Govt wary of Adani-like bidding streak, puts airport privatisation on hold

Airport, AAI, Indian airports, Aviation
The second round of privatising six airports in Amritsar, Varanasi, Bhubaneswar, Indore, Raipur and Trichy has been put on the back burner as different arms of the government are debating whether to cap the number of airports an entity can bid for.

While the rules framed by the civil aviation ministry and Airports Authority of India (AAI) allow an entity to bid for all airports, the finance ministry and the cabinet secretariat are pressing for a cap, it is learnt.

During the previous privatisation process in 2018 too, the finance ministry wanted a cap on the number of airports a company could bid for. However, following suggestions from the Committee of Secretaries, the government allowed entities to bid for all six airports. This allowed Gautam Adani-led Adani Enterprises to emerge a winner for all six airports — Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram and Guwahati. Subsequently, the Congress had alleged that rules were tweaked to favour the Adani Group.

“The process as of now is stalled. There are clear directions from the cabinet secretariat to rework the rules. A final call on the privatisation process will be taken later,” said a finance ministry official involved in the process.

The official said the government was concerned that if all six airports were won by a single bidder, it could create bad optics for the government and raise questions linked to corruption. Following successful privatisation of six airports in February 2018, the government had started the process of privatising another six. In December 2019, the board of Airports Authority of India had approved the privatisation process.  

Following that, the terms and conditions of the tender were framed and sent to the Department of Economic Affairs.

However, a civil aviation ministry official said the decision to not restrict the number of airports was taken to attract foreign airport operators looking for economy of scale. “We wanted to maximise competition by not restricting the number of airports, thereby offering economy of scale. This was meant to attract marquee bidders,’’ the official said. The six airports together handle less passengers than that by a metro airport like in Delhi or Mumbai, he pointed out.

According to documents reviewed by Business Standard related to the 2018 process, the public-private partnership cell of the Department of Economic Affairs (DEA) had recommended that since the six airport development projects were “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.

“The six airport projects are highly capital intensive, hence it is suggested to incorporate the clause that no more than two airports will be awarded to the same bidder duly factoring the high financial risk and performance issues. Awarding them to different companies would also facilitate yardstick competition,” DEA had noted.

The AAI was seen to have gained from the privatisation process as Adani group had bid aggressively. According to AAI,  Adanis offered Rs 177, Rs 174, Rs 171, Rs 168, Rs 115 and Rs 160 per passenger for Ahmedabad, Jaipur, Lucknow, Thiruvananthapuram, Mangaluru and Guwahati airports, respectively. The bid amount in some cases were double that of the second highest bid.

According to rating agency ICRA, the aggressive bidding by the Adanis would result in a windfall for AAI’s revenue. The public sector unit could earn more than Rs 600 crore per year from the group.

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