[Solved] Examine the development of Airports in India through joint ventures under Public-Private Partnership(PPP) model. What are the challenges faced by the authorities in this regard?. ( UPSC GS-3 Mains 2017)
PPP is defined as a Project based on a contract or concession agreement, between a government or statutory entity on the side and a private sector company on the other side, for delivering a service on payment of a user charge.
• The privatization of Indian airports was set in motion way back in 1999, when a greenfield airport was set up in Cochin under the PPP route. Followed by airports of Bangalore and Hyderabad in 2004.
• In 2006, the aviation ministry signed concession agreements with GMR and GVK for expansion and modernization of New Delhi and Mumbai international airports. Thereafter, the privatization process was grounded following global economic slowdown, opposition by AAI employees, etc.
Even though the privatization route has allowed development of efficient world class airports in India and has fueled the growth of air traffic in India, not all are in favor of it. Especially employees of AAI, who fear losing their jobs when private developers take over.
• Due toglobal slump in the Aviation sector after the economic slowdown, less of private players were interested in the government bids, which even impacted the pace of our already running major projects of Delhi and Mumbai Airports.
Challenges faced by the authorities
• Increased charges at PPP airports have certainly been a contentious issue for airlines. On some domestic sectors for example approximately 17% of the average gross fare now consists of taxes and fees, of which 10-12% is related to airport charges.
• Projects arestalledfor several months due to a lack of preparedness with respect to the concession agreement and the revenue sharing and tariff structure framework.
• A clear process has not been established for determining the appropriate level of capital expenditure in airports and for monitoring project costs to prevent the massive budget over-runs that have occurred in some cases and which have simply been recouped through higher charges that are borne by the airlines and passengers.
• Despite the successes of the PPP airports there are certainly areas for improvement, particularly in terms of economic regulation, land monetization, management of project costs and at a broader level creating a more predictable operating environment on issues such as bilateral policy, airspace efficiency and airline viability.
- India’s decision to invite private players such as GMR and GVK has improved the passenger’s experience. It has led to better efficiency and capacity of airline operators. This has also resulted in massive dividend to the State-owned Airports Authority of India. Modernisation of ports in India has improved the local and national economy and perception of India is changing in the global market.
- Private airports are making large profits due to increased traffic, higher aeronautical charges and other non-aero revenue opportunities. However there are concerns of higher charges on airlines and passengers. Cities like Chennai, Kolkata andGoa are not able to attract enough passenger and cargo services due to lack of commercial orientation of AAI.
- PPP model in development of airport is creating following challenges for the authorities: There is absence of regulatory framework for the entire aviation sector.
- There is lack of clarity over the degree of risk transfer to the private players in areas such as asset condition, construction cost, operation risk, non-insurable risk etc.
- Lack of clarity is also evident in concessional agreement, revenue sharing and tariff structure framework.
- The projects are also delayed due to land acquisition, cost overruns, long gestation periods and lack of funding and investment.
All requisite steps are being taken to address the various challenges in this field. AAI is being suggested to improve its organizational capabilities. Alternate funding options are also being explored through combinations of equity, soft loans and grants. All these steps will help India to develop world classfacilities in civil aviation by 2020.
Reason behind developing the Airports of in India through joint ventures under PPP model is govt is unable to spend such a vast amount on this sector, and don’t have a such proficiency and technical know how. So it adopted joint venture model in which states along with private partners also included. Once states include land acquisition becomes easy and monitoring of the project is effective, more over burden on union govt reduce. In this model there are some problems we are encountering
- Land acquisition is tha major problem
- Rehabilitation of the affected people
- High risk of the capital
- Rate of returns are low, will take more time to get the full amount
- Clearances from the govt
- Viability of project
- Location of project (investors dont prfer to develop the airports tier 2,3 cities) 8. States are not interested in spend such huge sums , any way they dont have any operational control them so they dont want to investment further reading..
A public-private partnership (PPP) model is an understanding or agreement between two or more public and private sectors. It may be called a semi privatization arrangement. It is considered as a highly efficient system of management with more transparency.
PPP and airports
- PPP model helps to develop the infrastructure of the airport for better operation.
- It ensures security and ample facilities for passengers and for cargo delivery.
- When airports are facing huge losses due to a shortage of government funding, the PPP model could restructure the overall system for smooth functioning.
- In 1999, Cochin International Airport was developed as the first airport in India under the public-private partnership (PPP) model.
- In 2004, Bangalore and Hyderabad airports were also considered under the PPP model.
- In 2006, the government tried to modernize New Delhi and Mumbai international airports.
- In recent times, Adani enterprise took the leasing of six airports i.e. Ahmedabad, Mangaluru, Lucknow, Jaipur, Guwahati, and Thiruvananthapuram. Though Kerala opposed the move.
- Private companies always look forward to acquiring more profit with a limited number of employees, which results in job loss.
- It creates a problem in terms of tariff fixation, no provision for re-negotiation.
- It increases the operation cost and hikes the fare.
Despite being so many problems the Public-Private Partnership model is showing significant progress in the UDAN scheme. The understanding between public and private players should not be rigid. Rather it should be more flexible to overcome all problems that are currently being faced by this sector.
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