Thursday, March 28, 2019

How Narendra Modi Bypassed Norms to Try and Enable Gautam Adani’s Entry into Airport Business

The Modi government violated the law and ignored the advice given by some of its own ministries and departments to allow private firms to develop and operate six airports that had been recently upgraded. The changes in the norms enabled the Adani group, a new entrant in the airport sector, to win all six bids to develop the airports at Ahmedabad, Guwahati, Jaipur, Lucknow, Mangaluru and Thiruvananthapuram. Privatisation of airports in India: Narendra Modi and Gautam Adani
Picture Credit: Wire.in





 On February 25, the Airports Authority of India (AAI) announced that the corporate group led by Gautam Adani had won the bids to upgrade and operate five airports in Ahmedabad, Jaipur, Thiruvananthapuram, Lucknow and Mangalore. The following day, the Adani group won the rights to develop a sixth airport, Guwahati, but the news was overshadowed by the Indian Air Force’s strikes against so-called terror camps in Pakistan.

In the days following the announcement, many objections were raised. The Communist Party of India (Marxist)-headed Left Democratic Front government in Kerala has gone to court. The Union Ministry of Civil Aviation has conceded in the Rajya Sabha, the upper house of Parliament, that the “prescribed procedure (of) public consultation or consultation with the state governments (which) are mandatory for leasing out AAI airports through (the) PPP (Public Private Partnership) mode” were not adhered to.



According to documents accessed by Newsclick, the Modi government violated various laws and procedures while arriving at its decision to privatise the six airports that are currently owned and operated by the AAI. In addition, the recommendations made by the Department of Economic Affairs (DEA) in the Ministry of Finance and the NITI (National Institution for Transforming India) Aayog on the technical, financial and legal aspects of the bidding process were ignored. Instead, conditions were set up that apparently favoured the Adani group.



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Towards the fag end of its tenure, the Manmohan Singh-led United Progressive Alliance government had considered privatisation of airports in Chennai, Kolkata, Ahmedabad, Lucknow and Jaipur, but the proposal never came to fruition.

After the Modi government came to power, the proposal was taken up again. The AAI invited bids to upgrade these airports in the PPP mode in December 2014. At that juncture, the AAI’s employees’ unions vehemently opposed the move pointing out that the government had already invested a massive Rs 2,300 crore in modernising the Chennai and Kolkata airports in recent years. The unions also pointed out that each of the airports proposed for privatisation had either added new facilities or were being refurbished at that time at the expense of the exchequer. Thus, it was argued that “handing over” the airports to private firms for development would imply bestowing undue favours on particular private companies.

It was reported in the Economic Times in April 2018 that the Prime Minister’s Office (PMO) had “directed” the DEA in the Ministry of Finance and NITI Aayog to prepare a model mechanism for removing certain airports out of the control of the AAI and handing these over to private players.

This was the first indication that despite the objections of AAI employees, the Modi government was adamant about going ahead with the airport privatisation plan. Further, the Economic Times report made clear that despite the existence of the Ministry of Civil Aviation (MoCA), the initiative was being led by the PMO.

In the monsoon session of Parliament, the Modi government tried to amend the Airports Economic Regulatory Authority of India Act, 2008 (AERA Act, 2008). The AERA is a regulatory body, set up in 2008, that is intended to provide a level playing field among different categories of airports in the country. An analysis by PRS Legislative Research explains the objectives of the AERA in simple terms:

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“AERA regulates tariffs and other charges (development fee and passenger service fee) for aeronautical services (air traffic management, landing and parking of aircraft, ground handling services) at major airports.

The bill introduced by the government wanted to completely change the way tariffs were determined. The bill proposed that the AERA would no longer determine tariffs, tariff structures and airport development fees, in cases where these were a part of bid documents on the basis of which private players would be awarded rights to oversee airport operations. Hence, the amendment (if it had gone through) would have weakened the authority of the AERA and enabled private firms to exercise monopoly control over charges that are levied at airports.

