GMR, GVK and the robbing of public exchequer

Share on Facebook0Tweet about this on Twitter4Email this to someoneShare on Google+1Share on LinkedIn0Pin on Pinterest0Print this page

On April 4, 2006, government-owned Airports Authority of India (AAI), which owns and operates all the airports of India, signed an Operation, Management and Development Agreement (OMDA) with two of its 26-74 joint venture companies – Delhi International Airport Ltd (DIAL) and Mumbai International Airport Ltd (MIAL) – to build and operate world class airports in the two cities on revenue sharing basis. But a major row has broken out between the government on one side and GMR, which heads the operations at Delhi airport and GVK, which runs Mumbai airport. GMR and GVK are not allowing the Comptroller and Auditor General of India (CAG) to look into the books of accounts of DIAL, MIAL, their concessionaires and joint ventures. As a result, the AAI has no idea how much revenue DIAL and MIAL are actually earning and whether the government was receiving its fair share. Based on limited records available at AAI, the CAG has found that GMR and GVK are hiding revenues from government and consequently there is a significant loss of revenue to the public exchequer. Parliament’s Public Accounts Committee too found massive misrepresentations by the two companies. Government’s JV agreement with GMR and GVK specifically allows independent audit of accounts. The Supreme Court too has upheld the right of CAG to carry out audit of private entities which share their revenue with government. But GMR and GVK have so far stonewalled all attempts by auditors to get full access to their books of accounts. Insiders claim that what has been found by the CAG in its limited audit is a mere tip of the iceberg! Only a full disclosure of books of accounts and a thorough probe into the activities of DIAL and MIAL right from the day they were formed would reveal the extent of loss to the public exchequer.

LEASE RENT

A Lease Deed agreement was signed on April 25, 2006 between AAI and DIAL to lease the ‘demised premises’ on ‘as is where is basis’ on an annual lease rent of Rs100/- (Rupees One hundred only) initially for a period of 30 years extendable for another 30 years by virtue of extension of concession period. The ‘demised premises’ include all the buildings, construction or immovable assets (including 4799.09 acres of land) with the liberty to construct, erect, renovate, alter or otherwise deal with the leased premises.

The refusal by Delhi International Airport Ltd (DIAL) and Mumbai International Airport Ltd (MIAL) to allow inspection of their books of accounts and the books of their JVs and concessionaires has led to a situation where the government through the AAI is dependent on DIAL and MIAL’s words on how much revenue is being earned. This, the CAG claims, is a flagrant violation of the agreement under which prime land was given to GMR and GVK at the lease rent of Rs 100 per year to develop and manage Delhi and Mumbai airports, respectively. The CAG has been trying desperately to get the two promoters to allow inspection of accounts. But all its efforts have hit the wall of private operators’ intransigence.

In a letter dated December 3, 2015, the then Comptroller and Auditor General of India, Shashi Kant Sharma, told the Minister for Civil Aviation Ashok Gajapathi Raju: “We had carried out an audit of PPP [Public-Private Partnership] projects at Indira Gandhi International Airport (IGIA), Delhi and Chhatrapati  Shivaji International Airport (CSIA), Mumbai and our findings were reported to the Parliament (AR No. 5 of 2012-13 and AR No. 15 of 2014). The report inter alia had raised serious concerns regarding entrustment of many of the functions to JV companies and its impact on revenue sharing arrangements with the AAI [Airports Authority of India]. The audit report on IGIA, Delhi was examined by the PAC [Public Accounts Committee] which also expressed serious concern on the issue.”

THE KEY PLAYER

Cover- A gajapathy raju P10_small
Civil Aviation minister Ashok Gajapathi Raju

Cover praful P10_small
Ex-minister Praful Patel under whom Delhi, Mumbai airports were privatised

 Cover GVK-Reddy P10_small_300x415
GVK Reddy, whose company heads Mumbai airport opertions

Cover GM Rao P10_small_300x415
G Mallikarjun Rao, Whose company heads Delhi airport operations

DISPUTES

As per Chapter 15, clause 15.1 and 15.2 of OMDA: “The Parties shall use their respective reasonable endeavours to settle any Dispute amicably. If a Dispute is not resolved within sixty (60) days after written notice of a Dispute by one Party to the other Party then the provisions of Article 15.2 shall apply.

Arbitration: All Disputes arising under this Agreement (OMDA), that remain unresolved pursuant to this Article 15, shall be referred to a tribunal comprising three (3) arbitrators under the (Indian) Arbitration and Conciliation Act, 1996. Each Party to the arbitration shall appoint one arbitrator and the two arbitrators thus appointed shall choose the third arbitrator who will act as a presiding arbitrator of the tribunal (together forming the “Arbitral Tribunal”). The decision(s) of the Arbitral Tribunal, shall be final and binding on the Parties. The venue of arbitration shall be New Delhi. The governing law of the arbitration shall be the substantive laws of India.

The PAC, headed by BJP leader Murli Manohar Joshi, had reported in its 94th report that many services at Delhi airport had been outsourced to joint venture companies by DIAL on a revenue sharing basis where DIAL also has equity participation. These joint ventures, the PAC felt, were in violation of the arms length principle as enshrined in the PPP agreement and also adversely impacted revenue sharing with the government.

Cover joshi P11_smallIn chapter 16 of its 94th report, the PAC said that DIAL had outsourced many of the services to be provided by airport operator to as many as 11 Joint Venture companies. “DIAL has equity share in these companies ranging from 26 per cent to 50 per cent. The revenue share of DIAL in these companies ranges from 10 per cent to 61 per cent. DIAL has also collected Rs 503 crore from these ventures as security deposits, which do not form part of the revenue of DIAL shareable with AAI and is reflected in the financial statements of DIAL as unsecured loans.”

Further Article 8.5.7 (d) [of OMDA] states that every such contract entered into by the JVC shall be on an arms-length basis. An arms-length transaction is defined by Institute of Chartered Accountants of India (ICAI) as “transaction between parties that do not have a particular or special relationship that makes prices of transactions uncharacteristic of market conditions. The transaction is presumed to be between unrelated parties each acting independently.”

According to PAC Audit, equity participation of DIAL in eleven JVs made them related entity and not on arms length as per contract. Neither government nor the AAI has exercised any access to the books of accounts of these eleven JVs and thus, the PAC said it could not ascertain whether the revenue share of DIAL in these JVs was as per OMDA and whether AAI got its fair share.

