Risks, low commercial prospects cut Navi Mumbai airport bids

Navi Mumbai airport site
Bidders for the Navi Mumbai airport might have been prompted to quote low revenue shares due to high risks and absence of opportunity for commercial development in the project.

The Hyderabad-headquartered GVK group won the bid by offering a 12.6 per cent revenue share to the City and Industrial Development Organisation (CIDCO). This was 2 percentage points higher than the GMR group’s bid.  

About a decade ago a GMR group-led consortium agreed to share 45.9 per cent of revenue with the Airports Authority of India for developing the Delhi airport. For the Mumbai airport, GVK had offered 38.7 per cent. The consortium had won both the bids. It also won the bid to construct Goa’s second airport, quoting a revenue share of 36.9 per cent.

Why was the revenue share component so low this time? According to aviation sector experts and CIDCO officials, risks, coupled with virtually no real estate development opportunity, could be the factors for this.

Also, the developer has to pay a concession fee (Rs 5 crore to Rs 1,250 crore) to CIDCO — in addition to the revenue share component.

Mumbai and Delhi airports have large commercial development opportunities and land outside the airport leased to the developer. In Navi Mumbai, however, CIDCO will not lease surplus land parcels to the airport developer for commercial purposes.

“We will develop the land earmarked for non-aeronautical purposes and lease it for construction of hotels, convention centres and other facilities,” a CIDCO official said.

Bidders had requested CIDCO to lease land to the airport project developer in pre-bid consultations but the request was turned down. A reason for this was the adverse observations by the Comptroller and Auditor General of India on land development in Mumbai and Delhi airports.

The GVK and the GMR groups did not respond to email queries on the issue.

“There will be challenges in construction and operation of the Navi Mumbai airport. There is also a higher risk in developing a greenfield airport such as Navi Mumbai compared to a brownfield airport such as Mumbai or Delhi,” an industry expert said.

The airport is expected to take 4-5 years to be completed. Pre-development work itself would take two years. This includes reclaiming land, channelling a river, cutting of hillocks, shifting of transmission lines and others.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel