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Government proposes new model concession agreement for greenfield airports

Updated : August 14, 2018 08:25 PM IST

The centre on Tuesday proposed a new financial model for building greenfield airports aimed at making air travel more affordable and addressing concern of disputes related to tariff. Under the new financial model, the concession fee given by the airport operator to the concessioning authority will be based on a ‘per passenger aeronautical model’.

“The passenger-based model will also be the base of the bidding process,” Civil Aviation Minister Suresh Prabhu told reporters here while unveiling the transaction structure.

The new model will encourage increased private investment, the minister outlined.

Currently, the transaction structure for airports, run under joint venture route, is based on revenue sharing model.

Minister of State for Civil Aviation Jayant Sinha said the new concession agreement is aimed at realising the government’s dream of achieving one billion passenger trips a year in the coming years.

This necessitates massive investment in the aviation space and construction of more greenfield airports. The new structure will make travel more affordable as the yield per passenger will be pre-determined by the concessioning authority, he said.

“Its guiding principles are affordability, sustainability and predictability,” he added.

Under the proposed model concession agreement, the total aeronautical collections by concessionaire (airport operator) like landing and parking charges when measured per passenger basis will not exceed Rs 400.

The concessionaire has to give Rs 20 per passenger per year to the concessioning authority plus an additional amount as the concession fee.

“It is this additional amount of concession fee which will be the biddable parameter,” Civil Aviation Secretary R N Choubey explained.

The additional amount could range from Rs 10 to Rs 50 depending on how attractive the concession is. The concession period will be 40 years, he said.

There would be a moratorium on the concession fee for three years from the commercial operation date.

Both the concession fee and the total aeronautical charges of Rs 400 “will be escalated annually by half the inflation rate”. “It will be half of inflation utilisation”. The remaining half could be covered by way of efficiency improvements, he said.

The immediate project that will determine the success of this model will the upcoming greenfield airport at Jewar in Greater Noida, the secretary said.

The proposed model will be placed in public domain for feedback till September 14.

Significantly, 10 per cent of the total area has been earmarked for real estate development.

Choubey said by linking concession fee to number of passengers, the disagreement around gross revenue and the risk of revenue leakage will be significantly reduced. With this model, the future of the airports in India will be simple, functional and cost effective,” he said.

The other advantage is that quality of services will also be pre-determined and standards of services will be evaluated every six months by the airport regulator.

“We are not determining the capital expenditure. We will specify the service standards the airport operator who will meet them at all times. Our aim is to ensure top class service,” he said, adding there is a penalty for failing to maintain service conditions.

According to a statement, in case of financial challenges faced by the operator, the concessioning authority may give support for five years during the first 30 years of the concession period.

Further, a negative concession fee has also been proposed when the bidder is unable to pay the concession fee in addition to Rs 20. There could also be a possibility of increasing the ceiling of Rs 400 in this case.

The airport user consultative committee for every greenfield airport may recommend increase or decrease in aeronautical collections based on the concessionaire’s performance. A cumulative financial penalty of 25 per cent on the concessionaire may even lead to termination.
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