is the proposal to carve out a separate Air Navigation Services unit from the existing company.

An agreement, termed the Operations, Management and Development Agreement (OMDA), was signed in 2006 between the AAI management and the Delhi International Airport Private Limited (DIAL), led by the GMR Group, whereby the project of designing, developing, constructing and managing the Indira Gandhi International (IGI) Airport in Delhi was assigned to DIAL. The AAI leased the premises of the airport to DIAL for a period of 60 years at an annual lease rent of Rs.100.

A parliamentary standing committee headed by Sitaram Yechury, Communist Party of India (Marxist) leader, was formed to look into the workers issues. The committee, in its report in 2008, said that the AAI employees should not be put through any hardships owing to the changing decisions of the government. The Airports Authority of India Employees Union (AAIEU), in a lawsuit filed in the Delhi High Court in 2008, challenged several clauses of the OMDA as being harmful to the interests of AAI employees.

A Comptroller and Auditor General report tabled in Parliament in August 2011 pointed out that the AAI had incurred a loss of at least Rs.100 crore on account of the faulty implementation of the OMDA.

Speaking to Frontline, S.R. Santhanam, all-India president of the AAIEU, explained, The case questioned some of the clauses of the OMDA as they were found to be discriminatory towards the employees of Airports Authority of India. He also questioned the need to concede space to private players when in 2010 the government itself had conferred miniratna status to the AAI.

The union challenged three specific provisions of the agreement. The OMDA stated (Article 6.1.2) that general employees were to be retained at the airport for the duration of the Operation Support Period of three years from the effective date. At the end of the operation support period, employees would be free to choose between the private player and the AAI. However, as per Article 6.1.7 of the OMDA, the ones who continued with the AAI were to be deployed at establishments other than the IGI Airport. Article 6.2 of the OMDA states that DIAL shall have the right to appoint the senior management and, on the expiry period of the transition phase, no employees of the AAI will remain at the senior management level of the IGI Airport. The union found these clauses discriminatory towards the cause of workers. The matter is pending with the Delhi High Court.

In an official e-mail response to Frontlines queries, DIAL said: The said writ is pending for adjudication before the Delhi High Court and on the last date of hearing, i.e., March 22, 2012, the matter was adjourned on the request of AAI for filing the Report of the National Productive Council. The next date of hearing in the matter is September 13, 2012.

Development fee

Employees of the AAI allege that the airport development fee (ADF) that is charged currently by the private developer at the Delhi airport is not shared with the AAI. Given the fact that the AAI continues to be a 26 per cent shareholder in the Delhi airport and is entitled to 45.99 per cent of the total revenue earned at the airport, the employees feel that the government entity should be entitled to its share of the fee. The ADF has been charged by the private developers since 2009 at the rate of Rs.200 per passenger for domestic flights and Rs.1,300 per passenger for international flights.

When contacted by Frontline, a source in GMR, however, said that the ADF was not a form of revenue but a viability gap funding necessary to meet the expenses incurred on expansion, construction and maintenance of infrastructure. The source said: A total amount of about Rs.13,000 crore was required for developing infrastructure at the Delhi international airport, of which Rs.2,500 crore was raised through equity, Rs.5,500 crore through debt. Of the remaining Rs.5,000 crore, about Rs.1,500 crore was raised through land rental deposits by leasing out 45 acres [18 hectares] of land for a period of six years from 2006 onwards to private players for commercial purposes. The remaining Rs.3,500 crore was proposed to be raised through ADF to be implemented from 2009 onwards, which was approved by the AERA. Therefore, ADF is a form of viability gap funding and it is not a form of revenue for the company. Thus, it cannot be shared with the AAI. Also, ADF can be charged by the airport developer as per Section 22 of the amended Airports Authority of India Act, 2003.

The DIAL e-mail said, ADF is not an income of DIAL but a capital recovery. It is a pre-funding for capital expenditure. The amount received from ADF is used to create assets which will be used by them free of cost and at end of concession it will be transferred to AAI free of cost. Amount collected towards ADF goes to reduce Asset Base of the Airport Operator. This means lower charges for customer in perpetuity. There is no return being allowed on these assets to airport operator, nor is depreciation forming part of building block.

