Perils of pioneering - Bangalore's loss of freedoms

Bangalore has the distinction of being the first city in India to conceive and sign-up a private consortium for building an airport. It is another matter that Hyderabad gained from our and the BIAL consortium's efforts and path breaking experiences, and pipped us to the "airport opening" finish line.

However, our inexperience with Public Private Partnerships (PPP) is now coming home to roost. As a nation, as a state, as a city, and even as individuals, we did not realise we were signing away our freedoms!!!! Freedom from monopoly, freedom from land-grabs, freedom from inadequate infrastructure, freedom of flexibility, freedom of competition, freedom from exorbitant charges and fees.

I am writing this blog entry while on a visit to Penang in Malaysia. This "small to medium sized" airport has a capacity of 5 million passengers with 8 aero bridge equipped gates. BIAL plans to handle 14~15 million passengers with the same number of 8 aero bridge gates.

I next head to the best airport in the world -- Singapore Changi airport. Herein lies the loss of our next freedom - land grab. Changi airport, with only 3,212 acres is already handling 35 million passengers per year, and has capacity for over 69 million passengers with a constructed passenger terminal area of over 1 million sq. meters. By comparison BIAL received 4,000 acres, for a terminal of 71,000 sq. meters and a passenger capacity of 11 million passengers. If we scale the BIAL terminal to six times its size to reach the same 69 million passengers, BIAL will still have less than 45% of Changi's already built terminal area, for the same number of passengers with 125% of the land area. So why the extra land ? Incidentally, Changi is already in progress on a Terminal 4.

More importantly, Changi airport was given only 1,062 acres. It re-claimed its balance 2,150 acres from the sea at its cost. BIAL has been "sold" 4,000 acres at a paltry Rs. 5 lakhs per acre, which is today, "guidance" valued at Rs. 200 lakhs per acre. BIAL knows it is sitting on a gold mine. It will be the blunder of the century for BIAL to ever abandon its agreement, even if the government decides to keep HAL open. So why is the Government hesitant to perform its obligations to its citizens in preference to its obligations under the contract ?

The primary motivation of inviting private sector participation in the new airport was to improve competitiveness, productivity and efficiency, and to deliver better services, at competitive prices, while using lesser resources. Instead we, airport users and airlines, are facing higher charges, inconvenient transport, unavailable infrastructure, and a company that practices the strangling of all competition in every domain connected to the airport.

Many industry pundits claim that BIAL has not followed an open, free and fair bidding system when selecting contractors to provide various functions at the airport. I give BIAL the benefit of doubt. BIAL representatives repeatedly claim, that BIAL has selected at least two vendors for every operation, in order to ensure competition and therefore best service at the lowest possible price. Yet, when it comes to BIAL itself, the consortium is fighting tooth and nail, and sparing no expense, to eliminate competition, by forcing the closure of HAL airport.

The Governments of India and Karnataka may be ruing the day they signed on the concession agreement with BIAL. They have accepted a concession which has not provided for any form of competitive environment in this critical infrastructure sector. They have imposed on Bangalore a private consortium that is acting like the monopolies of old, one that will dominate and even strangle our economy by preventing competition. A recent parliamentary report on the airport issue in Bangalore and Hyderabad noted that “profit maximization seems to be the most primary motive”. People at the airport, are terrified of speaking in public, lest the offend the leadership of BIAL, and invite their immediate wrath and terrible retribution. The truth is being suppressed.

When it commenced operations way back in July 1981, like all other airports globally, Changi airport derived 60% of its revenue from aeronautical operations like passenger fees, landing and parking fees etc. 40% was from non-aeronautical like duty free shopping, etc. Today, Changi is following the global trend, and deriving 60% from non aeronautical sources, thus reducing passenger and airline fees to the 2nd lowest in the region. BIAL has dedicated over 300 acres towards an "aerotropolis", but is delaying the construction so that it can earn its revenues from us, airport users and airlines, first, and then "maximise profits" by earning more from the aerotrolpolis.

I have been monitoring the Bangalore aviation scene for over 15 years now, with a close focus on air cargo. The average citizen of Bangalore, has very little appreciation on the vital role of air cargo in our daily lives. From fruits to flowers, from car parts to computers to cell phones, over 50% of Bangalore's GDP is transported by air -- Rs. 50,000 Crore or US$10 Billion. The Indian Customs authorities collect almost Rs. 3,000 Crore per year in customs duties, despite the fact that Bangalore is the technological hub of India, with many importers enjoying "duty exempt" status. Globally, less than 6% of a product's cost is spent on logistics. In India it is over 15%. Given rampant inflation today, who amongst us would not like to see a reduction of 9% in our expenses ?

BIAL management has conveniently, completely "overlooked" the air cargo operations of Bengaluru International Airport. BIAL was to commence operations with two warehouses and a measly 300,000 tonnes per year capacity. Even this target is not achieved. One warehouse is up, the other is not. More importantly, there are no provisions for the Customs officers, and some last minute "accommodations" are being made. A Customs authority already stretched thin on manpower is now forced to operate from HAL airport in parallel to BIAL. There is no cargo village for Customs and Cargo agents' offices, and it will be 1.5~2 years before any permanent establishment is created. By comparison, Changi airport has 4 Cargo Agents "Megaplexes" which have a capacity of 3 million tonnes per year, and 180,000 tonnes in courier/express cargo. Even the small Penang airport, that I am writing this blog from, has a capacity of 360,000 tons. Right next to the airport is the Bayan Lepas semiconductor complex, home to all the major IC manufacturers. Shut Penang airport down, and world production of electronic goods will grind to a halt.

Industry in Bangalore is being denied the Freedom of flexibility and competition, and ultimately it is we Bangaloreans who will suffer as our city's economy is slowly strangled. Will Prime Minister Dr. Manmohan Singh's statement "If Bangalore fails, India fails" come true ?

Consumers in Bangalore should take initiative and highlight the anti-competitive situation in the aviation sector, to the Competition Commission in India. While at it, we should force the quick adoption of the Airports Regulatory Authority Bill, drafted back in September 2007, which calls for the creating of a competitive regulatory authority.