Govt set to reform tariffs for future airports

Under new plan, aviation ministry aims to change the laws to ensure all airports whose development contracts are being bid out have a pre-determined tariff

The civil aviation ministry is considering mentioning how much airport operators could earn through so-called aeronautical revenue from airports whose development contracts are being bid out, in an attempt to end regulatory uncertainty and reduce tariffs for both passengers and airlines.

The revenue of airport operators includes those related to flight operations (aeronautical revenue) and from other operations at the airport, such as retail. Currently, bidders develop the airport and then seek permission to levy a certain tariff from the ministry or the Airports Economic Regulatory Authority (AERA).

Under the new plan, the ministry plans to change the Airports Authority of India (AAI) Act and AERA rules to ensure that all airports whose development contracts are being bid out have a pre-determined tariff.

“If aeronautical tariff is pre-determined in the bid document, then AERA’s determination will not be necessary,” said an aviation ministry official who did not wish to be named. “It will remove a huge regulatory uncertainty.”

Airport investors will not have to come and “beg AERA or the aviation ministry” for a certain tariff, this person said. Nor will they have to put up with discretionary changes that accompany any change in government, he added.

The move will apply only to new airport development contracts and not affect AAI, which runs most of the civilian airports in the country; GMR Infrastructure Ltd-operated Delhi, Hyderabad airports, and the new Goa airport; GVK Power & Infrastructure Ltd run Mumbai or Navi Mumbai airport; and the Fairfax-run Bangalore airport.

The aviation ministry is expected to move a cabinet note on this shortly.

For passengers and airlines, this could mean cheaper airfares and aeronautical charges.

“The bid documents will say what building we want, the service delivery required and the aeronautical revenue we will give; the bidder will bid based on all this. It will make the project viable,” said the official cited earlier.

The new model could also enforce more discipline among developers. Over the past decade, several have run up costs in excess of estimates, and then had tariffs changed upwards to compensate. For instance, the cost of modernizing the Delhi and Mumbai airports more than doubled to $3 billion each.

The two airports, which were handed over to the developers in 2006, are the subject of reports by the government auditor, the Comptroller and Auditor General, Mint reported on 17 August 2012 and 12 December 2013. The reports say the aviation ministry, which was initially also the regulator, favoured the airport developers at several stages and took decisions that brought them windfall gains worth thousands of crores of rupees. GMR and GVK have denied the charges.

Both GMR and GVK declined to comment.

An analyst welcomed the new model. “This is the new trend being followed worldwide. This reduces the cost for the passengers,” said former AAI chairman V.P. Agarwal.

“The higher the cost of the building, the higher the tariff for passengers.”

Original article derived from liveMint.