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DIAL made 162% profit in JV stake sale; Airports Authority of India not given a penny

The Comptroller and Auditor General (CAG) raised a question on a specific revenue-sharing violation in Delhi International Airport Pvt Ltd (DIAL)'s JV with Delhi Cargo Service Center Pvt Limited.

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The Delhi International Airport Pvt Ltd (DIAL), a consortium led by the GMR group, got a 162 per cent premium from selling stake in a loss-making joint venture (JV) deal, but did not share a single penny with its partner government agency, the Airports Authority of India (AAI). Under the Private-Public Partnership (PPP) contract, DIAL had agreed to share 45.99 per cent of its gross revenue with AAI.

The Comptroller and Auditor General (CAG) raised a question on a specific revenue-sharing violation in DIAL's JV with Delhi Cargo Service Center Pvt Limited - which handles cargo operations at the airport. Internal documents revealed that DIAL had gained an unprecedented 162 per cent premium on the DCSC deal struck on March 16, 2015.

CAG asked DIAL why it did not share the huge gain in the JV stock sale in DCSC with AAI. Documents accessed by DNA reveal that DIAL not only shifted the operational cost of cargo activities (which is technically not allowed) to the JV, but also made profit from the selling of equity.

On November 4, 2008, DIAL was invited to bid for the design, finance, development and management of the Greenfield Cargo Terminal for Indira Gandhi International (IGI) Airport. In September 2009, the contract was awarded to a special purpose company, DCSC, at the rate of 24 per cent of its gross revenue. Immediately then DIAL bought 26 per cent equity capital worth Rs 10.92cr in DCSC.

But DCSC has never been a profitable venture and booked losses between 2013 and 2015.

In March 2015, DIAL sold its 26 per cent stake in DCSC to India Infrastructure Fund for Rs 28.60 Cr – a 162 per cent premium. No benefits from equity participation of DIAL in JVs had been passed on to AAI due to the exit of DIAL from most JVs at a very early stage.

CAG raised this issue in its audit memo (also known as Half Margin, where the auditor seeks response from the audited entity). CAG had not been allowed to audit DIAL directly, but only through AAI. During the latest audit, CAG asked AAI to produce DIAL's version on the revenue-sharing violation.

DIAL's reply to the memo confirmed that it had made 162 per cent gains from the DCSC exit deal as also the non-payment to AAI. "Non-applicability clause of revenue-share on capital receipts is as per the provision of OMDA (Operation, Management and Development Agreement)," DIAL responded to the auditor. In the Half Margin document, DIAL denied making any commitment on dividend income. "DIAL has not projected any dividend income from cargo JV, but has mentioned that additional revenue may come through dividend".

The auditor noted that DIAL did not invest in the JV from its own funds, rather invested the security money it got from the same JV partner. The auditor specifically asked about the equity participation (26 per cent) for a value of Rs 10.92cr in the JV - which was allegedly done by DIAL from security deposits amounting to Rs 20cr of concessionaire deposited. DIAL replied to the auditor, stating: "Deposit was taken as a security of receivables to DIAL from DCSC against contractual terms… The price offered to DIAL for sale of its equity stake was lucrative."

In a nutshell, DIAL made a profit of Rs 17.68cr by equity sale in JV but did not share the profit with AAI citing it as capital gain. DIAL is a joint venture consortium of GMR Group, Airports Authority of India (AAI) and German firm Fraport. In April 2006, DIAL entered into an Operation, Management and Development Agreement (OMDA), and in May 2006, the AAI handed over IGI airport to DIAL and gave it exclusive rights to operations, maintenance, development and management of the airport.

DIAL RESPONSE TO DNA 
Why did DIAL not share the profit from JV stock sale in DCSC with AAI? 
Description As per DIAL Concession agreement OMDA (Operation, Management and Development Agreement), revenue share is not applicable on Capital Receipts and hence sale of shares in JV does not attract any revenue share to AAI. 
 
DIAL had not invested in the JV from its own funds, rather invested the security money it got from the same JV partner. Please comment. 
Security deposits are raised as a risk mitigation measure on concessions awarded by DIAL. This is a standard practice adopted by Airport Operators worldwide to mitigate the receivable risk. The equity investment is done as a shareholder which has no correlation with the deposits raised.
 
Did DIAL shift the operational cost of cargo activities to the JV? If yes, please clarify whether it was technically allowed?
In line with its concession agreement (OMDA) mandating competitive cargo operations, DIAL bid out two concessions for cargo viz. a Greenfield cargo and the existing brownfield cargo business (with mandate for expansion and infrastructure upgrade). Both these cargo operators are responsible for their respective revenue and costs.​

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