To ordinary folks, the Delhi airport’s swanky Terminal-3, is a show piece of something that’s right with public-private partnerships (PPP). Suddenly, the slip is showing. First, the CAG questioned a series of joint ventures that the master licensee, Delhi International Airport Ltd (DIAL), got itself into. The Hindustan Times has now reported that on the Delhi airport modernisation project, government gave out prime land that will fetch Rs. 1.63 lakh crore to its private sector partner, ie, DIAL.
 
Read the PTI report here

The CAG report — accessed by HT but not yet tabled in parliament — apparently says that the company had got 4,799.09 acres of land on a Rs 100 annual lease rent for 60 years for an equity contribution of only Rs 1,813 crore (please read highlights in the HT Nuggets below).
 
CAG’s raft of objections deserves serious consideration. The state-owned Airports Authority of India (AAI), which has a minority stake in DIAL, has indeed ended up getting peanuts out of these joint ventures, say, in parking, duty free shops and F&B.

DIAL defended its actions, citing the operation, management and development agreement (OMDA). The CAG’s view has an important backer. The sectoral regulator, the Airports Economic Regulatory Authority (AERA), questions 11 of these non-aeronautical JVs. But instead of simply taking the bull by the horns, AERA chief Yashwant Bhave has been happy lobbing the ball at the ministry of civil aviation (MoCA). This has left the ministry squirming. It would rather have Bhave do the dirty job with his own hands! The HT report adds to these woes.

Not surprisingly, DIAL isn’t just raising the point of legal entitlements and plain common sense (globally, airport operators stay away from getting into pizzas and parking tickets). The company has warned that by the end of this fiscal, a scary loss of over Rs 825 crore has accrued. Reeling under debt and revenue mirages, DIAL had been arm-twisting AERA to sanction a 500 percent rise in airport charges! Since Bhave has capitulated, no airline might lose a minute passing this on to you and me.

So, the swanky T-3 isn’t much of a show piece as you might have originally thought. It is creaking with fault lines and it’s not confined to embarrassing pools of rainwater that the world saw there this monsoon.

Now, the difficult part. Who is to blame? I asked those who lost out to DIAL’s parents (GMR, Fraport and the Malaysians). They narrated a gory story of favouritism, even bid rigging. AERA obviously had a hands-off, not-in-my-backyard approach. MoCA seemed to have its back covered, it was merely the clearing house for decisions by the committee of secretaries as well as a group of ministers.

Sadly, even the winning companies have nothing to write home about. In an informal conversation, I asked one of these CEOs why you and I have to walk 1-2 km in T-3 just to reach the airbridge (or, for that matter, to find our driver on the way back). “Good, I end up walking a bit,” I said, trying not to sound grouchy. The man explained in detail how the wonderful OMDA enshrines that 95 percent of flights must be serviced by airbridges.

In other words, some well-meaning babu decided that we must use airbridges, so what if they were a mile away. How can an Indian showpiece have a simple hop-on-hop-off shuttle bus, after all!

This is just one example of the government’s inexperience in planning and negotiating an infrastructure project of this size. In more polite words, DIAL’s bosses haven’t minced words on how planning and execution to happen at the same time.

In a fit of good intent, the government ensured that there was a foreign partner. In DIAL’s case there are two, both respected globally. But the fact that they have just 10 percent each leaves them with zero control. Even in technical matters, GMR, controlling 54 percent, calls the shots. Design flaws that led to the recent rainwater flooding have left these partners dumb struck and embarrassed.

I have written on how one of them is determined to move on and focus on more tangible business opportunities in Brazil.

The story doesn’t end at DIAL or T-3. The heartbreaks include the government’s inability to combat AAI unions with regard to several other airports. As many as 35 had been identified as model airports, and the idea was to test the waters with Amritsar.

Nearly two years after the bids, with no concrete movement in sight, and despite a lot of hot air on a master concession agreement, Fraport India MD Ansgar Sickert had to write an op-ed in the Wall Street Journal. “Five companies including Anil Ambani-led Reliance Energy, Larsen & Toubro, Fraport AG (my company), Tata Infrastructure and Lanco Infrastructure had been shortlisted for the upgrading of Amritsar airport located in Punjab near the border with Pakistan.

“We’ve been waiting for nearly two years without any information when or how the process would proceed. Strong opposition from the AAI which does not want to see any more of its airports move into private hands and the left parties are the most plausible reasons for the government’s procrastination and, if one is to believe unofficial sources from the AAI and MoCA, the likely scrapping of the bidding process altogether,” he wrote with characteristic German bluntness. I hear a one-line cancellation note did follow. Nothing happened thereafter.

(Parts of this comment are extracted from your columnist’s warning, headlined, “T-3 Tamasha,” in The Pioneer, in October 2011).

Nuggets from the unpublished CAG report (according to Hindustan Times):

* The operations, management and development deal signed by AAI permitted the company to utilise 5% of the land for commercial exploitation. Consultancy firm Merrill Lynch had worked out the valuation of the land at Rs. 100 crore an acre.
“Thus, the total current value of the land available to DIAL … would amount to Rs. 24,000 crore.”
 
* “The projected earning capacity of this land (239.95 acres) in terms of licence fee over the concession period of 58 years was indicated by DIAL itself as Rs. 681.63 crore per acre in a letter to the joint secretary, aviation ministry.”
 
* The government’s decision to offer a “post-contractual benefit” to DIAL of levying development fees forced passengers to cough up Rs. 3,415.35 crore towards the project cost.
 
* The original deal did not mention that part of the project cost would be raised through development fees. It said that if the joint venture was to have the permission to levy the fee, it should have been made known to all the other bidders too.

* Delhi airport charges Rs 1,300 and Rs 200 per passenger for international and domestic travel, respectively. Besides, from May 15, DIAL started charging a user development fee of Rs. 436-1,068 from international and Rs. 195-462 from domestic passengers.

* MoCA informed the auditor that “the decision to restructure and modernise Delhi airport was a policy decision of the cabinet. The terms and conditions as well as the modalities were finalised and approved by the empowered group of ministers.”