Public-Private Partnership in Airports Development

Written by: Neetu Lather

Introduction

Airports provide access to and interlink between regional, national & IN markets. It becomes essential to invest in existing or new airport infrastructure for economic development. Earlier, government-owned, managed, and operated airports but nowadays there is a worldwide trend of increasing private sector involvement to varying degrees, it also includes the use of public-private partnerships (“PPPs”).

Public-Private Partnership (PPP)

Public-Private Partnership (PPP) is a contractual agreement between the Government and private companies targeting financing, designing, implementing, and operating infrastructure facilities and services that were traditionally provided by the public sector. It includes allocation of risk optimally between the parties minimizing cost while realizing project developmental objectives. A reasonable rate of return on investment should be focused on the private sector while structuring the project.[1] It is a long-term agreement among Government and private sector entities for providing public utilities and services.[2]

PPPs in airports development in India

In India, Airports can be either own, develop or operate by government entities, like the AAI or by private firms. Private airport operators must fulfil key requirements of a license to operate airports as required under Rule 133A of the Aircraft Rules 1937 (“Aircraft Rules”). The Operation, Management, and Development Agreement must be entered between the private company and AAI (Airports Authority of India).  

PPP has helped to create world-class airports and to deliver efficient and quality services to airport passengers by focusing on the development of airports and Air Navigation infrastructure and it has also helped AAI in enhancing its revenues.[3]

• Private Investment in Airport Infrastructure– the Airport Ownership and Regulation Guidance Booklet and Balanced Concessions for the Airport Industry published by the International Air Transport Association (“IATA”) give a different overview of ownership and operating arrangements for airports and practice guidelines for implementing PPPs for airport projects.
• Airport In-Terminal Concessions-Guidebook for Developing & Leasing Airport Property, Report 47, Airport Cooperative Research Program (ACRP), 2011 – This Guidebook discusses the key issues and summarizes best practices from the perspective of the airport sponsor. The guidebook discusses different case studies that show distinct approaches airports have taken to develop and lease property for both aeronautical uses and non-aeronautical uses.it also includes a glossary of terms. This guidebook will be useful to anyone desiring a better understanding of the process for developing and leasing airport property.

Resource Manual for Airport In-Terminal Concession by the Airport Cooperative Research Program. This manual consists of guidance on the development and implementation of airport concession programs. It provides information on the airport concession process, goals, developing a space plan, procurement, contracting, and management practices; concession mix and potential customers; the Airport Concessions Disadvantaged Business Enterprise (ACDBE) program.[4]

Concession arrangements –a concession fee is paid by a private operator to the contracting public authority and its costs recovery (plus a return on investment) through collecting various charges from airport users.

Availability model – the contracting government has the authority to make regular payments to the private contractor based on the availability of the airport facilities. When the associated demand/revenue risk is perceived as too high then the availability model is sometimes used by the private contractor.

First public-private partnership airport in India

Kempegowda International Airport Bengaluru is known for its quality and efficiency and is ready to become India’s leading travel. The concession agreement between the GOI and Bangalore International Airport Limited (BIAL) was completed in July 2004.[5] The infrastructure and legal framework, CNS/ ATM agreement, concession agreement, and other documents were completed carefully.[6]

Latest Updates

11 Aug 2021-YIAPL reaches financial closure for India’s Noida International Airport. The debt of Rs37.25bn from SBI will be repaid by YIAPL in two decades.[7]

2 Aug 2021- Noida International Airport Limited (NIAL), a joint venture (JV) company, has through license memorandum agreed to officially hand over 1,334ha of land for the development of Jewar Airport to Yamuna International Airport Private Limited (YIAPL)with 100% subsidiary.

30 July 2021- Airport Economic Regulatory Authority (AERA) Amendment Bill is passed by the government of India, which will regulate the integration of large airports with smaller loss-making airports run by the AAI.

22 July 2021-India’s Bangalore International Airport Limited (BIAL), the operator of Kempegowda International Airport (BLR), has entered a 10-year partnership with IBM to carry on the digital transformation of the airport.[8]

21 July 2021-3,000 km long Deccan aviation circuit proposed under PPP which will provide small aeroplanes and helicopters which are expected to connect Kalaburagi, Vijayapura, Bagalkot, Ballari, Bidar, and Koppal.[9]

24 June 2021- Bechtel has secured the contract through a public tender process as a delivery partner for the Dublin Airport capital program. As per the contract, the company will be responsible for providing additional capacity and capability to the Dublin Airport for the next five years to support the capital investment program.[10]

27 May 2021- An agreement is made on future collaboration between The Sihl Group and eezeetags BV to expedite self-service check-in at airports.

