Expect a bumpy ride to the future

RETAINING HAL
Expect a bumpy ride to the future
By V Ravichandar

Keeping the HAL airport open is an option that needs to be pursued before it is dispensed with.

As we are raising this issue of retaining the HAL airport, I had a mail from a friend in the US, saying, “I am amused to see the 11th hour fuss on the airport. Where were you guys all these years?” He went on to add that it seemed a bunch of pampered Bengalooru billionaires were cribbing about the imminent loss of their backyard airport.

In addition, another point often raised is “What about the damage among the international investment community about our commitment to Public Private Partnership (PPP), if we keep reneging on signed contracts.” And this is followed with the final blow – “Was not one of your own, the first Chairman of the new airport?”

First, Let us get the past out of the way since navigating into the future by looking at the rear view mirror is of limited use. The new Bangalore airport had a creditable first achievement. The consortium partner for Bangalore’s greenfield airport was selected based on a global tender and not on a MoU basis as done for Hyderabad. The global tender selection process had detailed metrics and it did not promise that the existing HAL airport would be closed.

We can guess and try constructing the past since we do not have access to this data. In 2001-02, when the BIAL partner was selected, the annual passenger traffic was 2.3 mn (million) passengers. In the five year preceding 2001, the average annual growth rate was around 5 per cent. We think that BIAL expected an opening traffic of 4.5 mn passengers in 2008 since the initial terminal design was for that capacity. This represents a 12 per cent per year growth assumption for the period 2001-2008.

Currently, with an actual demand of around 10.1 mn in 2007-08, the demand actually grew at 28 per cent per year during 2001-08. Back then the 12 per cent per year growth projection presumably formed the basis to project revenue and financial return. The concession of “no airport within 150 km” in the contract was presumably negotiated on this basis.

We now have the following situation – Opening capacity at BIAL of around 12 mn passengers annually that can at best go up to 15 mn passengers till another runway comes up in 2014. Demand of 15 mn is conservatively estimated to be reached by end 2010 (20 per cent growth in next 2 years). So from 2011-2014, Bangalore will be starved of runway side air capacity with BIAL by 2-3 mn passengers / year. Add to this cargo requirements and it is reasonable to surmise we have a major problem going forward. Keeping HAL open is an option that needs to be pursued before it is dispensed with.

In the light of the above should Bangaloreans adopt a “do nothing”approach (dereliction of duty by future generations) or do we say to BIAL and the government “swalpa adjust maadi” vis-à-vis the contract that was granted on lower assumptions. My view is that the contract is not cast in stone. There are serious capacity concerns and the city is not future proofed with the plans BIAL have in place.

Even the High Court and Supreme Court have seen merit in the public interest argument to keep two airports open. Further, for a rapidly growing developing economy like India, conserving working infrastructure assets makes sense. Closing a working asset (built with tax payer money) like HAL airport especially when it is known that we are going to run into a capacity constraint seems a dumb option to pursue. BIAL should be compensated for keeping HAL open.

This brings us to our credibility on adhering to contracts among the international investors. I do not subscribe to the view that future PPP in the infrastructure sector will be affected. It will suffer if there is arbitrariness in the decision to keep HAL open. If BIAL is compensated then rule of law applies and the process is transparent. On the contrary, I would submit that if BIAL (or any infrastructure investor) keeps harping on contract concessions (obtained with low projections) even in the face of overwhelming evidence to the need for modification it would question their bona fides – did they enter the Indian market only to negotiate a “sweetheart” deal and keep insisting on implementation.

Bangalore has critical infrastructure deficits that are already impacting investments, job creation and growth prospects across the spectrum of society. State and City competitiveness will be further affected if we do not have fool proof measures to ensure that air travel and cargo planning has enough head space to manage demand requirements.

If in 2001-02, the conservative projections warranted giving a concession of “no HAL airport”, the likely situation by 2011 warrants a consideration of 2 airports now. And to my friend who says “where were you guys in the past”, I pose the question - “What do you and Bangaloreans propose to do with advance information of the above nature”.

(The writer is CMD, Feedback Consulting)

(c) The Deccan Herald