THE POLITICS OF AIRPORT PRIVATISATION
[fwd courtesy FN]
When Sudhir Kumar spoke at the TravelWorld India panel in the first week of
February 2006, he had retired only three days previously as director of
Mumbai
Airport. Referring to himself as âa free manâ who could now speak more
frankly about the ups and downs of privatisation of Indiaâs metro
airports, he
explained why the airports are in a sorry state, and how to improve the
situation.
1) Indiaâs airport operations have to be unshackled from government
interference. Technical decisions should be based on technicalities and not
on
politics. The policy should not be to appease every âpower to beâ who
wants
an airport in his backyard. Site selections should be on technical and
commercial basis and there should be freedom to take decisions accordingly.
2) Airport operations should be similarly unshackled from the plethora of
government agencies who keep scrutinising the decisions taken. âWe have
more
people to scrutinise decisions than to take decisions and to implement them.
The
decision making process takes a very long time. And time has its own
value,â
Mr Kumar said.
3) Financial parameters imposed on the public sector will not work for
infrastructure projects like airports as they have long gestation periods
before
showing profits. âFor example, the Indian Planning Commission requires
projects to have an IRR of 12 per cent. Itâs very, very difficult for
airports
to have an IRR of 12%, which is why the projects take a very, very long time
to
be cleared. To get one project of more than 100 crores (10 million = one
crore
under the Indian numbering system) rupees cleared takes more than 4-5 years.
And
by the time the approval comes, all the parameters and objectives are
outdated.
Thatâs why weâre running into these difficulties that we are in
perennial
need of infrastructure.â
**Investment in airports should be cleared not only in terms of what it
directly
earns but what an airport does for an economy and society.** âFor example,
if
you close Singapore airport for one day and see the losses that country will
have -- not just the earnings for the airport but the entire economy.
Airports
drive economies and profits earned by other industries should also be
considered
as part of the airport projects. So the financial parameters have to change
in
order to develop world class airports in India.â
4) Indian labour has to be productive. (During the week Mr Kumar spoke,
unions
had gone on strike over the privatisation plan). Mr Kumar said he didnât
know
why. They (the employees) were assured that they would not be any
retrenchment.
If the (incoming) consortiums donât retain them, they would have the
freedom
to join the Airports Authority of India. The only caveat is that they may
not
necessarily be able to stay in Delhi and Bombay but be transferred
elsewhere.
Labour has to be made more accountable.
While those were the plus points in favour of privatisation, a number of
points
of caution were also raised.
**Mr Kumar said that in the two privatisation offers received, the
consortiums
have offered the government returns of 45% of gross revenues for Delhi
airport,
and 38% of gross revenues for Mumbai. âI am not sure how, with the balance
of
the money they are going to retain (55% in Delhi and 62%) in Delhi, how they
will finance the investment of Rs 2,600 crores in Mumbai and Rs 2,800 crores
in
Delhi.â He expressed fear that they will eventually âtry to cut corners
as
no private organisation remains in business to lose money. We canât expect
them to invest money and keep investing and losing in the run. Then what
happens? We have no experience on this so far, let so see how it goes.â**
Mr Kumar said that being offered such a high percentage of returns was
âtotally unexpectedâ and possibly driven by the competition for the
bids. In
any case, he said, âseeing these financial bids we have got, airport
employees
should agree to give all the airports to the private people. The kind of
money
they will make will be enough for each of them to sit at home and get 10
times
more salary than they are getting. They need not do anything. This has not
sunk
into the minds of the employees. The ⦠money will be enough for them to
live
the rest of their lives as landlords. If they are wise, they should offer
all
the airports to the private sector on these terms.â
**Mr Kumar said there could be some security issues, but as air traffic
control
and security will be still in government hands, thatâs not a problem.**
The
private sector also can be expected to be as accountable and responsible to
national interests as the public sector. He expressed the hope that the
privatisation will go through without legal issues (which erupted the day
after
he spoke). âIt should be a good experience, I have no doubt that it should
succeed here.â
During the Q&A, Mr Kumar was also asked if the AAI shared the blame for the
situation. Mr Kumar replied, âPutting the blame on the AAI is wrong.
Privatisation has been under discussion for 7-8 years. (During this period),
the
AAI was told not to take any major projects in all metro airports which were
under privatisation consideration. So no major project was undertaken.
During
this period, traffic has doubled but the facilities remained the same.â
He said improvements to Mumbai airport need to proceed and be finished in
two
years. At the same time, work also needs to start on a new greenfield
airport
which could be ready in 7-8 years and last for the next 50 years. **The
present
airport is located on a mere 1,875 acres of land and has become virtually in
the
centre of city due to urban growth. It has been growing at the rate of three
million a year over the last two years and is projected at moving 18 million
pax
this year.** It needs to expand its terminals and add more rapid taxiways.
Even if
no second runway is possible, other solutions can be found to have a world
class
airport at the same site for a capacity of 30 million. Other airports that
handle similar numbers inspite of being facing similar space constraints,
plus
having night-time curfews, Mr Kumar said.
===============
COMMENTS:
1. If the "ownership" period is for 30 years renewable for a further 30
years then the strategy may be to invest up front and recover the outlays in
subsequent years. In addition, there may be scope for raising the airport
charges. Ideally the latter should NOT happen in this era of low cost
aviation.
2. Related to the above is the issue of second airports. Will the
"modernisers" get first rights of refusal to the second airports? In which
case airport charges will tend to go up. If 'competitors' can get the second
airport then there may be a tendency to plan them so as to "capture" traffic
from the old ones. There may be an urgent need for a regulatory body which
apportions total traffic in a way which ensures that both airports function
viably over the long term. This is also consistent with the low cost
aviation paradigm.
3. Note the cursory and tangential rerference (i.e. via 'security issues')
to military control over airspace and airports. Mumbai may not have a
problem of military control over the airport but as many as 20 civil
enclaves some of them in thriving economic centres like Hyderabad,
Bangalore, Goa, Agra, Pune etc do. This issue needs to be brought into the
open so that it can be addressed meaningfully for the sake of the country's
aviation development.
Phil
