Changed note provides DIAL the right to operate Delhi airport for 60 years without review

Accusing the Union Ministry of Civil Aviation and the Airports Authority of India (AAI) of allowing “undue favours” to GMR-run Delhi International Airport Limited (DIAL), the Comptroller and Auditor General (CAG) has also said in its report that an “important condition” which was part of the Cabinet note was changed later on to provide DIAL the right to operate Delhi airport for 60 years without any scope for review. Further, it noted, the reply by the Ministry of Civil Aviation on the issue was “factually incorrect”.

The Cabinet note on DIAL, dated September 2003, talked about initial concession period to DIAL for 30 years, which could be extended by another 30 “subject to mutual agreement and negotiation of terms.” However in the draft of the agreement signed between AAI and DIAL, which was part of the bidding documents, the “important condition” of “subject to mutual agreement and negotiation of terms” was omitted.

“Such a sweeping provision, without any scope of review at any time during the currency of the concession period, has effectively granted DIAL the sole right to operate the airport for a period of 60 years with the terms and conditions frozen in the OMDA [Operation, Management and Development Agreement],” the CAG report said while commenting on the omission of the phrase “subject to mutual agreement and negotiation of terms”.

The report also said that it was “not only violation of commitment in the Cabinet note but is also a unilateral and unfair advantage given to DIAL, which is detrimental to government interest as it does not provide the government any scope for review.”

The report also said the reply of the Ministry of Civil Aviation that concession period of 30 years was similar to other infrastructure projects in India, was “factually incorrect,” as the concession period typically granted by Port Trusts is 30 years and 20 years in the case of highways.

“In the case of Male airport and Istanbul airport, where GMR is a stakeholder, the concession period is 25 and 20 years, respectively.”

The CAG also highlighted that nowhere in the country was there any infrastructure project except in case of Delhi and Mumbai Airports where the concession period is initially for 30 years, which can further be extended for another 30 years without any scope of review. Authorities also did not provide CAG the basis for fixation of 30 plus 30 years as the concession period.

Thus the report recommended that “all public-private arrangement must be linked to certain basic triggers like traffic volume, tariff, return on investment and break-even period. A long concession period without any trigger may lead to undue financial benefit” to the private operator.

The CAG report also highlighted that the State Support Agreement (SSA), which the Government signed with DIAL, giving the private operator the Right of First Refusal in case of second airport planned within 150 km radius of the Indira Gandhi International Airport , “thwarts competition” and provides “natural advantage” to DIAL creating a “monopolistic situation”.

As per the SSA, in case of a second airport being planned and in case of DIAL being unsuccessful in the bidding process, the private operator will be allowed to match the most competitive bid, if its bid is within the range of 10 per cent of most competitive bid. This condition will be applicable for the first 30 years.

The report said “allowing such right of first refusal in relation to second airport without triggers like saturation point of existing airport, traffic census, rate of return on capital and expected break-even period amounts to an undue favour to DIAL.”