21Feb 2021- AAI has not conducted any comparative study to show PPP models more benefit for the growth of the aviation industry in India.[11]

3 Feb 2021-Recently, Adani Group has won the bids for the six airports awarded by AAI-     Guwahati, Thiruvananthapuram, Ahmedabad, Jaipur, Lucknow and Mangalore to be operated, managed, and developed under PPP for 50 years.[12]

5 Sep 2019- AAI Board had, in its meeting approved the leasing of six more airport’s Bhubaneswar, Varanasi, Amritsar, Raipur, Indore, and Trichy for undertaking operations, management, and development through the PPP model.[13]

The issue in airport PPPs

The issue in the regulation of airport charges. A balance is required to be made between ensuring public access to the airport at a reasonable cost and protecting the airport’s profit margins.

The issue in meeting the supply-demand gap in infrastructure facilities, policy & regulatory gaps. Inadequate availability of long-term finance, capacity in public institutions and public officials to manage PPP processes, capacity in the private sector-both developer/investor and technical manpower; an inadequate shelf of bankable infrastructure projects that can be bid out to the private sector;

and inadequate advocacy to create greater acceptance of PPPs by stakeholders; Inadequate identification and allocation of risks between stakeholders; delays in getting commercial operation dates (COD) which results in time & cost overruns occurred partly due to land acquisition issues, irrational biddings, wilful default by promoters, huge difference between project costs as approved by the Govt. and ones that are given to lenders.

On the issues related to land acquisition, the huge difference between the registered value offered and the actual market value has been very disputing because costing is done based on the current market value of land, and the appreciation after the construction of the project is not captured by the system. Issues such as disputes in existing contracts, non-availability of capital, and regulatory hurdles related to the acquisition of land.[14]

Conclusion

The PPP mechanism is a major element of India’s infrastructure creation efforts as there is a huge level of investment required in the sector.[15] A better understanding of risk perceptions of investors and lenders and mitigating the aforementioned challenges, along with installing adequate safeguards against windfall profits, are essential for success in designing workable PPPs.

Genuinely consulting stakeholders at the stage of a project and contract design with an open pragmatic approach would naturally help. There is an urgent need to rebuild India’s PPP capacities. Structured capacity-building programs for different stakeholders including implementing agencies and customized programs for banks and financial institutions and the private sector need to be evolved.

For infrastructure providing land free through a reasonable lease rent and revenue-sharing arrangement will boost development greatly. PPP has immense potential for additional investment. The challenge only lies in having the ambition and pragmatism to get large projects going with private investment.

About the Author

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[1] PPP Program, Republic of the Philippines public-private partnership center (Aug 14, 2021), https://ppp.gov.ph/ppp-program/what-is-ppp/

[2] What are the different models for Public-Private Partnership (PPP) in infrastructure?, Indian economy, net economy & finance,(Aug,14,2021), https://www.indianeconomy.net/splclassroom/what-are-the-different-models-for-public-private-partnership-ppp-in-infrastructure/

[3] News, Airport technology, (Aug13, 2021), https://www.airport-technology.com/news/india-to-lease-three-airports-under-public-private-partnership/

[4] Public-Private Partnerships in Airports, PPPLRC, (Aug14, 2021), https://ppp.worldbank.org/public-private-partnership/sector/transportation/airports

[5] IBEF India brand equity foundationwww.ibef.org,(Aug 13, 2021), https://www.ibef.org/industry/indian-aviation/showcase/kempegowda-international-airport

[6] About BIAL, Bangalore international airport limited, Kempe Gowda international airport Bangalore, (Aug 13, 2021), https://www.bengaluruairport.com/corporate/about-bial.html

[7] News, Airport technology,(Aug 13, 2021), https://www.airport-technology.com/news/yiapl-reaches-financial-closure/

[8] News, Airport technology,(Aug 13, 2021), https://www.airport-technology.com/news/bial-ibm-bangalore-airport/

[9] News, The new Indian express  ,(Aug 14, 2021),https://www.newindianexpress.com/states/karnataka/2021/jul/21/3000-km-long-deccan-aviation-circuit-proposed-under-ppp-2333112.html

[10]News, Airport technology,(Aug 13, 2021),  https://www.airport-technology.com/news/bechtel-dublin-airport-capital-programme/

[11]News, The new Indian express  , (Aug 14, 2021), https://www.newindianexpress.com/thesundaystandard/2021/feb/21/airports-ppp-model-benefits-under-lens-2266700.html

[12] News, The new Indian express  ,(Aug 14, 2021),https://www.newindianexpress.com/business/2021/feb/03/tangible-economic-gain-to-aai-on-leasing-out-six-airports-under-ppp-says-government-2259194.html

[13]News, Airport technology,(Aug 13, 2021),  https://www.airport-technology.com/?s=public-private+partnership+in+india

[14] CD Staff, What are the different models of PPP? How has been India’s experience so far with PPP? What are the changes required to make it more efficient?, Civils daily,(Aug 14, 2021), https://www.civilsdaily.com/mains/what-are-the-different-models-of-ppp-how-has-been-indias-experience-so-far-with-ppp-what-are-the-changes-required-to-make-it-more-efficient250-words/

[15] Indian economy.net ,(Aug 14 ,2021), https://www.indianeconomy.net/splclassroom/what-are-the-different-models-for-public-private-partnership-ppp-in-infrastructure/

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