In response to these concerns raised by the PAC, Ministry of Civil Aviation appointed M/s Rawla and Company to conduct a special audit of issues related to the formation of JVs. But according to CAG Shashi Kant Sharma’s December 3, 2015 letter to the civil aviation minister “the terms of reference for the special audit did not include the two specific issues raised by the PAC, namely, impact on revenue share and violation of the principle of arms length as stipulated in the OMDA.”

The CAG noted that “it is a matter of serious concern that the [civil aviation] ministry has been relying on this [Rawla’s] audit report to draw assurance that the formation of JVs were in accordance with OMDA when the said auditor [Rawla & Co] had qualified their report by stating that the selection and bidding process followed for award of concession was outside the scope of their audit.  Review of the independent auditor’s report (up to June 2014) also indicates that they did not have access to the financial statements and books of accounts of the JVs formed for non-aeronautical services.”

The CAG further said: “In the above mentioned context, we have been interacting with the Ministry of Civil Aviation for examining the books of accounts of DIAL and MIAL to certify that the revenues accruing to these entities are being shared with the AAI as per the OMDA. The Ministry after adequate deliberation, decided to entrust the audit of DIAL and MIAL to the C&AG under section 11.3 of the OMDA. Despite issue of this order, DIAL and MIAL are questioning the Ministry’s authority to get such an audit carries out by the C&AG.  Such intransigence on the part of DIAL and MIAL is not only a violation of the provisions of OMDA but against accepted norms of transparency. Public interest would be greatly served only through a thorough audit of the manner in which the JVs were formed, the revenue sharing arrangements between the JV partners and its impact on the revenues flowing to the AAI.”

The CAG appealed to the civil aviation minister to ensure that “a meaningful audit is carried out” by the CAG officers to address the concerns expressed by the PAC and to make sure that the government of India through the AAI was receiving its fair share of revenue.

Right of Inspection

(Clause 11.3 of Airports Authority of India’s Operation, Management and Development Agreement
with DIAL & MIAL for Delhi and Mumbai Airports dated April 4, 2006)


‘ The AAI and its representatives shall be permitted to inspect at any reasonable time the books, records and other material kept by or on behalf of the JVC in order to check or audit any information (including the calculation of Revenue) supplied to the AAI under this Agreement. The JVC shall make available to the AAI and its representatives such information and grant such access or procure the grant of such access (including to or from third parties) as they shall reasonably require in connection therewith. If any such exercise reveals that information previously supplied to the AAI was in any material respect inaccurate on the basis of information available to the JVC at the time, the costs of any such exercise shall be borne by the JVC.’

Responding to the CAG, civil aviation minister Ashok Gajapathi Raju said in a letter dated January 22, 2016: “…both DIAL and MIAL have been asked by the AAI to provide necessary documents to CAG as the ‘representative’ of AAI under clause 11.3 of OMDA… However, both DIAL and MIAL have expressed reservations about nomination of CAG as AAI’s representative… on the ground that clause 11.3 cannot be read in isolation and that this clause was part and parcel of overall scheme of audit which has already been completed as per OMDA. Since AAI did not accept their contention, they have requested that the matter be treated as ‘dispute’ and provisions relating to dispute resolution in OMDA be followed. Accordingly, they have requested for invoking arbitration under clause 15.2 on OMDA for resolution of the above dispute.”

DEFAULT

Chapter 17 clause 17.2 lists the ‘Event of Default’ by the JVC (MIAL/DIAL).
It says: “Each of the following events or circumstances, to the extent not caused by a default of the AAI or Force Majeure shall be considered for the purposes of this Agreement as events of default of the JVC (“JVC Event of Default”) which, if not cured within the time period permitted, shall provide the AAI the right to terminate this Agreement in accordance with Article 17.3:
(a) any material breach by the JVC of its obligations under this Agreement and such breach is not remedied within 60 days of receipt of written notice from the AAI specifying such breach and requiring the JVC to remedy the same; provided that if such breach cannot be cured within a period of 60 days after such notice with the exercise of reasonable diligence, then such 60-day period shall be extended for an additional period of 30 days so long as JVC is exercising reasonable diligence to cure such breach…”

The minister suggested that given the above situation “it may be a better strategy that instead of CAG asking for records from DIAL/MIAL as a ‘representative’ of AAI, it is AAI which should ask for records and documents directly from DIAL/MIAL under clause 11.3 and then make the same available to CAG so that AAI as the ‘auditee’ can fulfill its obligations to CAG.  An appropriate working level mechanism can be developed between CAG and AAI so as to avoid any delay. If agreed, you may like to give necessary instructions to your audit team accordingly.”

The CAG responded to the minister’s letter on February 2, 2016. In this February 2, 2016 letter, deputy CAG and chairman of the audit board Prasenjit Mukherjee requested civil aviation secretary R N Choubey to “evolve a mechanism with AAI so that the records asked for by the audit are made available by the AAI in a time bound manner.”

Mr Mukherjee again drew the ministry’s attention to the fact that the CAG “had initiated an exercise (July-August 2015) to verify the revenue collections of AAI from MIAL and DIAL based on limited records available at AAI. It was seen that though significant revenues are earned by MIAL and DIAL through their concessionaires including joint ventures (JVs), the independent auditor (from whose report AAI derives assurance regarding accuracy of the reported revenues of MIAL and DIAL) does not have access to books of accounts of such concessionaires and JVs of MIAL and DIAL. It was noticed that the independent auditor relied on revenue statements furnished by the concessionaires and JVs, many of which were not certified, which raises concerns regarding their accuracy.”

The CAG’s audit based on limited documents available with the AAI revealed specific instances where revenue interest of AAI (read public) may have been adversely affected. Mr Mukherjee listed the following such instances in his letter to the civil aviation secretary.

1)  MIAL and DIAL collected revenue from various retail trade concessionaires as “Marketing Fund” which they did not share with AAI;

2)  MIAL/DIAL collected non-refundable deposits from various parties for space allotment, a substantial portion of which was not shared with AAI;

DIAL’s financing of the Project

(Excerpted from PAC’s 94th Report)


“Audit had noted that out of the total capital expenditure of Rs12857 crore, the promoter’s equity has been Rs 2450 crore out of which 26 per cent is contributed by AAI. 74 per cent of the equity capital of Rs 2450 crore is Rs 1813 crore. Out of the capital expenditure of Rs 12857 crore, only 19 per cent of the capital expenditure has been promoters’ contribution. Rs 5266 crore were from loans and Rs 1471 crore was from Security Deposits. While only Rs 50 crore was by way of internal accruals, Rs 3415.35 crore was from Airport Development Fees. It was also noted in audit that in case of Indira Gandhi International Airport, the contribution of internal accruals was the barest minimum. It was only Rs 50 crore. In case of Mumbai airport, internal accrual was Rs 1999 crore. Thus, with owner’s equity contribution of Rs 2450 crore out of which 26 per cent is AAI’s contribution, DIAL got an airport in the capital of India for thirty plus thirty years and in addition commercial rights of land valued at Rs 24000 crore. Other substantial benefits also accrued to DIAL. The equity contribution of the private partner was Rs 1813 crore.”

