People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 02

January 08, 2006

Bizarre Progress of Airport Modernisation


Nilotpal Basu


AIRPORTS in the country stole the headlines in the last couple of weeks, with the first reference being to the big controversy centring around the manner the government is handling the issue of modernisation of Delhi and Mumbai airports. And the second reference, regrettably, was to the woeful state of the infrastructure at Delhi airport, sharply highlighted, as always, at this time of the year when the fog menace completely threw aviation activity out of gear.


While the first reference put on the run the unabashed apologists of privatisation in the government and the media, the same lot gleefully used the second to attack the Left. Referring to the dislocation and holding the Left responsible for the situation, an editorial put it thus, "The point is the Delhi’s airport’s abject incapacity. But what else can we expect if we have a political system that turns something as simple as airport modernisation into a major controversy? Some politicians are batting for airport unions, some are being bloody-mindedly oppositional, some are trying to jockey for bigger roles in the ruling coalition, some are disguised parliamentary shock troops for corporate interests and some, bless them, have found ideological grievances."




And what is the truth? Long and bizarre is the story of modernisation of Delhi and Mumbai airports, being played out for more than a decade. It was way back in 1993 that the Airport Authority of India (AAI) got sensitive to the overstretched capacity of the two premier airports of India. It then proposed to the government to allow it to modernise them and create the capacity and standards commensurate with the country’s economic and political status. But the babudom and its political mentors in the civil aviation ministry rejected it. In 1999, the AAI once again tried to suggest modernisation, but the same forces once again got the proposal rejected. Thus, to attack the AAI and hold it accountable for the sorry state of infrastructure is like tying the hands of a man and drown him.


True, there may be certain lacunae in the ILS CAT-III operations, but the blame must be apportioned among the several airlines operating during low visibility fog conditions. This was what was brought out by the 90th report of the parliamentary standing committee on transport, tourism and culture. Titled Modernisation of Airports, excerpts from it were published in these columns earlier. It said: "….while the current policy of the government aims at allowing more and more airlines to operate in the country, it has not made it obligatory for them to utilise the modern facilities installed at the airports with huge investments for the convenience of the passengers. The committee is surprised to note that the three private airlines, i e Jet Airways, Sahara Airlines and Air Deccan, have not trained any of their pilots for CAT-III operations and there is no legal requirement in the Aircraft Rules and Civil Aviation Requirements to make it mandatory for private airlines to train their pilots on ILS CAT-III system."


Therefore, if anyone is to be blamed for the poor infrastructure at Delhi airport, it is the government alone. For, it has been thoughtless in addressing the concerns about airport infrastructure while there is growth in aviation sector. In fact, we have reached a stage where the current growth momentum in aviation sector seems to be threatened by the dismal condition of our airport infrastructure.


Today, therefore, the need is to comprehend the nature of the problem and take right decisions to modernise and create infrastructure, and not an obsessive insistence on privatisation. By no stretch of imagination can one claim that modernisation, per se, is synonymous with privatisation. The biggest rebuttal to such a claim are the airports in Dubai, Singapore, Malaysia and Bangkok; all of these are truly world class and at the same time government controlled.




The current controversy, with a factual and well argued exposition of the issue by Left parties, lays bare to what extent these bizarre efforts at privatisation of Delhi and Mumbai airports go. The current phase of controversy started during the earlier NDA regime when, in its meeting on September 12, 2003, the cabinet decided to privatise these two airports. The idea was to hand them over to a private joint venture where a private consortium would have the 74 per cent equity while the AAI would retain 26 per cent. Also, there was not to be any ceiling on foreign investment in this 74 per cent equity held by that consortium. Obviously, there were protests. The entire opposition, including the Congress party, vociferously protested the privatisation of a profit making public sector undertaking (PSU), and accused the NDA government of blatant irregularities. It was during one such discussion on the subject in Rajya Sabha that the leader of opposition, Dr Manmohan Singh, who leads the government today, went so far as to castigate the government for giving away this profit making PSU’s assets on a single bid.


