Delhi airport proposes User Development Fee

The following news story on Sift/DNA, highlights the immediate need for the Airport Economic Regulatory Authority (AERA). The AERA bill has been languishing since early September 2007, when it was introduced in the Indian Parliament. Such disputes are increasing by the day, and excessive charges will spell the death knell of the Indian aviation industry, which is so dependent on the "Low Cost Airline" approach.

- Devesh

Get ready to pay for facilities at airports
Sindhu Bhattacharya/ DNA MONEY
Monday, 12 May, 2008

http://sify.com/finance/fullstory.php?id=14671250

New Delhi: You may soon have to pay an airport development fee for using facilities at the Delhi International Airport (DIAL).

According to a proposal being discussed between the ministry of civil aviation and the airport developer consortium led by GMR, the latter has proposed a levy of Rs 200 for domestic passengers and Rs 1,000 for international passengers.

The money so raised would be used for completing the development and modernisation of the airport, which has been stalled due to frequent flip-flops by the ministry.

Invoking the Airports Authority Act, the ministry has suggested that GMR levy a charge per passenger, to close the funding gap for modernising DIAL.

So far, this Rs 8,950-crore project modernisation process of DIAL has been hanging fire, because of continuous change in stand by the government on funding models.

The government is a 26% stake holder in DIAL through the Airports Authority of India. As per the concession agreement for DIAL, it will get 46% of all revenues from the airport.

The project has, from the very beginning, sought to complete its funding through a mix of equity, debt and raising money for commercial development of 5% of the airport land. It is the money needed from commercial development — Rs 2,750 crore — over which the government and GMR have been at loggerheads.

First, GMR’s proposal for accepting security deposits from developers for this 5% of the airport land was rejected by the government, because of concerns on revenue dilution. Then, GMR proposed to fill this funding gap by raising equity from all the stakeholders, which meant the government had to shell out an additional Rs 715 crore for the DIAL project to be completed.

It now emerges that the government has reneged on additional equity infusion as well, instead asking GMR to consider levying an airport development fee to close the funding gap.

Now, there is a dispute over whether the money raised through ADF is to be considered as revenue or can it be classified as a cost recovery mechanism. If the money collected is treated as revenue, the government (through AAI) would have a 46% share in it, but it will get nothing in case this money is considered to be under the cost recovery mechanism.

Though a final decision has not been taken on levying ADF, any such proposal is sure to cause the government some embarrassment since it has been actively discouraging ‘User Development Fee’, which new airports in Hyderabad and Bangalore have proposed to recover costs.

Taking a cue from DIAL, even GVK, the developer of Mumbai International Airport, could also think in terms of levying an ADF.

Under the concession agreements the government has signed with both GVK and GMR, the developers are entitled to an ADFUDF levy for two years from the date of commencing work on the respective airports.

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