3)  MIAL recovers property tax from trade concessionaires at a higher rate and pays to BMC at a much lower rate. The differential amount is an income to MIAL which is not shared with AAI.

4)  MIAL/DIAL have received Served From India Scheme (SFIS) scrips which can be used to pay excise duties for import. MIAL deducts the values of the SFIS scrip from assets and does not depict it as ‘revenue’;

5)  MIAL entered into an agreement with M/s Housing Development and Infrastructure Ltd (HDIL). By this agreement MIAL intended to transfer commercial development rights on a considerable portion (62.20 acres) of Mumbai airport land owned by AAI to HDIL for a very long period (up to 60 years). Though the contract between HDIL and MIAL has since been terminated, the matter is still under arbitration and transfer of benefit to HDIL at the cost of AAI cannot be ruled out. Importantly, MIAL did not inform AAI before entering into agreement with HDIL. This could have had adverse implications on the revenue interests of AAI.

Airport Development Fees (DF)

(Excerpted from The PAC’s 94th Report)

According to [PAC] Audit, Article 13.1 of OMDA specifically provided that the : “JVC shall arrange the financing and/or meeting all financing requirements through suitable debt and equity contributions in order to comply with its obligations including development of airport pursuant to the master plan and the major development plans”. However, MoCA vide their order dated 9th February 2009, allowed DIAL to levy a development fee (DF) at Indira Gandhi International Airport for the purpose of funding or financing the cost of upgradation, expansion or development of the Airport. This was clearly in contravention of the provisions of Article 13.1 of OMDA, provisions in the AAI Act and in AERA Act as later confirmed by the Supreme Court. The rates of levy of DF were Rs 600 per departing domestic passenger and Rs 1300 per departing international passenger.

This decision to levy DF after the Effective Date, had vitiated the sanctity of the bidding process, as the draft OMDA, which was part of the bid documents, did not mention about funding of the project cost of the Airport through levy of development fees. In case the JV was permitted to levy DF to finance the project after signing of the OMDA, this important condition should have been known upfront to all the bidders at the time of bidding. Approval of Ministry and later of AERA for levy of DF by DIAL (to bridge the funding gap) was a post contractual benefit provided to DIAL which was neither envisaged in the RFP nor included under any provision of OMDA or in the SSA [State Support Agreement]. It was noted that this led to undue benefit to DIAL at the cost of passengers who were taxed for using Delhi Airport through levy of DF amounting to Rs 3415.35 crore.