Obviously, the UPA government and its National Common Minimum Programme (NCMP), which was framed to address this issue, took note of this background and stated that "generally profit making companies will not be privatised." There is of course no doubt about the AAI’s profit making status, and the Mumbai and Delhi airports account for two thirds of its total profits. Further, in 2003-04 when the NDA government took the decision, the net profit for Mumbai and Delhi were Rs 345.28 crore and Rs 272.03 crore respectively.


However, an avid reading of the sequence of developments pertaining to airport privatisation makes it clear that the UPA dispensation undertook no review of the NDA decision, in the light of its own NCMP. Within the 74 per cent equity holding of the private consortium, only a cap on foreign participation was imposed, limiting the FDI to 49 per cent. This was just a crude attempt to gloss over the privatisation exercise.




The bidding process started in February 2005 after appointing a global advisor (Air Plan, Australia), financial advisor (ABN Amro) and legal advisors (M/s Amarchand Mangaldas and Suresh A Shroff & Co).


The controversy started right at the beginning. There were ten applications in response to the request for proposals. In the first exercise, concerned officials of the civil aviation ministry rejected one of the bids on the ground that the consortium did not have an airport financier, as was asked for in the bid document.

It was alleged in sections of the press that the ministry officials who had rejected such a non-compliant application were shunted out of the ministry. Also, in course of the bid process, several important consortia with renowned airport operators actually withdrew, which again raised questions about the transparency of the whole process.


The consultants appointed by the government were asked to submit affidavits to the effect that they did not have business relations with any of the bidders, and they did submit such affidavits. But now it is clear that technical as well as financial consultants indeed had dealings with bidders. An advertisement of ABN Amro, which appeared on page 23 of Business Today on December 4, 2005, showed that, as "joint lead arranger," ABN Amro had arranged a syndicated loan of one billion plus US dollars and Rs 8.7 billion plus for M/s Reliance and M/s GMR respectively. (Coincidentally, only these two bidders qualified --- out of a total of six bidders who had passed the pre-qualification criteria.) The advertisement also stated that ABN Amro emphasises on strong relationships and believes in long term commitment and proactive engagement with its clients’ business to ensure that it is there when it matters.




And ABN Amro was indeed there when it mattered most for Reliance and GMR! This can be seen from the fact that only these two companies qualified to get airport modernisation contract. As a party will get only one airport (Delhi or Mumbai), both of them are guaranteed to get one airport each, even before the financial bids are opened. Opening of financial bids is thus a foregone conclusion. As joint lead manager of a syndicated loan, a banker acts not only as a financier but also as an advisor and marketer of his client. As the two said clients are among the largest, ABN Amro is sure to hugely benefit by promoting their interests.


But this establishes a clear cut "conflict of interests." When one division of Arthur Anderson (USA) was the auditor of Enron, another was its consultant. This was treated as conflict of interests and highly improper. Arthur Anderson is history today. But evaluation of the bids by ABN Amro has far reaching implications. It has in fact played a fraud on the nation by giving an affidavit that it did not have any conflict of interest. Internationally, the practice followed by reputed legal firms, consultants and advisors is that they decline assignments or briefs from all clients with whom they had some direct or indirect professional involvement in the past.


Again, Mr Cyril Shroff, managing partner of Amarchand Mangaldas (the legal consultant) had been on the board of directors of now Anil Ambani’s Reliance Energy Ltd (REL) who was one of the bidders. In fact, Shroff was there till May 28, 2004, when the process of appointment of consultants by the ministry was in full swing. In February 2004, Amarchand Mangaldas was officially declared the legal consultant. But Shroff was part of REL till that time and resigned from its board on May 28, 2004, without citing any reason. No more clinching evidence for "conflict of interests" can possibly be established.




