The State government says that there is a ‘shade of distrust’ in the process with one private entity without prior experience winning most bids.

Explained Why the Pinarayi Vijayan govt in Kerala is taking on Adani over an airport
news Controversy Saturday, March 02, 2019 - 18:53

The makings of a big fight has started brewing in Kerala with the Pinarayi Vijayan-led government clashing head on with the mighty Adani group over the Thiruvananthapuram airport. On Thursday a determined Chief Minister moved the Kerala High Court against Adani’s tender, which won the right to run and operate the Thiruvananthapuram International Airport for the next 50 years. He also wrote to Prime Minister Narendra Modi questioning the process that allowed a single private bidder, with no prior experience win the bidding process.

In November 2018, the government decided to privatise six airports through a public-private partnership (PPP) model including the Thiruvananthapuram airport. In the past too, it has privatized several airports such as the Hyderabad, Bengaluru, Delhi, Mumbai airports under the same model. However, most of the privatized airports are operated and managed by two companies - GMR and GVK. In order to break this duopoly, the government allowed companies without any prior experience to bid for the projects. The Adani Enterprise Ltd, which has no prior experience in operating or managing an airport won the bids for five out of the six airports outbidding incumbents such as GVK, GMR as well.

In the case of the Thiruvananthapuram airport, it also outbid the Kerala State Industrial Development Corporation (KSIDC), which bid at Rs 135 per passenger as against Adani’s Rs 168.

Upset with the outcome of the tendering process held by the Airports Authority of India (AAI), Pinarayi alleged that the Modi- led centre had played a hand in Adani’s victory.

“Adani does not know how to operate airports, but he knows Prime Minister Narendra Modi well," Pinarayi had said at a function in Kerala. The Chief Minister scathing remark, experts agree, is partly true.

Why the objection

In his letter to the PM, the Chief Minister pointed out that a written assurance was given to the government in 2003 by the then Civil Aviation Secretary that when a decision is taken to involve a private player to manage the airport, the centre would consult the state government. This is taking into account the fact that the state had given 635 acres for the airport, the value of which would be the state’s stake in the airport.

He also said that it was surprising that the Request for Proposal had no condition for prior experience in operating airports and all that a bidder needed was experience in infrastructure projects.

Interestingly, the Adani group is known for building infrastructure, specifically ports.  

The state government says that there is a ‘shade of distrust’ in the process with one private entity without prior experience winning most bids.

Given that the government has given free land, which will be considered its equity in the airport, Pinarayi asked Modi that the state designated entity (KSIDC) be allowed to match the bid made by Adani. This would ensure KSIDC would operate and manage the airport.

In its writ petition to the Kerala High Court, KSIDC alleged that the RPF for the bidding process was full of anomalies and that the whole tendering process was arbitrary, unreasonable and in violation of the principles of fairness and natural justice and showed favouritism towards Adani Enterprise Ltd.

While the Kerala government has berated the Adani group’s aggression, others believe that the company has won the bid fair and square, and a private party operating the airport was just right for the city’s economy now.

“Thiruvananthapuram is seeing an investment boom and lots of foreign firms are setting up shop here. Naturally, airports play a huge role in this as it facilitates transport. Therefore, handing over operations to a private firm will only help modernise the airport to another level,” says Robin Panicker, an IT entrepreneur and aviation enthusiast based out of Bangalore and Thiruvananthapuram.

Elaborating on why he believed the tendering process was fair, Robin says that the KSIDC which represented the Kerala government has been given the Rights of First Refusal, if their bid came within the 10 percent range of the highest bidder.

“They (KSIDC) could have secured the rights had they bid within the 10% rage of the highest bidder. No other bidder got this concession. The KSIDC did as it was the state government expressing its desire to bid for the airport. Unfortunate for them, Adani bid Rs 168 and the KSIDC bid Rs 135 per passenger, which didn’t fall within the 10 percent range,” he said.

However, in its letter to the PM, the Chief Minister has asked AAI to allow KSIDC the right to first refusal without any range parameters.

How Privatisation works

After bidding for on the parameter of cost per passenger, the operation and management of the airport goes to the highest bidder. The private entity will be wholly responsible for developing, operating and managing the airport. There is a revenue sharing model where the amount that the highest bidder quotes is paid to AAI. The private player will hold the highest stake, while AAI and the state will hold a minor stake in the airport.

In earlier privatization and modernization of Delhi and Mumbai airports through the PPP model, the government reportedly saw immense improvement in the quality of airports and increased flow of tourists.

However, in Kerala’s opinion, it has also had great success with airports. Case in point being the Kochi airport, which has been built on a PPP model by Cochin International Airport Limited (CIAL), with the state owning the major stake of CIAL. In the same way, it had hoped to manage this airport as well and though reluctant at the beginning, the Kerala government too, had participated in the bid through the KSIDC.

And Kerala believes that it is in the interest of the state that state-designated KSIDC operate the airport, given its experience with Kochi airport, as against Adani’s inexperience.

In fact, the success of Adani in winning most of the bids -- Guwahati, Mangalore, Lucknow, Ahmedabad, Jaipur and Thiruvananthapuram -- has baffled a few aviation experts as well.

“The fact that they (Adani group), have won the rights for all 6 airports, despite having zero experience in the field raises many questions. When experienced players such as GMR bid Rs 68 per passenger for the airport, and the Adani group bid Rs 168 per passenger, it either shows the latter’s naivete or lack of understanding of the airport sector,” an aviation expert who spoke on the condition of anonymity told TNM. 

What’s in it for Adani?

This brings about the question as to why, a company with no prior experience in aviation would want to foray into airports.

Adani Enterprises earns most of its revenue from trading activities and mining and also has operations in power, and ports.

With India being the third-largest airline market globally by number of passengers after US and China, it is an attractive business proposition for Adani to dabble in a new business segment that promises margins of up to 50%.

In Thiruvananthapuram, experts say that Adani’s takeover of the airport is only the company’s natural progression, as it’s already building the Vizhinjam port - a deepwater, multipurpose sea port.

“Apart from passengers, cargo transport is a big function of the airports. With Adani winning rights to operate Thiruvananthapuram airport, looks like now they have decided to control air cargo as well. It is just a natural progression for them. The company might have big plans for Thiruvananthapuram now that they control both the sea and airports,” Robin adds. 

But is privatization all that bad?

Mark Martin, founder of Dubai based Martin Consulting llc, adds to this by arguing that privatisation need not be a bad thing for airports, if done with care.

“Airports are not real estate or malls. They are our national assets, built and run with the specific purpose of facilitating transport. Naturally, the key focus with regards to an airport is the maintenance of its technical assets, more than modernising its design and facilities. You can have fancy terminals, but if the runways, landing lights and instrument landing systems are not maintained well, that there is a problem. Experienced players will know this,” Marks says.

With both arguments raising valid concerns, what remains to be seen is the long-term benefits to the state of Kerala. 

 

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