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Airport Privatisation: States’ Demand Prompts Need To Review Civil Aviation Policy

Tamil Nadu and Jharkhand are seeking a revenue share from Airports Authority of India's airport privatisation drive.

<div class="paragraphs"><p>(Photo: Unsplash)</p></div>
(Photo: Unsplash)

At least two states are seeking a revenue share from privatisation of airports, indicating the need for a review of the civil aviation policy.

The policy framework needs to be reconsidered in the present context, said Palanivel Thiagarajan, finance minister of Tamil Nadu. “The policy to give land to the AAI (Airports Authority of India) for free was agreed upon at a time when price of land was much cheaper and there was no notion of privatisation,” he told BQ Prime.

The National Infrastructure Pipeline has 93 airport and aviation projects worth $18.91 billion. The value of projects in Tamil Nadu is estimated at more than $3.37 billion—nearly 18% of the total. The southern state’s four airports—Chennai, Coimbatore, Madurai and Tiruchirappalli—are among the 25 under the National Monetization Pipeline, subsumed by NIP.

A policy note released by the Tamil Nadu government in April—reviewed by BQ Prime—reiterated the decision by the state to seek compensation for the land supplied for the airports at the current rates or with an equivalent equity stake in the new entity when airports are expanded.

Officials at the Jharkhand Finance Ministry, too, shared a similar concern.

A revenue share to the states for the supply of land would be good, they told BQ Prime over the phone. On construction, airports become the centre of development. And with the commercialisation of airports, the value of the land given for them also increases, they said on the condition of anonymity.

States do not receive the benefit from this. The land has been acquired and transferred to the AAI and the increase in real estate value goes to the AAI and private parties who own the surrounding land, they said.

According to a senior official at NITI Aayog, there, however, is no provision for states to claim a revenue share as per the existing aviation policy.

If states want a participative share, there’s a provision that allows states or its entities to seek a licence from the Director General of Civil Aviation or form a joint venture with a private company and obtain a licence for the development and operation of an airport, the official quoted above said on the condition of anonymity.

The civil aviation policy and the guidelines for the development and financing of greenfield airports direct states to provide land free of cost and provide multi-modal hinterland connectivity as required.

BQ Prime awaits a response to queries emailed to NITI Aayog and the Jharkhand Finance Ministry.

Under the present terms, the monetary value accrued by states from the privatization projects is more long term.

Poonam Munjal, senior fellow at National Centre for Applied Economic Research, said it really comes down to the direct and indirect revenue impact an airport can have on the city and by extension the state.

Referring her study on the social-cost analysis of airport in Bengaluru, Munjal said “while different airports contribute differently, one could generalise that an airport significantly adds to the state’s GDP through tax revenue, connectivity, and employment in the state—directly or indirectly through the supply chain”.

Vinayak Chatterjee, author and infrastructure economist, said, “This is a new issue that impinges upon what one would call a federal structure.”

The centre may have to review its policy. It’s complicated to relook at past contributions made and benefits accrued by states. But this could spell a new governing principle, he told BQ Prime.

“In all new projects where the state government is contributing land, or any other expenses related to the project, it needs to be built into the balance sheet of the new budget. Either the states receive as a share of equity or as some percentage of revenue share. This new format then becomes the governing principle for all future central investments in states,” Chatterjee said.

Tamil Nadu’s demands could also affect the targets of the National Monetization Pipeline. The Trichy airport has been included in the first batch of 13 airports to be privatised by the AAI as part of the National Monetization Pipeline. According to a Business Standard report, a private investment of Rs 3,660 crore has been earmarked for the first leg, stipulated to conclude by FY24.

The expansion of the Trichy airport involves the Tamil Nadu state to sanction acquisition of 294.06 acres of patta land (in revenue records), 33.23 acres of poramboke land (not in revenue records) and 337.49 acres of defence land.

Thiagarajan has highlighted another discrepancy in the acquisition and transfer process. “It didn’t make sense. A part of the land to be bought belonged to the Union government. And we had to buy the land from one government entity and give it to a different entity for free and that entity would privatise it.”

BQ Prime’s emailed queries to the AAI also remained unanswered.

The state is now pitching for a rejig of the land transfer clause as a solution.

The alienation process for land acquisition and purchase for handover, Thiagarajan said, would not proceed unless the handover includes a clause that the land supplied would be given only till it remains an AAI asset. “When the land is up for privatisation, the state would reclaim the right to the land and settle for market value from the new buyer or an equity stake in the airport equal to the value of the land relative to the rest of the asset.”