While replying to a query of the Committee as to whether the Ministry, before entering into the agreements considered the total capital expenditure that was required for the project and was it expected to be borne by the JVC, it was stated that the determining factor for the grant of concession was the Revenue share quoted by bidders and not the Project Cost. It was further added that as a result, it was not mandatory for the Ministry to consider the Project Cost before entering into the agreements. When asked to justify the leeway given to DIAL in permitting it to levy DF on passengers when clause 13.1 of OMDA clearly stipulated that the cost of the project was to be arranged by the JVC, the MoCA in its reply furnished as under: “DIAL had prepared a Master Plan for modernization/ development of the airport to world-class standards with an estimated cost of `8975 crore in the year 2008. While preparing its financial plan for development of the airport, DIAL proposed to collect fund from refundable security deposit from the hospitality district. The issue of refundable security was examined in this Ministry and it was felt that DIAL had intended to collect excessively high order of security deposit amounting to about 5½ years of annual lease rental, which would adversely impact on the revenue shareable with AAI. Thus, DIAL approached this Ministry for approval of levy of Development Fee at IGIA, New Delhi in accordance with provisions of AAI Act, 1994 to bridge the funding gap. The proposals of DIAL was examined in this Ministry taking into consideration that the funding sources available with DIAL to complete the infrastructure development at Delhi Airport were exhausted due to various constraints as provided below: Request for additional equity infusion was regretted by AAI due to constraints on serviceability of debt, lenders refused to enhance the debt; private partners could not infuse further equity since that would have resulted in two issues (a) dilution of AAI’s share below AAI’s target of 26% and (b) as no additional debt could be raised, it would have breached the Trigger Debt Equity Ratio and hence would be in contravention of Clause 3.3.1 of SSA.
Only Rs 1,471 crore worth of Refundable Security deposits could be raised from disposal of Commercial Land as against an originally envisaged amount of Rs 2,738 crore – due to restrictions imposed by MoCA/AAI. As a result, even after best possible efforts of DIAL, no funding option was available to complete the project. As a last resort, after due diligence, the Government had, in terms of Section 22A of the AAI Act 1994, approved levy for Development Fee purely on an ad-hoc basis at IGI Airport, New Delhi to bridge the funding gap of Rs 1827 crore for a period of 36 months. Funds collected through the levy were to be utilized only for the construction of such aeronautical assets which was required to be transferred by the JVCs to AAI upon completion of lease period. However, this levy was challenged before various appellate fora and finally the Hon’ble Supreme Court vide order and judgment dated 26.4.2011 in the CA No. 3611 of 2011 ordered as under: (i) We hold that development fees could not be levied and collected by the lessees of the two major airports, namely, DIAL and MIAL, on the authority of the two letters dated 09.02.2009 and 27.02.2009 of the Central Government from the embarking passengers under the provisions of Section 22A of the 1994 Act. (ii) We declare that with effect from 01.01.2009, no development fees could be levied or collected from the embarking passengers at major airports under Section 22A of the 1994 Act, unless the Airports Economic Regulatory Authority determines the rates of such development fee. (iii) We direct that MIAL will henceforth not levy and collect any development fee at the major airport at Mumbai until an appropriate order is passed by the Airports Economic Regulatory Authority under Section 22A of the 1994 Act as amended by the 2008 Act. (iv) We direct that DIAL and MIAL will account to the Airports Authority the development fee collected pursuant to the two letters dated 09.02.2009 and 27.02.2009 of the Central Government and the Airports Authority will ensure that the development fees levied and collected by DIAL and MIAL have been utilized for the purposes mentioned in clause (a) of Section 22A of the 1994 Act.
Thus, the SC Order dated 26.4.2011 upheld the levy of DF and ordered that no DF can be levied or collected from embarking passengers at major airports unless the AERA determines the rate of such DF. Subsequently, the levy of DF at Delhi airport was stayed by the Delhi High Court vide its order and judgment dated 1.06.2011 in the matter of WP No. 3889/2011. However, even in this Order, Delhi High Court did not hold that levy of DF at Delhi airport was ultra-vires of the AAI Act, 1994 or AERA Act, 2008. Thereafter, upon an application from DIAL, AERA issued a Consultation Paper No.02/2011-12 dated 21.04.2011 in the matter of review of levy of DF in respect of Delhi airport. AERA also held a stakeholder consultation meeting in this regard. After considering submissions of the DIAL as well as the views and comments of various stakeholders, AERA determined the amount of DF to be Rs 3415.35 crore in order to bridge the funding gap in respect of the Delhi airport project. The rates of levy of DF were also determined at the rate of Rs 600/- per departing domestic passenger and Rs 1300/- per departing international passenger. Further, as per AAI Act, 1994, DF can be levied and collected for the purposes of funding or financing the cost of development, upgradation, expansion etc. of an airport at which such development fee is collected. As there were funding gaps in the means of finance for Delhi airport, AERA determined the amount of DF to bridge this funding gap as a measure of last resort under Section 13(1)(b) of the AERA Act read with Section 22A of the AAI Act. Further, clause 13.1 of OMDA which states that “…….the JVC shall arrange for financing and/or meeting all financing requirements through suitable debt and equity contributions in order to comply with its obligations hereunder including development of the Airport pursuant to the Master Plan and the Major Development Plans……..”. In this regard, it is submitted that AERA, under section 13(1)(a) of the AERA Act is mandated to, inter-alia, take into consideration “timely investment in improvement of airport facility” as well as “economic and viable operation of major airports”.
In discharge of its functions, accordingly, AERA determined the amount of DF in respect of Delhi airport in accordance with the provisions of Section 13(1)(b) of the AERA Act read with Section 22A of AAI Act”. To a query of the Committee as to whether it was expressly provided in the bid documents that Government would or might allow levy of Development Fees, the Secretary, MoCA testified: “Section 20.3.7 of the same OMDA says that this agreement shall be governed by, and construed in accordance with, the laws of India. Now, this provision, section 22A, of the AAI Act and Aircraft Act were all in view and it was clarified to the bidders in the pre-bidding conference that provisions of these two crucial Acts will apply”. When the Committee sought to know if the interpretation of the various clauses were being done to favour the JVC partner, the Ministry replied as under: ” Our objective basically was to see that our project gets completed.” When asked to explain the consequences of withdrawing DF, the MoCA submitted that in case DF was withdrawn, then the consequential funding gap of approx. Rs 1197.71 crore (as on 30.09.2012) would need to be bridged either through equity/debt/RSD or any other means of finance. This would require Regulatory Asset Base (RAB) and consequently the aeronautical tariffs to be re-worked accordingly. Infusion of additional finance in the form of debt and/or equity will add to the RAB. A higher RAB will result into higher target revenue. This incremental higher target revenue will have to be met through higher tariff/additional UDF because the assets so created will take a long time to depreciate.The Committee were informed that till January 2013 an amount of Rs 2302.20 crore was realized through levy of Development Fee. An amount of Rs 1,262.01 crore was proposed to be recovered through levy of Development Fee till March 2016 as determined by AERA. With regard to a press report which stated that the Development Fee was reduced w.e.f. January 2013 the Committee sought to know if the reduction of Development Fee would affect DIAL. Further, the Committee also wanted to know the alternative arrangement that had been made by MoCA to overcome the effect of lowering Development Fee. The Ministry in its submissions stated as under: “The Development Fee at IGI Airport has been reduced from Rs 200 per domestic departing passenger and Rs 1,300 per international departing passenger to Rs 100 and Rs 600 respectively, with effect from 1st January, 2013. Moreover, the duration of the levy of Development Fee has been extended by 2 years, to adjust for the reduction in the amount collected per departing passenger. The lowering of the Development Fee has resulted in a longer payback period to the lenders.”

The above issues have also been highlighted in the independent auditor’s report, but no firm action has been taken by AAI. The ministry of civil aviation, which exercises administrative control over AAI, has also failed to push AAI to seek its fair share of revenues from DIAL and MIAL. The ministry has failed to get the AAI to obtain the books of accounts of concessionaires and JVs from DIAL and MIAL.

An understandably exasperated CAG wrote again to Mr Gajapathy Raju on February 2, 2016 saying: “…we have already tried the route suggested by you to access the records of DIAL/MIAL through AAI but my officers have not been successful in their efforts.”

The instances of suspected denial of revenue cited above have been gathered from the limited documents available with AAI. A complete picture would emerge only after DIAL and MIAL make available full records of their concessionaires and JVs. Sources say that what has come out so far is a mere tip of the iceberg.

The ministry of civil aviation has acted in a manner that has caused loss to the public exchequer. The ministry failed to clearly define the aeronautical and non-aeronautical operations and thereby allowed DIAL and MIAL to take advantage of some of the provisions of their agreement with government to reportedly deny the government a fair share in the revenue.

There is conflict between provisions in OMDA and State Support Agreement on one hand and the Airport Economic Regulatory Authority Act on the other, which may have long term repercussions on AERA’s role on tariff fixation in Delhi airport. In terms of Section 13(1)(a) of the AERA Act, one of the important functions of AERA is to determine the tariff for the aeronautical service. However, definitions of aeronautical service differed substantially between OMDA and the AERA Act. Ground Handling Service, for example, was a non-aeronautical service in accordance with OMDA but it was an aeronautical service in terms of AERA Act. Similarly, Cargo Handling Services defined as non-aeronautical services in OMDA were defined as aeronautical services in AERA Act. According to AERA, these services were less capital intensive and more profitable.

The PAC audit revealed that in a case of determining tariff for X-ray baggage charges, DIAL did not furnish comments sought by AERA on a consultancy paper. In fact, the legal confusion is apparent from the following extracts of AERA’s order No. AERA/20011/DIAL-C/2010-11 dated December 10, 2010: “It is an admitted position of DIAL that as per Section 2(a)(v) of the AERA Act 2008, services provided for cargo facility (which includes X-Ray screening) at an airport is an aeronautical service. However, with reference to a concession agreement, they have claimed that cargo handling and services (which includes X-ray) is a non-aeronautical service and requested for compliance with the concession agreement.”

