Paying For Non-Existent Airports in India

Cranky is on vacation, but I’ve lined up some excellent guest bloggers for you while I’m gone. Today I have Devesh Agarwal who writes the Bangalore Aviation blog. He always has great insight into Indian aviation.

At a time when airports across the Asia-Pacific region are slashing their fees in a desperate bid to attract airlines and stimulate air travel, India seems to be happily moving in a completely opposite direction.

In a blatant move to bail-out the politically well connected GMR Group’s airport operating company Delhi International Airport Limited (DIAL), the Government permitted the levy of an Airport Development Fee on all departing passengers from New Delhi’s Indira Gandhi International Airport. Domestic passengers pay Rs. 200 ($4) while international passengers pay Rs. 1,300 ($26).

The fee came about when DIAL approached the government, using the upcoming 2010 Commonwealth Games deadline as a Damocles Sword, and demanded “help” in filling a funding gap of Rs 27.4 billion ($548 million) out of the total Rs 89.75 billion ($1.795 billion) needed for upgrading the Delhi airport. Driven partly by the immediate need to have an upgraded airport, but largely by political clout, the government quickly and meekly agreed to the fee.

At the country’s commercial capital Mumbai, the GVK Groups’s airport operating company Mumbai International Airport Limited (MIAL) observed the developments at Delhi, and seized the opportunity to make a killing. They too promptly insisted on, and obtained permission, to levy the same airport development fee but of Rs. 100 ($2) and Rs. 600 ($12) on domestic and international passengers respectively. Never mind the fact that they have not even spent half of the Rs. 50 billion ($1 billion) Delhi has.

Not to be outdone by these two private airport operators, the government of India is also working on a similar fee for 35 state owned and operated airports across the country, that are being modernized. Airports whether private or state owned, are a monopoly in India and both passengers and airlines are there for the fleecing.

This fee was levied less than three months after government permitted airports across the country to raise their already high fees by another 10 per cent. Domestic airlines which are already hemorrhaging losses crossing $1 billion, will just bleed some more. Elections are to be held in May, let the next government worry about the problems.

Both the private airport operators, DIAL at Delhi and MIAL at Mumbai, won competitive bids for their privatization contracts back in 2006, and upgrading the airports was an integral part of the privatization agreement. Now, when they find themselves short of cash in an economic downturn with conservative lending, they are looking to milk passengers and airlines, instead of planning for and facing up to the business risks inherent in such long term projects. This is business with “other people’s money” carried to the extreme.

Everyone across the board, from passengers to the global airlines body International Air Transport Association (IATA), is questioning if not opposing the government’s decision. Analysts are of the opinion that the fee being charged represents the capital the private developer-operator who holds stakes in the airport is actually supposed to raise. “Why should passengers pay for privately-run airports, when they are not getting anything in return? Passengers do not have a stake in the airport.

Even officials in the government’s own Law Ministry are of the view that the privatization agreement, also known as the operations management and development agreement, between DIAL/MIAL and the government does not permit the charge of this fee.

What is absolutely perplexing–is the lack of any Public Interest Litigation by any citizen or consumer rights body of Delhi or Mumbai, to protect their rights.

Indian passengers have no problem paying for world-class facilities. In 2008, two privately developed Greenfield airports commenced operations at Hyderabad and Bangalore. These airports are allowed to charge a User Development Fee to cover costs of the airport infrastructure already developed, and is accepted by most passengers, just as airport fees are accepted by passengers anywhere else in the world.

In the case of Delhi and Mumbai, passengers are paying for the development of future facilities, which they may never use. The government – which screamed “cartelization” when airlines increased their fares in February, seems to be running the largest oligopoly of them all.

The question I raise to readers — Should passengers be expected pay for non-existent airports?

The author Devesh Agarwal is a Director at Infomart, a Power over Ethernet company based in India. He is a winner of the Lockheed Martin 2008 Innovation silver medal, and authors the Bangalore Aviation blog. An avid wine enthusiast, he has also authored a book called Wines Demystified which can be download free of charge here.

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