Employees of the AAI, however, feel that the amendment in question was brought about purposely to facilitate additional charges to be imposed by private players. Santhanam said, Even after the amendment of the Parliament Act and the insertion of Section 22A in the Act, the Authority is entitled to the ADF. The government routed the ADF to a private entity without giving it to the AAI, which was entitled to it.

Section 22 of the Airports Authority of India Act, 1994, allowed the AAI to charge fees or rent for the landing, housing or parking of aircraft or for any other service or facility offered in connection with aircraft operations at any airport, heliport or airstrip. The amendment in 2003 resulted in the insertion of Section 22A, which enabled the airport developer to levy additional charges for funding or financing the costs of upgradation, expansion or development at the airport at which the fee is collected. The ADF is proposed to be charged until February 2014 with the approval of the AERA.

The IATAs criticism of the AERA has brought to the fore legitimate concerns about the burden of both the ADF and the UDF being passed on to passengers. The user development fee at the airport was determined by the AERA and conveyed to DIAL through a government notification in April 2012.

The UDF, which was initially proposed to be charged from April 2009 to March 2014, finally came into effect from 2012. The fee has begun to be charged from electronic bookings from May. Now a passenger will have to pay an amount in addition to the already existing ADF.

The IATA has said that with the new charges, the Delhi airport will become the most expensive in the world. DIAL, however, has justified the move. In an official statement to the IATA Director General, it said, It is pertinent to highlight the fact that the airport charges of Indian airports were not increased during the last 10 years except by [a] nominal 10 per cent in 2009. In a 44-page statement, DIAL further says that as per an analysis carried out by the United Kingdom-based aviation consultant Leigh Fisher, Delhi airport has the highest passenger charges only on the long-haul international segment, which constitutes only 10 per cent of the total volume of passengers at the airport.

Employees of the AAI also accuse the government of taking away the major revenue-earning airports of big cities such as Delhi, Mumbai, Hyderabad and Bangalore and leaving the AAI with the task of modernising non-metro airports. A tripartite committee report was constituted in February 2006 comprising representatives of the Ministry of Civil Aviation, the AAI and the AAI Employees Joint Forum. The committee, in its report submitted in 2009, observed that the AAI was undertaking development and modernisation of approximately 60 airports, including non-metro airports, besides mega projects in Chennai and Kolkata. The committee had also recommended that the existing airports be kept operational even if greenfield airports came up.

The closing down of commercial operations in 2008 at the Begumpet airport in Hyderabad following the establishment of Shamshabad airport hurt AAI employees. Santhanam said the Begumpet airport was making steady profits before commercial operations were closed down in 2008. In fact, the airport showed a growth of 39.25 per cent in traffic revenue collection in the first eight months of 2008, he said. The tripartite committee had recommended, for the benefit of the AAI, the reopening of commercial operations at the old airports in Hyderabad and Bangalore, which is yet to happen.

Splitting the AAI

In another step towards the agenda of aggressive privatisation, there is a proposal to carve out a separate unit for air navigation services, which until now has been the sole responsibility of the AAI. Air navigation services include providing communication, navigation and surveillance facilities to aircraft in flight in a dedicated airspace. The AAI controls a large airspace of 9.5 million square kilometres, of which 5.9 million sq km is oceanic.

With the proposal to bifurcate the AAI to create a separate unit for air navigation services, the revenue earned through activities such as route-navigation facilities will no longer be available to the AAI. Route navigation facilities are services available to international aircraft when flying over a countrys airspace. The carriers pay a fee to the airport operator for landing and parking of aircraft at airports.

Sources in the Ministry of Civil Aviation said that such a proposal was under consideration. Also, Section 12 of the AAI Act of 1994 says that it shall be the duty of the Authority to provide air traffic service and air transport service at any airport and civil enclaves. As per the 90th report of the Parliamentary Standing Committee on Transport, Tourism and Culture, headed by Nilotpal Basu of the CPI(M), route navigation facility charges and terminal landing charges constitute more than 50 per cent of the total income from all aeronautical charges.

A series of policy decisions pushing for aggressive privatisation have been carried out in a manner whereby the functions and responsibilities of the AAI have been diminished in a gradual manner even while it is engaged in significant operations in modernising airports in several parts of the country apart from the metros. It is perhaps high time one questioned what larger public interest is served by such privatisation.

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