In response to the observations in the PAC’s 94th report, the civil aviation ministry appointed M/s Rawla & company to conduct a special audit. Strangely, terms of reference for the special audit did not include the two specific issues raised by PAC, namely, impact on government’s revenue share and violation of the principle of arms length as stipulated in the PPP agreement. The special audit also did not have access to the books of accounts of the JVs formed for non-aeronautical services.

The ministry of civil aviation also allowed DIAL to levy user development fee to help finance the development of the airports. Regarding part financing of the Delhi airport project through levy of development fee, the PAC said: “According to Audit, Article 13.1 of OMDA specifically provided that the ‘JVC shall arrange the financing and/or meeting all financing requirements through suitable debt and equity contributions in order to comply with its obligations including development of airport pursuant to the master plan and the major development plans.’ However, MoCA vide their order dated 9th February 2009, allowed DIAL to levy a development fee (DF) at Indira Gandhi International Airport for the purpose of funding or financing the cost of upgradation, expansion or development of the Airport. This was clearly in contravention of the provisions of Article 13.1 of OMDA, provisions in the AAI Act and in AERA Act as later confirmed by the Supreme Court. The rates of levy of DF were Rs 600 per departing domestic passenger and Rs 1300 per departing international passenger.

“This decision to levy DF after the effective date, had vitiated the sanctity of the bidding process, as the draft OMDA, which was part of the bid documents, did not mention about funding of the project cost of the Airport through levy of development fees. In case the JV was permitted to levy DF to finance the project after signing of the OMDA, this important condition should have been known upfront to all the bidders at the time of bidding. Approval of Ministry and later of AERA for levy of DF by DIAL (to bridge the funding gap) was a post contractual benefit provided to DIAL which was neither envisaged in the RFP nor included under any provision of OMDA or in the SSA. It was noted that this led to undue benefit to DIAL at the cost of passengers who were taxed for using Delhi Airport through levy of DF amounting to Rs 3415.35 crore.”

Out of the total capital expenditure of Rs12,857 crore, the promoter’s equity has been Rs 2,450 crore out of which 26 per cent is contributed by AAI. Seventy-four per cent of the equity capital of Rs 2,450 crore is Rs 1813 crore. Out of the capital expenditure of Rs 12,857 crore, only 19 per cent of the capital expenditure has been promoters’ contribution. Rs 5,266 crore were from loans and Rs 1,471 crore was from security deposits. While only Rs 50 crore was by way of internal accruals, Rs 3,415.35 crore was from Airport Development Fees. The PAC audit revealed that in case of Indira Gandhi International Airport, the contribution of internal accruals was the barest minimum. It was only Rs 50 crore. In case of Mumbai airport, internal accrual was Rs 1,999 crore. Thus, with owner’s equity contribution of Rs 2,450 crore out of which 26 per cent is AAI’s contribution, DIAL got an airport in the capital of India for thirty plus thirty years and along with commercial rights of land valued at Rs 24,000 crore. Thus the equity contribution of the private partner – GMR – was a mere Rs 1,813 crore, according to the PAC audit.

The government had in May 2015 informed DIAL that the CAG would carry out an audit of DIAL revenues to find out whether there has been any suppression of revenue. The need to audit the accounts of DIAL and its JV partners was felt after the government share of revenue in DIAL fell drastically.

Regarding the concession period, the PAC had found that “in terms of Article 18.1(b), DIAL enjoys the unilateral right to extend the concession period for another 30 years on the identical terms and conditions provided no JVC event default takes place during 20th and 25th year of first concession period. The Cabinet Note of September 2003 specifically envisaged that concession period of next 30 years could be subject to ‘mutual agreement and negotiation of terms’. Surprisingly, this condition was missing in OMDA signed in April 2006 though the MoCA denied extending any favour to DIAL on the ground that the concession period was decided by the EGoM constituted by the Cabinet to finalise various transaction documents. The Committee noted that the Cabinet in September 2003 had given permission only for privatisation of airports. Further, the extension of concession period was not automatic/unlimited as conditions like satisfactory performance in first 30 years was stipulated under OMDA. These provisions relating to extension of lease period were finalized before the Request for Proposal was issued to the qualified bidders… Asked about the reasons for extending the concession period by another 30 years, the Ministry submitted that it was felt that the investment would need a longer timeframe and also to attract more bidders for Delhi and Mumbai airports, the EGoM made a provision for further extension of 30 years. This was finally approved by the Cabinet.”

Funds diverted from PSF (Security Component) Escrow Account for purchase of Security Equipment by DIAL.

The passenger service fee (PSF) is an amount collected from each embarking passenger at the airports by the airlines. The PSF has two components viz security component (SC) which constitutes 65 per cent and facilitation component (FC) which is 35 per cent of the total charge. OMDA provides that the concerned airlines shall collect the entire PSF from embarking passengers and would remit the amount in two groups – 65 per cent as SC to AAI and 35 per cent as FC to DIAL directly. As per Clause 3.1.A.4 of State Support Agreement (SSA), Government of India, throughout the term of the SSA, shall control some reserved activities which would include Customs and Immigration control, Quarantine, Health, Meteorological and Security Service, etc. as mentioned in Para 3.3.1 of SSA. The facilitation component payable to DIAL could be revised under the provisions contained in OMDA by DIAL while the security component payable to AAI can be revised as and when directed by Government of India. As per clause 3.3.5 of SSA, DIAL was to procure and maintain, at its own cost, all security systems and equipment. However, in contravention of the provisions of SSA, MoCA vide its order dated 16 April 2010, directed that the entire cost incurred on purchase of security equipment could be met from PSF (SC). This resulted in undue favour to DIAL which led to loss of Rs 239.69 crore during 2006-11 to the public exchequer. In addition, DIAL also debited Rs 4.34 crore (up to the year 2009-11) towards insurance charges to PSF (SC) Account which was otherwise to be borne by the DIAL as per Article 8.5.6(i) of OMDA. SSA clearly stipulated that the cost of security equipment and also the insurance charges would be met by the airport operator. But MoCA permitted DIAL to meet the cost of security equipment and the insurance charges of security equipment out of the PSF (SC) account. On being asked whether this order of MoCA was not a post contractual benefit to DIAL, the Ministry responded as under:

“Post signing of OMDA/SSA, the security scenario had changed drastically and necessitated up-gradation of the existing security equipment at the airports including introduction of very high capital intensive new security equipment, such as Perimeter Intrusion Detection System (PIDS), In-line XBIS system, CCTV, BDDS, Bollards, etc. A need was felt by the Government to upgrade the security equipment available at the airports to the level of best in the world. Accordingly, the issue of PSF (SC) was examined in this Ministry and it was decided to seek opinion of Ministry of Law/Attorney General as to whether the extant arrangement provided in Rule 88 of Aircraft Rules, 1937 for collection of PSF is legally tenable and if not, what kind of amendment is required to the rule and whether AAI can be considered as a single licensee in respect of its airports within the meaning of Rule 88 so that it can pool the PSF amount of its airports for payment of security charges?