The government failed to pass the bill in both the monsoon session and the winter session of Parliament. It was reported that the government had considered promulgating an ordinance, but this did not happen.

 With the bill still pending in Parliament, the government invited bids for upgradation of the six airports on December 14, 2018. In apparent violation of the extant law and without changing the AERA Act, private bidders were invited to declare tariffs and passenger charges on the basis of which their bids would be evaluated thereby circumventing the regulatory authority’s powers to determine such charges.

As we shall now see, this decision was taken extremely expeditiously without considering caveats and checks suggested by the NITI Aayog and the DEA in the Ministry of Finance.

THE DECISION

On November 8, 2018, a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi gave its “in-principle” approval to a proposal by the PMO to lease six airports for development in the PPP mode.

From here onwards, the decision-making process moved ahead at a lightning speed.

The EGoS met on November 17 and submitted its report on December 4, less than a month after the approval of the Cabinet. Six days later, on December 10, appraisal notes prepared by the NITI Aayog and the DEA were forwarded to the NITI Aayog CEO, the Secretaries to the Department of Expenditure in the Finance Ministry and the Department of Legal Affairs in the Ministry of Law and Justice.

In its appraisal note, the DEA raised several issues. It stated that neither the AAI nor the MoCA had submitted details of the break-up of project costs to the PPPAC for its consideration. Neither had they provided KPIs or key performance indicators, development plans or details of capital works in progress that had been undertaken by the AAI and which the new concessionaire would be required to complete. It was pointed out that without these details comparing technical proposals submitted by bidders would be very difficult.

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The PPP cell of the DEA recommended that since these six airport development projects are “highly capital intensive,” a clause should be incorporated that not more than two airports would be awarded to a single bidder because of the high financial risks involved and the need for stringent adherence to performance indicators.

Awarding the airport development projects to different companies would also facilitate comparisons using defined yardsticks and that there was greater competition, the DEA note suggested, adding that in case there was a “project failure,” there would be other capable bidders available to take on the failed projects. The DEA recalled that when private companies bid for the development of the airports in Delhi and Mumbai airports, although the GMR group was the only “qualified bidder,” the contracts to develop both the airports were not given to the same bidder. The department also cited the example of privatisation of the power distribution network in Delhi wherein contracts were given to more than one bidder.

These suggestions were completely forgotten subsequently. Was this done for the benefit of one player, the Adani group, which emerged as the winner in the bids to develop six airports?

FINANCIAL PARAMETERS
The story does not end here. The DEA asked the AAI and the MoCA to submit examples of proposed transaction structures (based on a fee per passenger) that were followed by airports in different countries and the benefits such structures had over a revenue-sharing model.

The department in the Finance Ministry also wanted the technical capacity and the financial capacity of the bidder to be linked with the project cost. Hence, it recommended that the worth of the bidder’s technical capacity must be twice the total project cost (TPC) while the bidder’s financial capacity measured in terms of its net worth should be a fourth of the TPC.

Moreover, the department stated that a license model be followed instead of a lease model. It was recommended that the bidders submit “all the details such as project scoping, project sizing, demand supply analysis to ascertain the (financing) gap, periodic capital investment, regulatory framework with regard to (the ) AERA and (the) National Civil Aviation Policy (of) 2016, (the) demand-supply analysis to justify the projected revenues and the financial returns and component-wise break-up of project cost with assumption(s)/benchmarks”.

The NITI Aayog, in its assessment made on December 10, agreed with many of the suggestions made by the DEA. It said:

“While it is important to enlarge the spectrum of bidders through the inclusion of players from other sectors, it is also important to ensure that the quality of experience is suitable to the technical capabilities required for undertaking (the) proposed projects. Also it needs to be mentioned that such differentiation of sectors and quality of experience has already been captured under the model RFQ through the classification of experience in the following categories:

(a) project experience in the sector to which (the) proposal pertains;

(b) project experience in other core sectors;

(c) construction experience in the sector to which (the) proposal pertains; and

(d) construction experience in other core sector(s).

