Powered by Blue Bytes
Wednesday, March 10, 2010
Plethora of restrictions hobble airport development
Publication: The Financial Express, Edition: Ahmedabad/Delhi/Mumbai/Pune, Journalist: Atul Sharma, Page No: 10, Location: Middle-Right, Width(cms): 16, Height(cms): 27
amol 100310 - 0023.htm
Plethora of restrictions hobble airport development
Regulatory nuances for airport development in India are still in the early stages
Atul Sharma
I N THE last few years the govern­ment of India has taken very bold initiatives in the development of airports in India. The current regime for development of airports is proba­bly the most liberal in the world. The frontrunners have been new airports at Hyderabad and Bengaluru and the re-development of Mumbai and Delhi airports. The experiences in develop­ment of these airports have thrown up a large number of is­sues which need to beaddressed.
The major revenue generation avenues in an airport project may be categorised as revenues from aero­nautical services and those from non-aero­nautical services. Revenues from aero­nautical services gen­erally consist of landing charges, parking charges, pas­senger servicefee, etc. Revenues from non-aeronautical services accrue from: aero-re­lated non-aeronauti­cal services such as revenues from cargo handling, aircraft re­fueling, ground han­dling,           aircraft maintenance, etc.; revenues from commercial activities within the terminals such as advertise­ments, retail outlets, car parking, etc.; and revenues from other commercial activities outside the terminals such as real estate, hotels, business parks, etc.
At major airports across the world, 60-70% of the total revenue of airport operators is generated from non-aero­nautical sources. However, contractual restrictions on land usage for non-aero-nautical services restrict the develop­ment at these airports. For example, in the case of Delhi and Mumbai airports, the commercial use of land for non-aeronautical services is restricted to 5% and 10% respectively of the total land demised to the airport operator. The rationale for such fixation of per­centages is unclear. Reasons seem to be political rather than economic.
Regulatory nuances for airport de­velopment in India are still in the early stages. The policies and regulations have been modified without keeping in view the existing contractual restric-
tions/ provisions. For example, the Air­ports Economic Regulatory Authority of India Act,2008, has been passed toreg-ulate the tariff for 'aeronautical ser­vices' which includes 'cargo services' within its ambit, whereas under the Op­erations Management and Develop­ment Agreement executed between AAI and Delhi International Airport Private Limited in 2006, 'cargo services' have been included as non-aeronautical ser­vices for which the airport operator has been authorised to fix the tariffs. These
amol 100310 - 0023-1.jpg
lowed under automatic route and FDI up to 51 % is allowed on single brand re­tailing after obtaining FIPB approval. For a sustainable development, there should be active and inclusive participation of central government, state government, planning authori­ties, government agencies, investors and private participants in the develop­ment of airports being developed as PPP projects. Government along with private participants. investors and oth-er stake holders need to consider andre-"solve all sensitive and contentious issues like of land acquisi­tion, right of way, en­vironmental problems, rehabili­tation and resettle­ment of project affected persons, statutory clearances etc, for speedy and ef­ficient development of theseprojects. Government dithering on the new ground handling pol­icy is a case of lack of consistent policy in this regard. Initially, for security reasons the government wanted to restrictthe number of ground handling agencies at the airport. Despite having declared its intent as a policy for over two years, the government contin-ues to allow airlines to do their own ground handling.
Development of infrastructure for aerospace is another great opportunity for development of Indian airports and their vicinities. Development of main­tenance, repair and overhaul facility and facility for development and manu­facturing of aircraft and engine compo­nents can be the most exciting opportunity. With the recently placed order of C 130 on Lock heed Mart in Corp. and P-8 Ion Boeing, defence aerospace is likely to get a huge boost. Add to this the imminent possibility of government placing order for fighter aircraft, and thedefence aviation will see agiant leap. Government needs to have a clear policy as the current outlook seems hazy. A completely misdirected pre­vailing offset policy is a case in point.
The author is the man a ging partner, Link Legal Advocates & vice president, Indo American Chambersof Commerce
anomalies are required to be removed.
The new greenfield airport policy provides that an additional airport may be set up within 150 km from an ex­isting airport with the approval of the central government and DGCA and a green field airport may be set up beyond 150 km from an existing airport only with prior DGCA approval. This clear­ly conflicts with the existing contractu­al restrictions under the concession agreements between the government and the developers of Hyderabad and Bengaluru airports which provides that no civil airport shall be allowed within 150 km radius of these airports.
Another prominent issue being faced by investors is the lack of a stan­dard and unified FDI policy for attract-ing foreign investors in the commercial ventures at airports. The extant FDI policy provides for different sectoral caps even within a particular sector: airports. With respect to retail, FDI up to 100 % in (a) cash and carry wholesale trading, and (b) export trading is al-