Ministry of Law had, inter-alia, opined as under: (i) There is no need for any amendment in the Rules to continue the extant arrangement. (ii) The license under Rule 78 originally granted to the Authority has already been transferred in the name of JVCs (after the lease of the Delhi and other leased airports). Therefore, as far as such lease airports are concerned, the Authority (AAI) cannot be validly considered as the single licensee for the purpose of collection and utilization of PSF (SC) in respect of such airports. Therefore, the amount of Security component may be utilized for relevant purpose only in the leased out airports concerned and if any residue remain, the same could be utilized only for the security purposes of the airport concerned. However, the Authority will continue to be a single licensee for collection and utilization of PSF for the rest of the airports, which are under its exclusive control and operation.

Accordingly, Government decided that the expenditure on the security equipment be made out of PSF (SC). The point raised by Audit that the cost of security equipment is to be met by the JVC (DIAL) as mandated in SSA is valid and noted. It will be implemented henceforth. It is submitted that reverting the earlier transaction will result into re-determination of Regulatory Asset Base (RAB) and UDF and would cause avoidable complication. Pertinent to note that the ultimate burden of the cost of security–equipment would by and large fall on the passengers if not as PSF (SC) then as UDF”.

The decision to allow levy of Development Fee (DF) after the bidding was over had vitiated the sanctity of the bidding process, as the draft OMDA, which was part of the bid documents, did not mention about funding of the project cost of the Airport through levy of development fees. If the JV was to be allowed to levy DF to finance the project after signing of the OMDA, all the bidders should have been informed of this important condition upfront at the time of bidding. Approval of Ministry and later of AERA for levy of DF by DIAL (to bridge the funding gap) was a post contractual benefit provided to DIAL which was neither envisaged in the RFP nor included under any provision of OMDA or in the State Support Agreement. The PAC noted that this led to undue benefit to DIAL at the cost of passengers who were taxed for using Delhi Airport through levy of DF amounting to Rs 3415.35 crore.’ Who were the persons behind this sweetening of the deal for GMR? A probe is needed and accountability fixed.

Even a cursory look at OMDA shows that the government of India has offered a more than fair deal to DIAL/MIAL. Besides, as PAC audit rightly points out, the civil aviation ministry under successive ministers sweetened the deal for the private operators by way of allowing them to levy development fee, etc. Passenger traffic has witnessed a healthy growth and revenues soared. Still, DIAL/MIAL have been attempting to hide revenue and deny a fair share of the same to the government which has given them this opportunity to run two of India’s most profitable airports.

(Excerpted from the 94th Report of Parliament’s PAC)
XVI. Adverse impact on revenue sharing by AAI on outsourcing of non-aeronautical services by DIAL

91. …It was noticed that many of the services to be provided by airport operator like DIAL had been outsourced to as many as 11 Joint Venture companies. DIAL has equity share in these companies ranging from 26 per cent to 50 per cent. The revenue share of DIAL in these companies ranges from 10 per cent to 61 per cent. DIAL has also collected Rs 503 crore from these ventures as security deposits, which do not form part of the revenue of DIAL shareable with AAI and is reflected in the financial statements of DIAL as unsecured loans… so far it (DIAL) has outsourced only non-aeronautical services. But the outsourcing of all the services [including aeronautical services] in future could not be overruled as on date which would significantly affect the revenue share adversely in long run.

92. Further Article 8.5.7 (d) states that every such contract entered into by the JVC shall be on an arms length basis. An arms length transaction is defined by Institute of Chartered Accountants of India (ICAI) as “transaction between parties that do not have a particular or special relationship that makes prices of transactions uncharacteristic of market conditions. The transaction is presumed to be between unrelated parties each acting independently.”

93. According to Audit, equity participation of DIAL in all eleven JVs made them related entity and not on arms length as per contract. Neither Government nor the AAI has exercised any access to the books of accounts of these eleven JVs and thus Audit could not ascertain whether the revenue share of DIAL was as per OMDA. The position was further complicated by the fact that many of these services were “non-aeronautical” as per OMDA but as per the AERA Act, these were aeronautical services. As per OMDA, therefore, DIAL would be competent to determine tariffs for these services but as per AERA Act, AERA would be competent to determine tariffs for these services. In a case of determining tariff for X-ray baggage charges, DIAL did not furnish comments sought by AERA on a consultancy paper. In fact, the legal confusion is apparent from the following extracts of AERA’s order No. AERA/20011/DIAL-C/2010-11 dated 10 December 2010: “It is an admitted position of DIAL that as per Section 2(a)(v) of the AERA Act 2008, services provided for cargo facility (which includes X-Ray screening) at an airport is an aeronautical service. However, with reference to a concession agreement, they have claimed that cargo handling and services (which includes X-ray) is a non-aeronautical service and requested for compliance with the concession agreement”.

94. The Audit had noted that in order to ensure revenue share as per OMDA to AAI, OMDA provided for appointment of an Independent Auditor by AAI in consultation with DIAL to certify the applicable revenue used for final verification/reconciliation of the annual fee [AAI’s share of revenue]. The Independent Auditor, however, had no access to the books of accounts of the JVs. Therefore, the sole criterion for sharing 45.99 per cent revenue with JVC was not ascertained by Audit.

95. According to Audit, only three JVs dealing with cargo and car parking were operationalised during 2009-10. Audit observed that there was substantial reduction in revenue share of Rs103.29 crore to AAI for the period December 2009 to December 2010 on account of transfer of cargo and car parking business to JVs.

