Not quite making amends

It is just as well that the Government has now proposed to scrap the airport development fee (ADF) currently being charged on passengers at the privatised Delhi and Mumbai airports. The levy was patently illegal in the first place, as it was not provided for in the original bid terms, based on which the contracts for modernisation and operation of these airports were awarded under the public-private-partnership route. The concerned agreement clearly required the entire capital expenditure involved in the project to be funded through “suitable debt and equity contributions”. Had the provision for collecting ADF from passengers to finance the project cost been known at the time of bidding, the prospective developers may well have factored it into their quotes for sharing revenue with the Airports Authority of India (AAI). No wonder, the Comptroller and Auditor General of India (CAG) has called it a “contractual deviation” that “vitiated the bidding process”.

But it is not just the levy of an ADF; the original revenue-share system based on which both the airport projects were awarded was flawed as well. Take the Delhi airport, where the winner offered to share 46 per cent of the gross revenue with the Government, represented through the AAI. From the balance 54 per cent, the concessionaire – Delhi International Airport Private Ltd – was to pay for the running and maintenance of the upgraded airport, interest costs and, on top, generate a reasonable return on equity. In retrospect, it seems that the proportion of revenue surrendered was way too high, to leave enough surplus in the time-frame within which loans were to be repaid. In the event, the ADF was, perhaps, an after-thought that the Government came up with, to bail out the concessionaires to meet their cash flow needs for loan repayments. It may have been rather better for the Government to simply lay down the specifications for a modern airport infrastructure and invite bidders to quote a user fee that they would be willing to charge from passengers. The one quoting the least could have, then, been chosen. This was the principle employed in awarding licences to set up ultra mega power projects, where the promoters were selected based on the lowest tariffs tendered. If revenue share was intended as a source of funds for AAI to modernise other smaller airports, the same objective could have been achieved by levying a cess on passengers using the Delhi and Mumbai airports.

The Civil Aviation Ministry needs to clarify what happens to the ADF monies already collected. If the levy was wrong per se, abolishing it now does nothing to remove the taint of irregularity on past collections. If the ADF is being stopped only because adequate funds have been mobilised to meet the cash flow gap in the projects, it should still answer the CAG for the violation in the tender condition.

COMMENT NOW