The Hindu Business Line : The dilemmas of private infrastructure regulation

Levying user charges at the new airports in Hyderabad and Bangalore will be an added burden for passengers who have to shell out a considerable sum to reach these hubs.

The newly opened Rajiv Gandhi International Airport in Hyderabad… the airport authorities have bought a temporary truce by deciding to collect user charges from international passengers only for the time being.

M. Sitarama Murty

With the new Hyderabad international airport just opened and the Bangalore international airport only days away from being operational, it seems to have dawned on everybody that user charges are to be paid for the swank additions.

The Hyderabad airport has bought a temporary truce by deciding to collect the user charges from international passengers only for the time being. The Bangalore airport managers are, perhaps, waiting to see the public reaction. The citizens’ response in such cases has always been muted, to begin with. Only at the eleventh hour did some activists raise the issue.

The other and more serious issue is the recommendation of the parliamentary committee not to close the existing airports at Begumpet and HAL for commercial operations. They have advanced the argument that the two airports are viable. Before going into the merits of these developments, it is pertinent to examine certain basic principles.

Terms of the agreements

Having entered into an agreement with the project developers, the Central/State governments cannot unilaterally alter any of the covenants at this late hour. Governments in power over the years have taken their time to finalise the terms of the agreements. The projects were public knowledge, but whether formal consultations were held with political parties or the major stakeholders, the air passengers, is a moot point.

Governments are perpetual constitutionally, irrespective of the party in power or the persons holding office. The agreements contain suitable covenants to make it binding on the successors, heirs and assignees, to avoid any future disputes and eventualities.

We live in times where a few individuals holding reigns of power decide the fate of the nation. For electoral gains parties are willing to commit mind-boggling amounts for doles, subsidies and freebies. Even if legally valid and enforceable agreements are in place change in incumbency can pose serious threats, if they come in the way of pursuing a personal agenda.

There are several examples from the recent past, where protracted litigation and intervention of the judiciary at the apex level only established the rule of law.

For instance, a bypass road project in Tamil Nadu ran into trouble on completion because the road users refused to pay the toll charges. Fearing political backlash, the State government winked at the trouble. The users’ contention was that they had a right of passage, the way being used by them for centuries. The project managers had to run from pillar to post to get justice.

At the instance of the judiciary, the State government had to intervene and bring about an understanding, resulting in the investors making some concessions to the local populace. The likely resistances should have been foreseen by the government and the investor. The known imponderables need to be factored in to the project and reflected in the terms and conditions of the agreement.

The Jaipur-Kishangarh expressway, on the other hand, is a success story both for the users and investors. The savings in terms of time, fuel costs and the level of comfort made the actuals far exceed the conservative projections of usage and income.

The roadblocks

In Karnataka, a road project turned a nightmare for all the stakeholders. The investors and users have been waiting for the completion of the project while different governments played hide and seek to delay, if not stop, it. The litigation went to the apex court more than once.

The change in incumbency meant change in the rules of the game. There might be an element of truth that the road component of the project was minor and the gestation period long. The development of satellite towns around the city of Bangalore was the major component.

The bone of contention was the land, which was acquired from farmers and given to the real-estate developers allegedly at a throwaway price, seen in the background of the ruling sky-high prices.

In the meanwhile, with the development of lands and townships taking precedence over the completion of the Mysore-Bangalore expressway, the State government went ahead with the four lane State highway along the existing road, putting a question mark on the viability of the proposed expressway.

A power case

In another case, the State tried to wriggle out of a commitment in respect of a power project. The power purchase agreement provided for an escalation clause, should the international prices of naphtha go up. The State found it hard to foot the bill and decided to renege on the agreement.

When negotiations for reduction of tariff failed, the government looked to the Karnataka Electricity Regulatory Authority for relief. Simultaneously, the government instructed the escrow account banker, who was a party to a tripartite agreement, to stop releasing any money to the power producer till the dispute was settled.

Succumbing to the pressure from the government, the junior executives stopped the bill payments. The amount running into a few hundred crores of rupees, the power producer approached the management of the bank for honouring the agreement terms.

The power purchase agreement cast a responsibility on the bank to honour the demands.

A study of the KERA Act revealed that any agreements in force prior to the Act came into being would continue to be valid and that the KERA had no powers to alter the terms. The bank, to the relief of the power producer and indignation of the government, released the money.

The proximity problem

Reverting to the case of the airports, apart from the issue of user charges, there are other thorny matters. In best of times it would take one-and-a-half to two hours to reach the new airports.

Own or hired transport would cost anywhere between Rs 400 and 800. The promised coaches to the airports are available at certain intervals and at select points and are in no way cheaper. Train connectivity is not on the horizon at either place. And add the threat of user charges of Rs 750.

For those travelling to nearby cities such as Visakhapatnam, Vijayawada, Rajahmundry, Tirupathi, Belgaum, Hubli, Mangalore, Coimbatore, Kochi and Kozhikode, with less than one-and-a-half hours flying time, the time, cost and effort are daunting. One need not wonder if, at least immediately, the numbers on regional flights come down.

Notwithstanding the legal position, there appears to be a case for the airport companies to have a second look at the prospect of co-existence.

Maybe flights with a duration of one-and-a-half hours or less can continue to operate from the existing airports, which they can handle comfortably.

The number of international passengers and persons travelling to metros will only grow.

In the case of the new Hyderabad airport, what started as a project to handle just 0.8 million passengers has been revised to 12 million, even before the project was off the drawing board.

The new international airports can aim at aggressive marketing, showcasing the two hubs as destinations as well as stopovers for many international airlines. The facilities and the reduced duties on turbine fuel should help too. Charging international passengers is now a fait accompli.

Subsidising the privileged

Another important factor to be reckoned is the thousands of crores of rupees being spent by the governments to provide good connectivity, including ring roads, elevated expressways and rail connectivity. This supportive infrastructure comes free of cost.

A question that has not been raised thus far is why the majority of non-air travellers should subsidise the few privileged?

(The author is a former MD of the State Bank of Mysore. Email: murthy@mandavilli.com)

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