India’s Comptroller and Auditor General, the country’s spending watchdog, tabled a report to Parliament last week highly critical of the privatisation process of Delhi’s Indira Gandhi International Airport (IGIA), awarded in 2006 to a consortium led by Indian developer GMR.
The other members of the Delhi International Airport Limited (DIAL) consortium include Germany’s Fraport as the airport operator, Eraman Malaysia as retail advisors, and the Airports Authority of India (AAI), a state-backed aviation body.
According to the Indian watchdog, the government systematically benefitted the consortium when negotiating the operations, management and development agreement (ODMA) and subsequent contractual adjustments for Delhi Airport:
“Whenever DIAL raised an issue regarding revenue to accrue to it or expenditure to be debited to government in contravention of the provisions of OMDA, the Ministry of Civil Aviation and the AAI interpreted the provisions always in favour of the operators and against the interest of the government.”
Not surprisingly, the watchdog’s report has prompted a tit-for-tat response from the government and the GMR-led team.
For example, the auditor took issue with the Ministry of Civil Aviation’s 2009 decision to allow the DIAL consortium to collect some 3,415 crore – equivalent to INR34.15 billion (€494 million; $615 million) – in development fees from passengers to help fund the project. According to the watchdog, that decision violated the terms of the ODMA, which states the consortium shall arrange the project financing through a mixture of debt and equity.
“Allowing these post contractual benefits violated the tendering process by which the JV [joint venture] partner was selected,” the auditor concluded, pointing out that 19 percent of the project was funded through equity, 42 percent via debt, and the remainder using development fees.
But the Ministry of Civil Aviation refutes this charge, pointing out that the use of development fees is stipulated in the 1994 Airports Authority of India Act, known to all the bidders prior to the tender process, and hence not a post-contractual benefit provided to DIAL.
A particularly explosive issue in India has been the auditor’s statement that the government leased hundreds of acres of commercially exploitable land to the consortium for a pittance:
“It was noted that the concept of upfront fee was used to lease out an additional land of 190.19 acres for a paltry onetime payment of 6.19 crore. Other government offices like the Director General of Civil Aviation and Bureau of Aviation Security were given a much harsher treatment when 7.60 acres of land was leased out to them at a licence fee of 2.41 crore per annum,” the auditor stated.
In all, the watchdog highlighted that “against an equity contribution of 2,450 crore, the JV was allowed rights of commercial exploitation of 240 acres of land. The land was valued by AERA [Airports Economic Regulatory Authority of India] at 24,000 crore. The potential revenue from this land in licence fee for 58 years was calculated by DIAL itself at 163,557 crore out of which DIAL’s share would be 88,377 crore”.
In response, the Ministry of Civil Aviation pointed out that the auditor had not taken into account the net present value of the land in its calculations. It also pointed out that 45.99 percent of the revenue generated will be given by DIAL to AAI as revenue share.
A clause in the concession agreement allowing the consortium to extend the airport concession for another 30 years “on identical terms and conditions” was labelled by the watchdog as “a unilateral and unfair advantage given to DIAL” and detrimental to the public interest.
Similarly, DIAL also enjoys right of first refusal in case of a second airport planned within a 150-kilometre radius of Delhi Airport. According to the auditor, this also unduly favours DIAL.
But the Ministry of Civil Aviation stressed that without the right of first refusal, the consortium would “be exposed to significant risks in its substantial investment if the traffic were to divert to a competing airport in the vicinity after heavy investments have been made”.
To read the full audit report, please click here.
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