In-principle Nod For Airports’ Privatisation

Syllabus: GS3/Infrastructure

Context

• Recently, the Ministry of Civil Aviation (MoCA) gained in-principle clearance for the third wave of airport privatisation for privatising 11 Airports Authority of India (AAI) airports.

About Airport Privatisation in India

• Airport privatisation in India is predominantly through Public-Private Partnership (PPP) arrangements with private concessionaires operating, managing and developing airports for a defined concession period.
• The Airports Authority of India (AAI) is responsible for key functions such as aviation infrastructure, air navigation services and airport development.
• The new proposal is for the privatisation of 11 airports in five bundles for a period of 50 years. It aims to enable cross-subsidisation, pairing commercially stronger airports with smaller or less profitable regional airports.
  • These include Amritsar and Kangra; Varanasi, Gaya and Kushinagar; Bhubaneswar and Hubballi; Raipur and Aurangabad; and Tiruchirappalli and Tirupati.

Reasons for Recent Privatization Announcements

• India’s rising passenger traffic and growing infrastructure requirements have increased the need for substantial investment. 
• Under the proposed model, concessionaires would undertake operation, management and development, including sanctioned capital expenditure and subsequent capacity expansion. 
• Allowing bidders with relevant cross-sectoral infrastructure experience, rather than only aviation-sector experience, may widen the investor pool.

Significance of Airport Privatisation

• Improved Efficiency and Service Quality: The private sector involvement can bring in managerial skills, technology and customer focused operations which could improve the passenger experience.
• Faster Infrastructure Development: Private funding can supplement public resources and support terminal expansion, capacity augmentation and city-side infrastructure.
• Fiscal & Developmental Benefits: PPP models can ease the immediate fiscal load on the government and facilitate the use of public resources for other developmental priorities.
• Regional Connectivity: A mix of lucrative and weaker airports can facilitate operating regional airports and supplement greater connectivity objectives.

What are the Concerns?

• The primary worry is market concentration. Excessive concentration of ownership in a few corporate groupings can stifle competition and pose systemic dangers.
• Another risk is over-leverage: financial difficulties in one project might possibly have knock-on repercussions across many airports held by the same firm.
• Other issues are:
  • Longer timeframes for concessions and proper regulatory scrutiny;
  • Protection of public interest and low cost airport services;
  • Not leaving commercially weaker airports behind; and
  • Finding a balance between profitability and regional connectivity.

Way Forward

• Airport privatisation should be undertaken under a competition sensitive and transparent PPP framework.
• Concentration limits, robust financial due diligence, strong regulatory supervision and regular performance monitoring are required.
• The government should ensure that private investment improves capacity and quality of service, but without creating monopolistic structures or threatening regional connectivity.

Source: TH