96. The MoCA in its response (June 2011 and March 2012) stated that the matter regarding recognition of entire revenue of concessionaires/JV companies should be added to the revenue of DIAL, or not, was referred to the Ministry of Law and Justice for their opinion. To this, the Ministry of Law and Justice opined that: “Article 8.5.7 imposes a liability on the JVC (DIAL) to indemnify the AAI in case of the default of the sub-contractors formed or to be formed. It is silent about the sharing of the revenue of the sub-contractors formed or to be formed. Article 11.1.2 imposes an obligation to pay @ 45.99% of the projected overall revenue for said year. It is silent about any share in the revenue generated or to be generated by the sub-contractors formed or to be formed”. However, the MoCA further submitted that: “It is further submitted that prior to handing over the IGI Airport to JVC (DIAL), the Non-aeronautical activities (except Cargo) were carried out by AAI by way of grant of Concession to the highest (revenue) bidders. The legacy of AAI has been continued by DIAL. Further, world over, the airport operators manage non-aeronautical activities primarily through concessionaires to make use of their expertise in respective areas. Accordingly, OMDA in Articles 2.1.2 (iv) and 8.5.7(i)(a) confers right to DIAL to subcontract or sub-lease to third parties certain entrusted airport services. The DIAL Board took a legal opinion from Justice (Retd.) D.P. Wadhwa, former Supreme Court Judge before deciding to invest as a minority partner, in joint ventures for carrying out certain non-aeronautical activities Viz., Multi-Level Car Parking, Advertisements, Fuel Farm. Moreover, the DIAL Board constituted a Sub-Committee to look into the preferred model for the concessioning of non-core activities. As per the recommendations of the Sub-Committee, the matter of investment in JVs was duly approved by the DIAL Board. Joining the selected concessionaires for carrying out some of the non-aeronautical activities in a joint venture was deliberated by the Board of DIAL which has representatives of AAI. The Board after detailed deliberation decided to go ahead with it. It may be noted that besides 45.99% sharing of revenue, AAI would also get its share in the dividend income of DIAL from such Joint Ventures Companies”.

97. MoCA further stated (March 2012) that the financial statements of the Joint Ventures formed by DIAL for various non-aeronautical services already formed part of independent Audit Report for each quarter and were made available at the time of audit. However, the Audit contested that financial statements of JVs stated to have been part of independent Audit Report for each quarter were not made available to them.

98. In response to a query of the Committee about the aggregate security deposits collected by DIAL from the eleven JVs, the MoCA stated that Rs 512.82 crore had been collected. Out of this amount, about Rs 190 crore had been ploughed back as equity by DIAL in the JVs and the remaining amount had been used to meet part of the cash losses (against DIAL’s cash losses of Rs 840.79 crore in last 2 years). These deposits were to be refunded at the end of the concession term.

99. The Committee desired to know whether the financial statements of these eleven JVs were verified by the Independent Auditors appointed by AAI and made available to the Auditors for verification. The Committee also asked whether the Independent Auditors appointed as per OMDA had access to the accounts of the eleven JVs formed by DIAL. To these questions, the Committee were apprised as under: “As per OMDA provisions, AAI has appointed Independent Auditors – namely M/s Thakur Vaidyanath from 2009 to March 2012 and M/s Ved Jain & Associates from April,2012 – to verify and certify the revenues of DIAL. As part of this role, the Auditors also verify the revenue accruing to DIAL from JVs. For compliance with this, the revenue certificates of all JVs are made available to the AAI appointed Auditors. In accordance with the various concessions awarded by DIAL there is a clear requirement stipulated to provide for revenue certificates on a periodic basis, duly authenticated by auditors/chartered accountants. It may be noted that the Independent Auditors have only certified the Revenue of these JVs based on certification of Chartered Accountants. Revenue share received from these JVs is being audited as per practice mentioned above”.

100. Regarding gross revenue of 11 JVs and revenue share of DIAL in it, the Committee were informed that: “All JVs share a percentage of their gross revenues with DIAL. The gross revenues of the JVs has been defined under each agreement and it primarily comprises their regular Business Revenues…

101. Elaborating on the issue of revenue from non-aeronautical service the representative of the DIAL deposed before the Committee as under: “We have spent a lot of time to increase non-aeronautical revenue. For the last seven years non-aeronautical revenue has gone up by 4.3 times as compared to passenger traffic which has gone up by 1.7 times. Enough efforts have been put to increase the non-aeronautical revenue. The total non-aeronautical revenue went up from Rs 315 crore to over Rs 1000 crore in seven years. That means one of the key efforts of DIAL management is to ensure increase in non-aeronautical revenue and to offset to the extent possible the aeronautical revenue so that the tariff rates would come down”.

103. During the course of examination, the Committee desired to know from the Ministry whether Directors representing AAI/MoCA in the Board of DIAL had raised any objection to the formation of JVs by DIAL and whether any action was taken by the Directors representing MoCA/AAI to protect the interest of AAI/Government. Further, the Committee sought to know whether this issue of formation of JVs by DIAL was brought to the notice of Board of AAI/Government and also about the opinion of Ministry of Law in this regard. The MoCA in its reply furnished the following: “The legal opinion from MoL&J was sought on the following points: (i) Whether formation of Joint Ventures by DIAL and assigning of its obligations for provision of certain non-aeronautical services is permissible under OMDA? (ii) What would be the legal interpretation and scope of the terms and expressions “obligation and liability” and “indemnify” used in the Article 8.5.7 of OMDA. (iii) In case answer to query 1 is in the affirmative, then whether the revenue share of AAI as laid down in the Article 11.1.2.1 of OMDA, implies that each JVs setup for performance of non-aeronautical services should also have the same revenue share with AAI. In reply to above, MoL&J had opined as under: Formation of Joint Venture companies by DIAL and assigning of its obligations for provision of certain non-aeronautical services is permissible as long as the same is in compliance with provisions of Article 8.5.7 of OMDA. Article 8.5.7 imposes a liability on the JVC (DIAL) to indemnify the AAI in case of the default of the sub-contractors formed or to be formed. It is silent about the sharing of the revenue of the sub-contractors formed or to be formed. Article 11.1.2 imposes an obligation to pay @ 45.99% of the projected overall revenue for said year. It is silent about any share in the revenue generated or to be generated by the sub-contractors formed or to be formed. Article 8.5.7 and 11.1.2 are two different provisions dealing with different issues and independent of each other.

