While a sustainable model for ramping up airport capacities is yet to discerned, the development of national highways in the country provides evidence of how leveraging the existing infrastructure is the way to go.
I don’t know if the John F. Kennedy School of Government at Harvard has a department devoted to India Studies. If it does, I am glad that I am not on the faculty. Not that it is falling over itself into offering me a tenure. But I am just mentioning that to highlight a practical difficulty that it entails. Given that it is Harvard, the job would undoubtedly involve preparing case studies from anecdotal examples of public policy in action, and distil from them some general principles.
That is where the catch lies. Attempting such a task would require an ability to discern from the welter of policy choices that the Government has made, a set of ‘‘what works” and “what doesn’t” — an impossible task.
Take airport infrastructure, for instance. What is a sustainable model for quickly ramping up airport capacities across the country? If you look at what the Government did in the case of the modernisation of the airports at Delhi and Mumbai, you would conclude that the framework for a successful policy would have the following components.
Take an airport under the jurisdiction of the Airports Authority of India; corporatise it; bring in a strategic investor based on the criterion of the maximum percentage of gross revenue that he would surrender to the AAI; offer him a 74 per cent stake in the company for the total new investments to be made in the airport and, presto, you will have gleaming new airports all over the country at no cost to the Government! The only problem with that model, as it turned out, was that it was far from sustainable in an economic sense. If it has to be made so, there must be a massive hike in user fees. Even then, it may prove to be inadequate. Consider the Delhi airport. Despite being branded the most expensive airport in the world, the company running it has reported a loss of over Rs 1,000 crore for fiscal 2012 for all its pains.
Whether it is Delhi or Mumbai, the principal lacuna in the policy is the expectation that the project would generate adequate cash flows for lenders and equity investors even after setting aside nearly 40 per cent of the gross revenue as an overriding claim of the AAI.
What this effectively means is that the business of running airports in the country must be capable of generating a profit after tax of close 50 per cent of sales so that it leaves enough cash in the kitty for the airport developer to get his investments paid back.
This is not proving to be easy at least in the case of the principal airports in the country and the outlook is only getting murkier.
In contrast, the Cochin International Airport, the company that operates an airport in Kochi, does not suffer from the handicap of having to be the share cropper to the AAI’s landlordism. It has come up on virgin lands that were converted into an airport complex.
On a turnover of around Rs 250 crore in 2010-11, the company managed to generate a net profit of 90 crore. Not quite the 50 per cent profit margin that is needed under the AAI concession model, but not altogether bad, considering the relatively modest volume of traffic.
Does it suggest that the right policy framework is one where the private capital is not burdened with existing infrastructure in the public sector as was the case with Delhi and Mumbai? Not necessarily.
The development of national highways in the country provides evidence of how leveraging the existing infrastructure is the way to go.
In the initial years of planning a network of world-class highways, everyone waxed eloquent about putting up brand new highways and real-estate development around it, which would kind of pay for itself.
But not one kilometre of road got added, with the possible exception of a brand new alignment for a highway between Bengaluru and Mysore.
The tortuous litigation that the project encountered (it is still not complete with a gaping hole at the point where the road intersects the Bannerghata Road in Bengaluru) is still too fresh in everyone’s mind to need mention.
But what actually worked, quite successfully, was the concept of upgrading existing infrastructure (on the lines of leasing out Mumbai and Delhi airports as it existed then) of national highways into brand new four and six lane highways rivalling the best in the world.
In the 12 years that the National Highway Development Programme has been in existence, the country has managed to upgrade 16,000 km of highway.
Not a big deal. But still something to showcase as proof of the efficacy of a certain policy choice made then.
Lest we conclude that this is really the way to go, comes the experience in the case of ports.
Brand new ports in Mundra, Pipavav, Krishnapatnam, Karaikal, and so on, are doing quite well for themselves.
In contrast, private terminals that came alongside existing port infrastructure are caught up in controversies over tariff-setting, litigation over awarding of tenders, and so on. Private port facilities that came up as brand new infrastructure are growing at a fast clip and already account for over 40 per cent of maritime cargo volumes in the country.
So, what works? Your guess would be as good as mine.