The review committee report shows absolutely arbitrary parameters were employed to ensure the short-listing of the two consortia. Given the explicit relationship of the consultants with the two short-listed entities, there is solid ground for the government to cancel the entire bidding process. Moreover, given the fact that the ABN Amro gave a false affidavit, the review committee report also establishes the failure of the consultants to confirm the veracity of the facts supplied by bidders.


The implication of the short-listing is obvious. With the government’s explicit stipulation that no consortium can get both the airports, each of the two successful bidders can get one airport each. This implies that the assets of two extremely profitable PSUs will go to them on the basis of a single bid.


Though the Inter-Ministerial Group (IMG) discussed the draft bid documents on several occasions, it did not discuss the final bid documents. These were approved by the ministry of civil aviation and provided to the bidders. Similarly, the request for quotation (RFQ) document was not discussed in the IMG but in the ministry.


Also, some IMG members did not have an opportunity to participate in the pre-bidding conferences with the bidders despite a decision by the committee on infrastructure. The ministry had invited expressions of interest and 10 consortia had applied. The eligibility criteria used by GRC did not seem to be well defined.


Finally, evidence of a major irregularity has also emerged. This involves the alienation of an asset of the AAI --- the Nagpur airport --- in order to ensure a major tax exemption for the private consortium that would gain the control of Mumbai airport. Though at an advance stage, they sought to gloss over this exercise through a reply to the Rajya Sabha unstarred question number 1357, on December 6, 2005. Such a cover-up and misleading job took place despite the existence of a letter from Maharashtra government, written on August 11, 2005. The government’s reply in the house avoided confirming such a consideration while the Maharashtra government’s letter proposed a draft MoU to this effect.


We have no doubt that the government is committing a major irregularity in order to hand over the assets of two most profitable airports to private consortia in a dubious manner.




Unfortunately, during the entire course of this bizarre development, the plan for modernisation of Delhi and Mumbai airports got bogged down with an obsessive insistence on privatisation. There was no examination of the scope and adequacy of the plan. The 90th report of the standing committee on transport, tourism and culture, quoted above, pointed out the sheer irrelevance of the modernisation plans in meeting the objective of creating a modern world class infrastructure commensurate with the rapid growth of aviation sector in India.


For example, post-modernisation, Mumbai airport will be able to cope with the current rate of growth only up to 2012. This was a fact admitted by the secretary, ministry of civil aviation, as the said report brought out. Yet, surprisingly, the modernisation plan envisaged investment up to 2019. In case of Delhi airport, where the space constraint was not as obvious as in Mumbai, the scope of modernisation is quite limited due to the existing traffic plans and traffic engineering. It may be pointed out that access to and exit from airports to the main city is one of the major concerns for the present day airport infrastructures. Therefore, "brown field projects" involving a revamp are only an extremely inadequate substitute for the requirements of a truly world class facility. Hence the report clearly established the need for truly huge world class "green field projects" as a durable solution for the crisis we are facing regarding airport infrastructure.


Stung by the exposure of the dubious process, the Empowered Group of Ministers (EGoM), that was to finalise the award of contract, referred the modernisation plan to a Group of Secretaries in a desperate bid to rescue the current bid process. On December 21, a delegation of Left MPs met the prime minister to seek his intervention. But the issue still remained with the Group of Secretaries with a mandate that it submit its report within 15 days. A subsequent decision by the EGoM confirms the suspicion that the emphasis is not on any radical option but on redoing the calculations and repositioning the evaluation of the consultants whose "conflict of interests" has been so clearly established.


In these circumstances, the current exercise must be scrapped in order to ensure a minimum of credibility and transparency. In its stead, the alternative plan prepared by the AAI Employees Forum, in effect a plan reviewed by the AAI itself, must be publicised. If the alternative plan satisfies the requirements of the modernisation objective, it must be implemented forthwith. The government may also take cognisance of the parliamentary standing committee’s proposal of constructing the infrastructures of two really huge, modern world class airports in Mumbai and Delhi as green field projects. These two measures together may overcome the infrastructure constraint and ensure that the current phenomenal growth in the aviation sector is effectively taken care of.