Also read: Is the Modi Government Misleading Parliament by Cherry-Picking Data?

The NITI Aayog specifically suggested that the RFP should include criteria to measure the experience of the bidder in developing airport terminals and related sectors. It wanted to change the evaluation parameter for selecting the bidder who quoted the highest “per passenger fee” because the method for calculating such a fee had not been elaborated upon.

None of the recommendations made by either the DEA or the NITI Aayog were included in the bid documents.

This is what the Economic Times  reported  on November 24 quoting an unnamed government official that indicates the interest of the Prime Minister’s Office in the sector:

“The PMO and NITI Aayog are not happy with the sector’s performance and have registered the displeasure over the (Civil Aviation) ministry’s performance. The committee (meaning the EGoS) is part of their attempt to ensure that plans are implemented and growth continues in the sector.”

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CHANGING ELIGIBILITY CRITERIA
Be that as it may, what the PPPAC decided is nevertheless significant in understanding how the rules were tweaked ostensibly in favour of a particular business conglomerate headed by a person (Gautam Adani) perceived to be close to Prime Minister Modi.

More significant was the PPPAC agreeing to go along with the decision of the EGoS that “prior airport experience may neither be made pre-requisite for bidding, nor a post-bid requirement.” The reason the EGoS cited for such a decision was “to enlarge the competition for already operational brown-field airports”. The PPPAC readily agreed with what the EGoS decided and this paved the way for the Adani group, which has no prior experience of developing or operating airports, to become eligible for bidding.

While deliberating on the financial eligibility criteria, the PPPAC once again went along with what the EGoS decided: “No restriction (should) … be placed on the number of airports to be bid for or to be awarded to a single entity.”

The PPPAC meeting also decided that there would be no cap on the amount of land on the “city side” adjoining the airport that could be developed for commercial use by the concessionaire. This was contrary to the suggestion made by the Joint Secretary (IPF) in the DEA in the Finance Ministry who argued for a cap of 5% on the area that could be developed leaving the rest of the land for the airport’s development.

This civil servant Dr Kumar V Pratap, who studied at the Indian Institute of Management, Lucknow, and holds a doctorate in privatisation of infrastructure from the University of Maryland in the US, seems to have cut a lonely figure as a contrarian at the meeting of the PPPAC.

He also suggested that after the concession period got over, the concessionaire should return all assets to the AAI free of cost. However, a majority of participants at the meeting of the committee decided that while all “aeronautical assets” should be returned free of cost, the AAI would have to pay 50% of the value of the “city side development done by the concessionaire in the first 30 years”.

During the monsoon session of Parliament, on July 26, 2018, the Union Minister of State for Civil Aviation Jayant Sinha replied to a question on the government’s plans to privatise airport operations in the country. His reply read: “At present, there is no proposal with (the) AAI to develop and modernize any airport across the country under (a) Private Public Partnership.”

This indicated that the MoCA had no clue about what the PMO had asked NITI Aayog and the DEA to do a few months earlier in April, if the report published by the Economic Times is to be believed.

Less than a fortnight after replying to this question in Parliament, on August 9, Sinha submitted a list of AAI-operated airports and their revenues and profits. What was clear from the data provided is that the six airports that are being sought to be effectively privatised – namely, Ahmedabad in Gujarat, Guwahati in Assam, Jaipur in Rajasthan, Lucknow in Uttar Pradesh, Mangaluru in Karnataka and Thiruvananthapuram in Kerala – were among the highest revenue earners and generators of profit among all the airports operated by the AAI.

All these six airports had been renovated using public money over the past few years. For example, the new terminal at Lucknow had been inaugurated in 2012, while the revamp of the airports in Ahmedabad and Thiruvananthapuram had been completed two years earlier in 2010.

