Why Navi Mumbai airport bid has a lower revenue share component

Navi Mumbai airport site
Over a decade ago GMR -ed consortium agreed to share 45.99 per cent of revenue with Airport Authority of India for developing Delhi airport. GVK group offered  38.7 per cent for Mumbai airport development. Both were winning bids.

A few months ago, GMR  won the bid to build Goa's second airport, quoting 36.99 percent revenue share. But for the Navi Mumbai airport, the two companies offered only 10-12 per cent share of revenue to City and Industrial Development Organisation. Eventually, the GVK group won the Navi Mumbai bid, offering 12.6 per cent which was two per cent points higher than GMR bid.

Why was the revenue share component much lower this time around? According to aviation sector experts and CIDCO officials, project risks coupled with virtually nil real estate development opportunity could be factors for lower revenue share. Plus the selected developer has to pay a concession fee ranging from Rs 5 crore to Rs 1250 crore to CIDCO. This is in addition to the revenue share component.

While the existing Mumbai and Delhi airports have large commercial development opportunities and land outside the airport leased to them,  CIDCO is not leasing surplus land parcels to the airport developer for commercial purposes. "We will develop land earmarked for non-aeronautical purposes and lease it for the construction of hotels, convention centres etc," a CIDCO official said.

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

"There will be challenges in construction and operation of the Navi Mumbai airport. There is also a higher risk in developing a greenfield airport than a brownfield airport like Mumbai or Delhi," an industry expert observed.

The airport is expected to take 4-5 years for completion while pre-development work will take two years. These include reclamation of land, river channelling, cutting of hillocks, shifting of transmission lines amongst others.

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