DIAL seeks Rs.2,000 Crore tax benefits and airport development fee

The Mint reports that Delhi International Airport Pvt. Ltd (DIAL), the operator running New Delhi’s Indira Gandhi International Airport (IGIA) has sought relaxations on taxes from the Union government and permission to levy a new airport development fee (also called User Development Fee or UDF) on passengers that will together amount to a potential benefit of around Rs. 2,000 crore.

If the request receives government approval, it will help the GMR Infrastructure Ltd., led consortium to meet a gap it is facing in its capital expenditure plans for the airport.

DIAL is readying the Delhi airport at an estimated cost of Rs. 8,890 crore ahead of the Commonwealth Games in 2010 with the construction of a new passenger terminal, a new runway and hotels at the airport site, complemented by a metro rail link connecting the airport with Connaught Place, a central business district in the Capital, to be developed by Delhi Metro Railways Corp. Ltd (DMRC).

According to an estimate in 2006, when the airport was privatized, the development of the Delhi airport was to cost Rs7,961 crore. This however, has increased now by around Rs1,000 crore or nearly equal to the cost of creating three new airports such as the ones commissioned at Bangalore and Hyderabad this year.

DIAL also wants the government to pitch in funds for construction of the metro link to the airport, according to a senior government official familiar with the process, who did not want to be named.

It wants to levy Rs300 as a so-called airport development fee on each outbound domestic passenger from the Capital besides Rs1,000 each on those flying international routes for a period starting January 2009 until December 2011. Such a passenger fee alone will likely result in revenues of over Rs1,400 crore for the operator.

DIAL, which had earlier agreed to pay partly for the metro link from the city as long as the payment was taken as part of the capital expenditure of the airport project, now wants the government to pay Rs350 crore to DMRC for constructing the 22.7km link. DMRC earlier this year had awarded the contract to Reliance-Anil Dhirubhai Ambani Group’s Reliance Energy Ltd that had bid for the project in collaboration with Spain’s CAF to construct the link.

Among other waivers requested by DIAL are a Rs100 crore in value added tax or VAT exemption and Rs200 crore in customs duty exemption taking the total to Rs2,050 crore.

The government official quoted earlier said the airport operator also wants changes in the land use norms at the 5,000-acre airport site but did not specify details.

A civil aviation ministry official, who too declined to be identified, said the ministry cannot allow for measures that conflict with those in the operations management and development agreement signed between DIAL and state-run Airports Authority of India, or AAI.

“We cannot allow anything that affects the bidding parameters,” this official said. “Within the agreement, we can look into what can be done.”

The impact of slowdown in air passenger traffic is showing up at airports in India as well—nearly 1,200 weekly flights have been cut from March bringing the number down to 10,922 in November, the aviation ministry said recently.

“New airports and airport modernization (has been) severely affected,” the ministry said in its presentation, a copy of which was reviewed by Mint, to the cabinet secretary K.M. Chandrasekhar earlier this month adding that there was a “30% shortfall against projected passenger traffic at Delhi and 32% in Mumbai airports.”

An analyst said the government should look for broader solutions. “There are two things to it—the airlines are seeing a downturn and are primary sufferers, while all airports are also looking at a downturn and are secondary sufferers,” said Robey Lal, former country head of industry grouping International Air Transport Association (IATA) in India and an ex-AAI board member.

In such circumstances, Lal suggested the government increase an existing passenger service fee of Rs. 225 on each ticket countrywide, which is used to fund security as also development of airports. This way, he argued, all airports in the country would benefit and not just DIAL or another private operator. About Rs. 130 from this Rs. 225 fee is used to pay for security, Rs. 25 is service tax, and the rest is used for operations and development of airports by the airport operator.