Dubious concessions

The CAG comes down heavily on the Ministry of Civil Aviation for undue benefits granted to a private developer.

THE Comptroller and Auditor General (CAG) has, in his report on the operationalisation of the public-private partnership (PPP) in the Indira Gandhi International Airport (IGIA) in Delhi, come down heavily on the Ministry of Civil Aviation for the undue benefits extended to the private developer at the cost of the larger public interest. Frontline, in the issue dated July 27, had reported the problems associated with the Operations, Maintenance and Development Agreement (OMDA) signed in 2006 between the Airports Authority of India (AAI) and Delhi International Airport Private Limited (DIAL), led by the GMR Group, whereby the private entity was unduly favoured and allowed to charge airport development fees (ADF), passing on the additional burden to the consumers by way of airport tariff. The CAG report vindicates the contention that the hasty privatisation and restructuring of the Delhi airport involved post-bid concessions given to the private player. Both the Ministry of Civil Aviation and DIAL have refuted the findings.

Speaking to the media following the official release of the report, A.K. Patnaik, Deputy CAG, said that the audit had been carried out to determine whether the interests of the government and the public at large were protected in the operationalisation of the PPP model.

In a statement released along with the report, the CAG said: All public-private arrangements must be linked to certain basic triggers like traffic volume, tariff, return on investment, break-even period. A long concession period without any trigger may lead to undue financial benefit to the concessionaire.

The CAG has highlighted the manner in which the operationalisation of the PPP model helped DIAL gain substantial commercial benefits with minimum equity contribution. The report says that only 19 per cent of the total capital expenditure of Rs.12,857 crore of the project has come from the promoters (DIAL). The ADF accrued is Rs.3,415.35 crore.

DIAL has received commercial rights of land valued at Rs.24,000 crore with an income generation potential of Rs.1.6 lakh crore. The audit has drawn attention to the fact that the entire land has been given to DIAL at a highly concessional lease rent of Rs.100 a year. Also, Rs.6.19 crore has been charged for 190.19 acres (one acre is 0.4 hectare) of land leased out to DIAL out of the carved-out assets.

The Ministry of Civil Aviation, then headed by Praful Patel, has come under a cloud for being instrumental in extending the concession period to the GMR. Praful Patel had advocated an aggressive agenda of privatisation and restructuring for modernising airports across the country. The CAG report highlights how changes made to a Ministry note seeking Cabinet approval for restructuring the Delhi and Mumbai airports had envisaged an initial concession period of 30 years subject to mutual agreement and negotiation of terms. However, this important condition was omitted in the draft OMDA.

The report comes down heavily on the Ministry and the AAI for extending the concession period to 60 years without due consideration:

The concession period has no trigger indicating any linkage to traffic volumes, tariffs, concession period and capital cost. Neither the MOCA nor the AAI could provide any evidence to indicate that these inputs were considered while fixing the concession period at 60 years.

Post-contractual benefits

The CAG report has accused the Ministry of violating the provisions of the OMDA and the Airports Economic Regulatory Authority (AERA) Act to allow DIAL to levy an ADF to finance the cost of upgradation, expansion and development of the airport. The approval given by the Ministry and the AERA is termed as post-contractual benefits provided to DIAL, which were not spelled out in the OMDA.

The levy of the ADF was not planned according to the original provisions of the OMDA and the funding of the project cost was to be met through debt and equity, the report said.

Also, in a measure that thwarts competition and helps DIAL to consolidate its hold on the airport project, the State Support Agreement allows the first right of refusal to DIAL with regard to any second airport if it is planned within a 150-kilometre radius of the IGIA. This is considered an undue favour.

As per the OMDA, DIAL was supposed to pay the AAI Rs.250.88 crore as retirement compensation, but it had paid only Rs.80 crore. DIAL argued that there was no specific provision in the OMDA regarding the timing of the payment of retirement compensation. This is clearly an instance of how the operationalisation of the public-private partnership did not adequately address the needs of the employees of the public sector entity.

In a statement following the release of the CAG report, the Ministry said, The calculation of presumptive gain from the commercial use of land at the Delhi airport is totally erroneous and misleading as it simply adds the nominal value of the projected revenue without taking the net present value into account. In fact, the net present value of the figure quoted by the CAG is Rs.13,795 crore only. The CAG has further failed to appreciate that 46 per cent of this amount would be payable to the AAI as revenue share.

The Ministry denied that the development fee was a post-contractual benefit given to DIAL. It pointed out that the levy was permitted under Section 22 (A) of AAI Act, 1994.

On the issue of lease of airport land, the Ministry clarified that the land had not been given to DIAL on a rental basis. The sum of Rs.100 is just a token amount for the purpose of the conveyance deed. The determining factor for grant of concession was the gross revenue share quoted by the bidders. As a result, the AAI now receives 45.99 per cent of the gross revenues of DIAL and 26 per cent of all dividends.

In an e-mail response to queries from Frontline, the GMR Group said that the company had not received any undue benefits as a result of the OMDA. It said the entire commercial land available with DIAL had no immediate commercial value and could not be put to use and monetised immediately. Just using value of one acre and extrapolating the same for the entire land parcel is at best an arithmetic exercise and not practical, it said.

The GMR group said the levy of ADF was allowed as per the provisions of the AAI Act, as amended in 2003.

It denied that the extension of the concession period was an unfair advantage to DIAL. Such long concession periods are quite normal in infrastructure projects where the investment is large and the gestation period is long. Moreover, as this was a bid condition known to all bidders, they had already considered this condition while quoting the bids.