Having already invested substantial sums of public money through the AAI, how did it make sense to hand over the development and operation of these airports to a private firm?

The government was clearly in a huge hurry. So was the AAI. As already mentioned, the RFP was floated on December 14 without including any suggestions and recommendations made by the Finance Ministry and the NITI Aayog, the third day after the meeting of the PPPAC. Two months later, the deal was sought to be clinched. For interested bidders, all formalities – such as access to the data room, sending questions to the AAI, a pre-bid conference, receiving the AAI’s replies to queries, and sale of bid documents – had to be completed before February 14.

Even before the approval of the PPPAC, the New Indian Express  reported  on January 8 that the Kerala state government’s efforts to bid for the development and modernisation of the Thiruvananthapuram airport might not go down well with the Union government and the AAI because the Adani group was already perceived to be the front runner for winning the bids for developing the airport.

A week before the last date of submission of bids, that is, on February 6, the Hindu Business Line published an article titled “Airports privatisation: Eligibility norms for bidders stokes fears of foul play.” The article quoted different industry experts citing “anomalies” in the eligibility terms for bidders and the “tight timeline for award of projects”. The article argued that the move to privatise six non-metro airports run by the AAI would potentially “eliminate competition” and favour a “chosen few.” It quoted an unnamed executive of a firm which was participating in the bidding process saying: “The timeline for the entire bidding process is extremely short given the importance of the projects requiring detailed due diligence and analysis of techno-commercial, legal, contractual and regulatory complexities.”

Another anonymous expert was quoted stating:

“As per the established norms, technical capacity is experience in projects worth double the estimated project cost. The eligibility criteria should, therefore, have been linked to the project cost and should have been different for each airport project. However, the RFP documents require the same experience for all the six airport projects irrespective of the size of the airport project/cost.”

This was exactly the recommendation of the DEA which was not accepted by the AAI and by the MoCA.

The Hindu Business Line article added:

“The RFP documents mandate the successful bidder to pay a certain upfront amount towards cost of works currently incurred by AAI. It is, however, not clear whether the cost of works currently incurred by AAI is against the capital expenditure projected and that the successful private operator is expected to incur only the balance of projected capital expenditure.”

The article concluded by quoting another industry expert saying:

“The errors in the RFP documents and the tearing hurry to complete the bidding process and award of projects appears to be aimed at allowing only a chosen few to make to the shortlisting and prevent wider competitive participation by other serious potential bidders.”

On February 16, two days after the last date of submission of bids, the technical bids were opened. There were 32 players who had bid for the development of all the six airports. Nine days later, on February 25, the financial bids for five airports (with the exception of Guwahati) were opened at 11 am. The same afternoon, the AAI put out a press release mentioning the “per passenger fee” quoted by all the participants based on which the Adani group emerged as the highest bidder. The next day, the financial bid for Guwahati airport was opened and once again, the Adani group came out on top.

The state government of Kerala had earlier proposed to the AAI that it hand over Thiruvananthapuram airport to it for development on a revenue sharing basis. The airport in the capital city of the state (which attracts many tourists as well as domestic passengers) is situated on a large plot of land totalling 636.57 hectares.

The AAI owns only  0.05756 hectares and the rest is owned by the state government. The MoCA and the Union government rejected this proposal and asked the Kerala government to participate in the bidding process to develop the airport together with private players. The state government later filed a petition in the Supreme Court citing the anomalous manner in which one private corporate group won bids to develop six airports.

On March 9, the Times of India published  a report claiming that the Ministry of Civil Aviation has conceded that “…as per the prescribed procedure, public consultation or consultation with the state governments are mandatory for leasing out AAI owned airports in PPP model” and that this was not done in the case of these six airports.

Time alone will tell whether the government of Prime Minister Narendra Modi will be able to oversee the handing over of the development of the six airports to the corporate group headed by Gautam Adani.—News Click (Excerpted)

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