Fliers from Kolkata,Chennai airports to pay high user fees

At the same time the private sector BIAL has built the Bangalore airport using cash far more efficiently.

At the heart of the excessive cost padding for the AAI-run public sector airports is the percentage of equity that has been built into them.

For instance while the privately built Bangalore airport has a debt-equity ratio of 70:30,the two public sector airports have an equity share of 92 per cent.

Globally,it is a better alternative to build an infrastructure facility with a lower equity base and a higher debt load by a process known as leveraging. But the AAI,fuelled by the cash inflows from the two airports — Delhi and Mumbai,felt little need to optimise on the use of the funds.

It was helped along by the surprising go ahead by the Comptroller and Auditor General (CAG) which has allowed a generous depreciation charge,double that allowed for the two private sector airports.

No one,it seems,advised the AAI to use the equity and its sovereign support to raise debt from the banks at low interest rates that would have also been welcomed by the banks.

Due to high equity in these airports,the sector regulator allowed the Kolkata airport,for instance,to carry forward a loss of Rs 800 crore during the current “control” period—the number of years for which its tariff orders are valid.

As a result (see chart) the airports at Kolkata and Chennai,which were inaugurated this year,have run up a high Weighted Average Cost of Capital of 14 per cent. Just compare with the far more cautious rates for Delhi and Mumbai.

“The cost of capital being paid to AAI is over 14 per cent as compared to 11.5 per cent for private concessionaires. This is difficult to comprehend because a statutory authority should normally have a lower cost of capital. All these factors have led to steep tariff hikes for the user of these airports,” Gajendra Haldea,advisor on infrastructure to the Deputy Chairman of the Planning Commission told The

Indian Express.

But a government official connected with the Kolkata project said it could be built “only because the airport operators’ equity in these projects is as high as 92 per cent”.

The impact of these charges including the high depreciation rate of 13 to 15 per cent has made the two airports quite costly for the passengers.

While the rate of depreciation is at 4.5 and 5 per cent in the case of Delhi and Mumbai,the two and a half times higher rates have meant the regulator has had to go in for high airport charges on passengers and airlines to recover the same.

Haldea says,“Such provisioning has led to a very sharp hike in tariffs for Kolkata and Chennai.”

The regulator,Airport Economic Regulatory Authority’s consultancy paper has,however,supported the high depreciation rate because it has been approved by the CAG.

“The Board of AAI has approved the depreciation policy that has been adopted by AAI. The format of accounts has been formulated in consultation with the C&AG of India…(the auditor) has not commented adversely on the depreciation methodology adopted by AAI.

Two years ago,allegations of cost padding for Delhi airport had rocked Parliament and beyond based on the CAG report. While it had among other things slammed the formation of joint ventures for non-aeronautical operations as one of the reasons for high charges at the Delhi airport,the high charges at Kolkata and Chennai airports follows from sloppiness in financial management but creates the same effect of a costly airport journey.