AERA had commissioned consultancy firm EY for conducting a comparative study of infrastructure projects in the country and outside for coming out with a suitable formula
At a time when delays in land acquisition for Navi Mumbai International Airport (NMIA) has escalated its cost to around Rs 17,000 crore- a whopping 250% increase, from an earlier projection of Rs 4,766 crore in 2006-07, the government it seems doesn’t want to see the repeat of situation again as it plans to increase the number of airports to around 200 from about 100 at present over the next two decades, costing around $60 billion.
Airports Economic Regulatory Authority of India (AERA), which is a tariff regulator for aeronautical services charged by the airports, has now asked all the stakeholders to offer their comments on a study which was done in order to ascertain a Fair Rate of Returns (FRoR) for upcoming airport projects. AERA had commissioned consultancy firm EY for conducting a comparative study of infrastructure projects in the country and outside for coming out with a suitable formula.
According to the industry experts, the adaptation of the right model for getting a FRoR will go a long way in making the airport projects viable for the operators without pinching the pockets of the fliers and cargos, as they are ultimately the ones to be affected.
The study has come out with two possibilities. In the first possibility, when land is introduced against equity for airport development, it may be prudent to amortize the cost of land for a reasonable time period at a rate of 3% of the cost of land for the first 10 years.
According to Sudhakara Reddy, founder & national president, Air Passengers Association of India (APAI), acquisition of land must be entirely the responsibility of the state government. “They should not allow an expenditure beyond what is estimated based on the facilities required to run a smooth & Secure operation. No gold plating is required and it must be functional, modern, secure & serve the passenger & Cargo business in a most efficient manner. Only this model will not allow cost escalations.”
As a part of the study, EY reviewed tariff determination methodology of Central Electricity Regulatory Commission ( CERC) and National Highways Authority of India (NHAI) in India, which do not include land in their tariff and toll determination respectively.
Outside India, Department of Transport of South Africa (DTSA) along with airports of Auckland and Hong Kong were studied.
Nawal Taneja, airline business strategist, author and former professor of aviation management at Ohio State University said it is important to keep in mind that airports, particularly regional airports, do have a significant impact on economies of their regions. “As such, incentives are needed to develop and operate small regional airports.”
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