Corporate Aug 17, 2012
If the report of the Comptroller and Auditor General's (CAG's) on the Delhi airport privatisation is to be believed, GMR, which led the consortium that won the bid, has got away with murder.
At the very least, the CAG report exposes the sheer hollowness of the policy of roping in private parties to run gigantic infrastructure projects; at its worst, it is a disturbing indictment of crony capitalism with all its attendant risks of private loot at public expense.
Consider this one single stat: with a private equity investment of just Rs 1,813 crore, the Delhi International Airport Ltd (DIAL) raised more than six times as much in debt and fees to run an already running airport for 60 years (effective concession period: 58 years). In the process it gets to use land with a commercial value of at least Rs 24,000 crore - with the upper end potential earnings going up to Rs 1,63,557 crore, according to GMR's own estimates.
In short, you need just Rs 1,813 crore of your own money to hop on to a gravy train that could be worth 90 times your investment over 58 years. If this does not stink of a cushy land scam, nothing does.
The math to arrive at this runs something like this. Of the total capital expenditure of Rs 12,502 crore, the promoters (GMR and its partner Fraport) put in equity of Rs 1,813 crore, with the Airports Authority of India (AAI, a 26 percent partner in DIAL) putting in Rs 637 core, for a total equity of Rs 2,450 crore. On this the company raises Rs 5,266 crore as debt, Rs 1,471 crore as security deposits, a measly Rs 50 crore from internal accruals, and Rs 3,415 crore by fleecing passengers through airport development fees (UDFs).
The question: why did the AAI need a private partner to do this kind of one-sided financial engineering where GMR's own investment is almost laughable?
But this is only the broad picture in what looks like a scandal.
The real problem is in the deal that GMR originally won through competitive bidding and the final rights it got - a lot of sweeteners were added along the way. The winning bid was based on GMR's offer of a revenue share of 45.99 percent of its gross revenues to AAI for 30 years, with a further concession period to be agreed subject to "the mutual agreement and negotiation of terms". This was based on the NDA government's cabinet note of September 2003.
But when the deal was finally signed in April 2006, the term "mutual agreement and negotiation of terms" was mysteriously dropped and GMR was given the unilateral right to extend its concession period by another 30 years - and on the same terms as in the first concession period. In other words, it got a deal for 60 years while bidding for 30. What a steal!
How did GMR bag a deal that was not there in the cabinet note?
Not only that. It may seem like a revenue share of 45.99 percent is a big deal for AAI and the government. But what appears is not the reality.
Apparently, according to CAG, the Operations Management and Development Agreement (OMDA) signed with GMR does not include several key revenue areas - like ground handling, cargo handling and parking fees - as aeronautical services within the meaning of the Airports Economic Regulatory Authority (AERA), the airport regulator set up after the OMDA was signed.
Since GMR's tariffs are fixed by AERA on the basis of its revenues, the exclusion of these non-aeronautical services from the calculation of DIAL's revenues meant only 30 percent of DIAL's income was taken into account while fixing airport charges like landing fees, etc.
Again, this has all the marks of a crony deal.
Is it any surprise AERA was forced to raise airport fees by more than 300 percent - making landing in Delhi a costly affair for all airlines, Indian and foreign. Little wonder, airline companies are yelling murder and shifting hub operations to Dubai.
But there's more...
The CAG also notes that when DIAL has practically been given a 60-year deal, it has also been given an effective licence to run a monopoly. It has first right of refusal on any airport within 150 km of Delhi. If any new airport comes up within this radius, DIAL can bid for it, and if its bid is only 10 percent below the best bid, it can match the bid and take the airport away.
What a sweetheart deal! Not only can the private operator DIAL 'M' for Money, it also can dial another 'M' for Monopoly for 30 years - and possibly more.
But it is the land deal that takes the cake.
When GMR signed the initial deal for 4,608.9 acres of Delhi airport land with AAI, it got this at just Rs 100 per year with development rights for 5 percent of the land.
Then it asked for an additional 190.19 acres from AAI, which it got for a meagre one-time fee of Rs 6.19 crore. Again, 5 percent of this land can be used for commercial development.
Add the two, and what GMR got was this: 4,608.9 acres at Rs 100 per annum, and another 190.19 acres at Rs 6.19 crore for 30 years.
Since 5 percent of the total 4,799 acres can be commercially exploited, CAG calculates that the government essentially allowed GMR to develop 239.95 acres of land (5 percent of the total) for a one-time payment of just Rs 31 lakh (5 percent of Rs 6.19 crore) and annual payment of Rs 100.
The Delhi airport deal is clearly a lot about land. Now why are we not surprised?
And the biggest surprise? The airport modernisation was initially to be funded only by equity and debt. But GMR managed to wangle a development fee payable by every passenger flying in and out of the airport. Far from just running an airport, GMR has quietly made itself a toll collector.
The civil aviation ministry's rebuttals of the CAG report include the following: the tender was based on the highest revenue share offered, and this process was cleared by the Supreme Court. So the Rs 100 lease rent of land is not a valid charge, since 45.99 percent of gross revenues will also be earned by AAI.
According to the ministry, AAI could earn as much as Rs 3,00,000 crore over the concession period.
That, of course, remains to be seen. But as of now, assuming the CAG has got its other sums right, this looks like one hell of a dicey deal. Dicey for the taxpaying public, not GMR.
One wonders why AAI needed GMR to earn the money it could have earned anyway.
You can read the entire CAG report below
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