Finance Ministry, NITI Aayog guidelines ignored in airport privatisation

Adani gained as curb on numbers, experience norm set aside.

July 27, 2019 11:42 pm | Updated July 28, 2019 10:11 am IST - NEW DELHI

Central Industrial Security Force personnel stand guard at the Sardar Vallabhbhai Patel International airport in Ahmedabad. File

Central Industrial Security Force personnel stand guard at the Sardar Vallabhbhai Patel International airport in Ahmedabad. File

A Finance Ministry recommendation not to award the same player more than two airports, out of a total of six to be privatised by the Centre, was among some of the key suggestions brushed aside by the government panel for public private partnerships — the PPP Appraisal Committee (PPPAC) — effectively leading to Adani Enterprises Limited emerging as the winning bidder for all airports.

Following the Union Cabinet’s in-principle nod in November 2018 to privatise six airports owned by the Airports Authority of India (AAI), the PPPAC met on December 11 to recommend the proposal for final approval.

The panel dismissed key suggestions made by the Finance Ministry’s Department of Economic Affairs (DEA) and the NITI Aayog to improve criteria for selecting bidders.

These included the requirement of prior experience in operation and management (O&M) as well as providing the total project cost up front for each of the airports, to better determine the financial capability of interested players.

Tender floated

Three days later, on December 14, the AAI floated a tender for operation, management and development under the PPP mode for the Lucknow, Ahmedabad, Jaipur, Guwahati, Thiruvananthapuram and Mangaluru airports.

In February 2019, the AAI declared Adani Enterprises Limited the highest bidder for all six airports . On July 3, the Union Cabinet gave its nod for leasing three of these airports , while “a decision on the remaining three is awaited.”

No response

An email each to Subhash Chandra Garg — who was then Secretary, Economic Affairs, and also headed the PPPAC — as well as Secretary of the Ministry of Civil Aviation (MoCA) P.S. Kharola, with specific questions on the final decision, remained unanswered till the time of going to print.

The DEA and NITI Aayog’s detailed notes of the proposal on the six airports were circulated among the participating ministries ahead of the PPPAC meeting.

In its note, the DEA noted unequivocally, “the six airport projects are highly capital intensive projects, hence it is suggested to incorporate the clause that no more than two Airports will be awarded to the same bidder duly factoring the high financial risk and performance issues. Awarding them to different companies would also facilitate yardstick competition.”

To buttress its point, the DEA cited that though GMR was the only qualified bidder for Delhi and Mumbai, both the airports were not given to the same company.


However, the PPPAC referred to a decision taken by the Empowered Group of Secretaries (EGoS) that “no restriction needs to be placed on the number of airports to be bid for or to be awarded to a single entity,” according to the Record of Discussion of 85th PPPAC, a copy of which is with The Hindu .

In a separate note, the NITI Aayog highlighted the need to have players with prior Operation and Management (O&M) experience. It referred to the Model Request for Qualification (RfQ) that requires an applicant without O&M experience to either tie-up with an entity or engage qualified personnel with the requisite experience.

On this issue, too, the PPPAC quoted the EGoS decision — “prior airport experience may neither be made a pre-requisite for bidding nor a post-bid requirement. This will enlarge the competition for brownfield airports which are already functional.”

This decision, again, was a departure from the earlier norm. During the first phase of privatisation, Delhi, Mumbai, Bengaluru and Hyderabad airports each had to find a foreign player with O&M experience to comply with RfP norms.

Dropping O&M experience as a pre-requisite raises questions about the jurisdiction of EGoS. Headed by the CEO of NITI Aayog, it was constituted by the Union Cabinet to take decisions “on any issue falling beyond the scope of PPPAC”. However, according to PPP guidelines, O&M standards fall under the purview of PPPAC.

Question of cost

The DEA was also scathing in its criticism over a “critical” detail such as the “total project cost” missing from the RfP document.

“It is not advisable to keep the project cost open ended and it is essentially required to frame the eligibility criteria in terms of technical capacity, financial capacity and O&M experience and other financial covenants such as bid security, performance security etc, which are always in percentage terms of the estimate Total Project Cost.”

The DEA rejected the Ministry of Civil Aviation’s (MoCA)explanation that it was not possible to calculate the total project cost for the entire period of 50 years of lease, on the ground that these were brownfield airports and all the required data should be available. Nevertheless the PPPAC went along with MoCA.

The DEA had also raised concerns over the criteria of per passenger fee (PPF) for determining the winning bid and said the current PPF should be set as a reserve price.

However, according to AAI’s reply dated April 8 to an RTI plea filed by Sobhan P.V. of the Airports Authority Employees’ Union, “No study was conducted to ascertain the existing Per Passenger Fee.” The plea was filed after the completion of the bidding process and AAI’s response shows that it had no parameter to judge whether the PPF quoted by the winning bidder was better than what it was drawing at the existing airports.

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