It is further submitted that prior to handing over the IGI Airport to JVC (DIAL), the Non-aeronautical activities (except Cargo) were carried out by AAI by way of grant of Concession to the highest (revenue) bidders The legacy of AAI has been continued by DIAL. Further, world over, the airport operators manage non-aeronautical activities primarily through concessionaires to make use of their expertise in respective areas. Accordingly, OMDA in Articles 2.1.2 (iv) and 8.5.7(i)(a) confers right to DIAL to subcontract or sub-lease to third parties certain entrusted airport services. The DIAL Board took a legal opinion from Justice (Retd.) D.P. Wadhwa, former Supreme Court Judge before deciding to invest as a minority partner, in joint ventures for carrying out certain non-aeronautical activities Viz., Multi-Level Car Parking, Advertisements, Fuel Farm. Moreover, the DIAL Board constituted a Sub-Committee to look into the preferred model for the concessioning of non-core activities. As per the recommendations of the Sub-Committee, the matter of investment in JVs was duly approved by the DIAL Board. Joining the selected concessionaires for carrying out some of the non-aeronautical activities in a joint venture was deliberated by the Board of DIAL which has representatives of AAI. The Board after detailed deliberation decided to go ahead with it. It may be noted that besides 45.99% sharing of revenue, AAI would also get its share in the dividend income of DIAL from such Joint Ventures Companies”.

104. When asked to comment on the declining trend in the income from cargo and car parking the Ministry stated as under: “It is true that income from Cargo and car park showed a declining trend. Earlier cargo activity was carried out by DIAL itself. However OMDA mandated DIAL to engage two independent entities for cargo operations. These two activities also required significant investment for up gradation of capacity and service quality. So DIAL decided to concession out these activities. As a result about Rs 450 crores has been invested in the two cargo JVs and about Rs 300 crores in the car park JV. The revenue share will go up once the capacity is fully utilised”.

The Union Government and its agencies need to urgently look into the matter as what is happening today could be just the beginning of AAI and government’s problems. OMDA allows DIAL/MIAL to contract or sub contract any function relating to the management of the airport. DIAL/MIAL can thus outsource both aeronautical and non-aeronautical services, though so far they have outsourced only non-aeronautical services. As more and more services are outsources, the challenge to ensure that the public exchequer gets its fair share would be greater. GMR and GVK cannot be allowed to delay the process of inspection of books of accounts by terming this legitimate demand as a dispute. But if they do not wish to fulfill their legal obligations, the government should waste no time and initiate the process of arbitration and if after such an exercise the willful wrongdoing on the part of operators is established beyond doubt, the government should not hesitate to invoke the termination clause under OMDA.

The following questions cry out for answers due to the stalemate between CAG/AAI and DIAL/MIAL:

  1. Why are DIAL and MIAL shy of sharing the books of accounts of their concessionaires and JVs with CAG and the independent auditor?
  2. How can DIAL and MIAL expect the government to remain satisfied regarding receiving fair share of revenue without being allowed inspection of the books of accounts.
  3. Why is it the CAG and PAC that are raising these questions of loss of revenue to public exchequer; what did the ministry of civil aviation do when the independent auditor was denied access to the books of accounts by DIAL/MIAL’s concessionaires?
  4. Why did the ministry of civil aviation not clearly define the aeronautical and non-aeronautical services when it was specifically pointed out by Parliament’s PAC?

GMR parties as AAI sleeps

colour box P25_1000x509colour box3 P25colour box2 P25

In Delhi, DIAL has developed a 45-acre retail-cum-hotel hub called aerocity on the land leased to it by the government at Rs 100 per annum. This aerocity has 12 five-star hotels. Out of this eight are already operational and four are under construction.  The eight running hotels are: Holiday Inn, JW Mariott, Pullman,  Novotel, Lemon Tree, Red Fox, Ibis Hotel  and Pride. Those under construction are: Hyatt Andaz, DucitD2, DB Realty, and Aloft.

The government of India, through the AAI, needs to know the details of agreement between the promoters of these hotels and DIAL. A full disclosure of DIAL’s agreements with the promoters of these hotels would go a long way in ascertaining the exact nature of the deal DIAL has had with these hotels including details of deposit, if any, procured by DIAL from these promoters and also the exact amount of revenue being earned by DIAL from aerocity. Public interest would be greatly served by getting full access to the records of these deals by DIAL as this would ensure the government that it was receiving its fair share from the revenue being earned from aerocity.

A leading English newspaper, quoting an unnamed DIAL spokesman, recently reported that DIAL was planning to develop a second phase of aerocity adjacent to the existing one with business hotels and service apartments. Besides this, a 300-room luxury hotel would also be built next to Terminal-3 with direct connectivity to the international terminal.

The DIAL spokesman said in the report “some of the developers have already shown interest in the second phase and have requested land for new projects…we have recently gone through the tendering process to build a retail complex.” He said an area of 22-24 acres was being earmarked for retail development. “Around this might come up all-suits business hotels and service apartments,” the DIAL spokesperson said, and added “we had a total of 230 acres of land that had to be developed, of which only 45 acres have been used.”

It is clear that DIAL is pressing on the gas to derive maximum advantage of having on lease the prime land around the airport. But it is important that it conducts its business with integrity and transparency. Preventing auditors from looking into how it is doing the deals and how much revenue it is earning give rise to valid concerns about denial of fair share to government which has given it this land almost for free.

GMR and GVK outsourced non-aeronautical services such as duty free shops, general retail, hotels and motels, conference/ business Centre, food & beverage, parking, airline offices, advertisement, etc either through concession agreements or through JVs. According to PAC, these non-aeronautical services are highly profitable in comparison to capital-intensive aeronautical services such as navigation, surveillance and supportive communication for air traffic management; the landing, housing or parking of aircraft and other ground facility offered in connection with aircraft operations; ground safety services; ground handling services relating to aircraft, passengers and cargo; cargo facility at an airport; supplying fuel to the aircraft, etc.

GMR and GVK have been given a fairly generous deal by the government by not only handing over the prime land for 30 years extendable by another 30 years at a lease rent of Rs 100 per year, but also by allowing them a ‘hybrid shared till” system with a “price-cap approach” under which the aeronautical tariff is to be fixed on a price cap basis, while 30 per cent of non-aeronautical revenue is allowed to be taken away for subsidizing aeronautical tariff. As a result, from the total revenue earned by GMR, GVK led DIAL and MIAL from the highly profitable non-aeronautical activities, 30 per cent is taken away for subsidizing the aeronautical services. The AAI or government of India gets its share from non-aeronautical activities only from the remaining 70 percent of the revenue from this stream.

The CAG and PAC are spot on when they ask the AAI and the ministry of civil aviation to ensure full access to independent auditors into the account books of DIAL and MIAL to make sure that the government’s doesn’t get a raw deal.

Share on Facebook0Tweet about this on Twitter4Email this to someoneShare on Google+1Share on LinkedIn0Pin on Pinterest0Print this page

1 Response

Leave a Reply

Your email address will not be published. Required fields are marked *