Monopolising airports poses financial risk: Experts

Experts say this can pose financial risk as the operator’s financial health and the state of the aviation sector will impact all the airports under one company’s management, leaving no room for de-risking it.

By   |  Published: 22nd Jan 2021  12:30 amUpdated: 21st Jan 2021  8:03 pm
Representational image.

Hyderabad: Adani Enterprises has signed concession agreements with the Airports Authority of India (AAI) for all six airports that had been put up for privatisation. The company won the bids in February 2019, despite the Finance Ministry’s Department of Economic Affairs (DEA) and Niti Aayog objecting the bidding process that allowed one player to win all airports, in a sign of crony capitalism.

Experts say this can pose financial risk as the operator’s financial health and the state of the aviation sector will impact all the airports under one company’s management, leaving no room for de-risking it. The International Air Transport Association (IATA) in its research showed that airlines are expected to lose $84.3 billion in 2020. Such scenario will continue to impact the revenues of airports.

Adani had emerged as the L1 (lowest) bidder for AAI-operated airports in Ahmedabad, Guwahati, Jaipur, Lucknow, Mangalore and Thiruvananthapuram in 2019. The group won the concession rights for these airports for 50 years, surpassing contenders such as GMR in the bidding process.

Safety clauses

Reports indicate that prior to the bidding, the DEA had suggested in a note that not more than two airports be given to a single bidder due to the financial risk involved. This note, dated December 10, 2018 was not even discussed at the Public Private Partnership Appraisal Committee (PPAC) meeting held on December 11.

Following the Cabinet’s in-principle nod in November 2018 to privatise airports, the PPAC met on December 11 to recommend the proposal for final approval. Three days later, the AAI floated a tender for operation, management and development of the six airports.

DEA noted that these six airport projects are highly capital-intensive and hence suggested to incorporate the clause that not more than two airports will be awarded to the same bidder taking into account the high financial risk. Awarding them to different companies would facilitate yardstick competition.

NITI Aayog had also raised its concerns saying a bidder lacking sufficient technical capacity can jeopardise the project and compromise the quality of services that the government is committed to provide. It also stressed on the need to have companies with prior operation and maintenance (O&M) experience. The O&M experience as a prerequisite was dropped.

Need for monitoring

A senior economist said, for the long-term it is not good as it erases competition in the sector. The government should ideally create an independent committee that will audit the activity at least every two years to ensure robust checks and balances after the project is awarded to a company.

“Customers will be at disadvantage, as the prices of products, user fees and parking charges at the airport can be hiked and there wouldn’t be any control. And if the airport operator gets into financial trouble, it will affect operations at all the airports,” the source added.

Ramakanth Inani, president, FTCCI, said, “If a company has financial ability to execute projects and is meeting the bidding criteria, and if only limited players are bidding, the government can award the project to a single company through a transparent process. There is no other choice. It all depends if there was really any favouritism in awarding the projects to one entity, and then it becomes objectionable.”

Growth corridors

The six airports that Adani won currently have a cumulative capacity to handle over 30 million passengers. Estimates show, the passenger traffic growth has been at 17 per cent for these six airports compared to the average India’s traffic growth at 12 per cent in the last five years.

According to Adani, the opportunity to expand the combined capacity in these projects is over 100 million passengers in the next 10 years. The airports collectively have 225 acres of monetizable land.

Strengthening its foothold in the airports sector, in August 2020, the group had acquired 74 per cent stake in Chhatrapati Shivaji Maharaj International Airport in Mumbai. The acquisition also gave the group ownership of the upcoming Navi Mumbai Airport, in which Mumbai International Airport Limited holds 74 per cent stake. All this will make Adani Enterprises the largest airport operator in India.

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