The government auditor scrutinising the GMR group-led Delhi International Airport Private Limited (DIAL) has found that in 2009-10 the Ministry of Civil Aviation (MoCA) and the Airports Authority of India (AAI) ignored the public interest by approving cargo JVs that led to the Union government losing Rs 88.94cr.
DIAL had appointed two cargo operators, Celebi Hava Servisi AS and Delhi Cargo Service Center Pvt Limited for brownfield cargo (the existing cargo terminal) and green field (the new cargo terminal), respectively, in 2009. DIAL entered into the JVs for a period of 25 years, where it was a minority stock-holder. DNA had recently exposed how DIAL booked 162 per cent profit from equity sale in DCSC, but did not share a single penny with AAI. The JV with Celebi is still functional.
The auditing documents revealed that AAI and MoCA, under the UPA government, had overlooked financial interests as they approved the JVs for cargo activity in the Indira Gandhi International Airport by DIAL. The cargo JVs are two of the several non-aeronautical services operations of GMR-led DIAL - which has made a loss of Rs 2,397 Cr in the last six years.
The auditor noted in the audit memo: "Due diligence was not applied by AAI to protect its financial interest in case of JVs formation". AAI was supposed to tell DIAL to ensure that expected revenue should not shrink from agreed-upon levels so as prevent losses to the public exchequer. However, revenue constantly decreased over the years after the formation of these cargo JVs. AAI looked away.
The CAG audit memo, accessed by DNA, points at "loss of revenue share by AAI due to the decrease in cargo revenue after formation of JVs by DIAL". In 2008-09 DIAL revenue from cargo activity stood at Rs 211.92cr, whereas after the JVs it gradually fell to Rs 175cr in 2009-10, Rs 138.59cr in 2010-11 and Rs 128cr in the year 2011-12.
The auditor further noted: "Due diligence was not applied by AAI to protect its financial interest in the case of JVs formation".
The GMR-led DIAL said in response to the audit memo that those contracts were "awarded after they were approved by the subcommittee of directors, with representatives of MoCA and AAI". Between June 2009 and July 2010, DIAL entered into 11 JVs for non-aeronautical services at IGI Airport, including cargo, car-parking, food and beverages, bridge mount equipment services.
In July 2010, AAI wrote a letter to DIAL and put a condition in the proposal of JV formation for mount equipment services: "…expected revenue will not decrease as compared to existing revenue on this account". However, the CAG found that "this condition was not applied by AAI in respect of formation of JVs for cargo activity by DIAL".
It can be noted that Celebi Hava Servisi AS was selected for brown field with a revenue share agreement of 36 per cent, whereas DCSC was awarded for green field cargo with 24 per cent revenue share agreement. Both entities formed two separate cargo SPVs (special purpose vehicles) wherein DIAL joined as a minority equity partner. DIAL said in its defence that JVs were not formed by DIAL. "Rather it is successful bidders who has floated the SPVs" as per request proposals.
DIAL TO DNA
DNA: Did you receive any communication from AAI regarding revenue expectation related with cargo JVs at that time?
DIAL: There is no such communication from AAI.
DNA: Operation, Management and Development Agreement (OMDA) provision 8.5.7 (ii) (c) (i) says: "Without prejudice to the generality of the other provisions hereof, the JVC shall ensure that, within six (6) months from Effective Date, at least two unrelated (non-Group) Entities (of which one may be the JVC) are responsible for provision of cargo handling services at the Airport so as not to create a monopoly, or monopolistic arrangements and one sub-contractor is not unfairly discriminated against in comparison with any another sub-contractor. Until such time this arrangement for cargo handling services is put in place, JVC shall ensure that the then applicable charges for cargo as levied by AAI shall be charged at the Airport".
DIAL: We fully complied with the above provisions. As per OMDA, DIAL ensured that the then applicable charges for cargo as levied by AAI remained unchanged at the airport till the second operator started operations.
DNA: The draft Audit report 2016 observed: "OMDA permitted revenue sharing arrangement between AAI and the JVC (DIAL) only and therefore, outsourcing/sub-contracting its functions on revenue sharing basis to its JVs by DIAL was against the provisions of the OMDA".
DIAL: DIAL did not violate any provisions of OMDA. As per clause 2.1.2 read with No. 8.5.7 (i) of OMDA, AAI recognizes exclusive right of the JVC (DIAL) during the term, in accordance with terms and conditions of OMDA, to contract and/or subcontract with third parties to undertake functions on behalf of the JVC.
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