Author: hantanu Guha Ray and Bhavna Vij-Aurora
Publication: India Today
Date: June 13, 2011
URL: http://indiatoday.intoday.in/site/story/cag-delhi-new-airport-is-a-huge-hit-on-the-exchequer/1/140282.html
Introduction: The CAG's report, to be tabled in Parliament, says Delhi's new
airport is a huge hit on the exchequer
The construction of Delhi's new airport is
a story of corrupt practices, huge cost overruns, dubious joint ventures with
ministerial favourites and appalling mismanagement by the public-private sector
alliance, Delhi International Airport Limited (DIAL), which built the facility.
These are the findings of the Comptroller
and Auditor General (CAG) of India, the government watchdog, whose report
on the aviation sector will be tabled in Parliament's next session.
The CAG report, accessed by India Today, says:
DIAL, comprising a GMR Infrastructure Limited-led consortium, has overshot
its budget by over $2 billion (Rs 8,955 crore) and one-fourth of the amount
will have to be borne by air passengers in the form of higher airport taxes.
Passengers departing from Delhi airport already pay an airport development
fee (ADF) of Rs 200 for domestic flights and Rs 1,300 for international flights.
The Supreme Court has allowed DIAL to continue charging ADF as it was approved
by the Airports Economic Regulatory Authority (AERA) even though Mumbai airport
has been barred from levying the fee.
According to the report, the Government lost
at least Rs 1,185 crore in the development of 48.5 acres (196,000 sq mt) of
land around the airport area. dial gave the licence to develop the land (as
a part of the privatisation deal) to a newly formed subsidiary, Delhi Aerotropolis
Private Limited on a valuation of Rs 775 crore for the land. Officials of
the CAG told India Today that the value-based on local land rates in Gurgaon
that start from Rs 1 lakh per sq mt-should not be less than Rs 1,960 crore.
CAG noted that by forming joint ventures,
revenue payable by DIAL to Government-owned AAI has got reduced. Here's how.
AAI should have earned Rs 46 out of Rs 100 based on its 46 per cent revenue
share partnership agreement with DIAL which was to get the remaining 54 per
cent. But here lies the catch. Through the joint ventures, DIAL brought its
own share of revenue down to 15 per cent, says CAG. As a result, AAI's share
also went down substantially. AAI was left only with 46 per cent of what DIAL
was left with after sub-contracting. For example, in a sub-contract where
DIAL had only 15 per cent share, AAI actually earned a meagre Rs 6.90, as
against Rs 46 which was its due.
The government has been deprived of its legitimate
share of revenue through formation of joint ventures by DIAL with private
entities. Government-owned Airports Authority of India (AAI) had in April
2006 signed a contract for the operation and management of Indira Gandhi International
Airport, Delhi with DIAL, wherein a revenue share of 45.99 per cent was to
go to aai and 54.01 per cent to DIAL. The contract permitted subcontracting
of various aeronautical/non-aeronautical services to ventures entered into
by DIAL, again on a revenue-sharing basis. DIAL created 11 joint venture companies
for non-aeronautical operations. AAI has 26 per cent equity participation
in DIAL, with the remaining 74 per cent held by a private consortium of GMR
Group, Fraport AG, MAPL and IDF.
The government's revenues from Delhi airport
have dropped in many business activities-sale of food and beverages, cargo,
ground handling, advertisements, fuel infrastructure, information technology
and ground power equipment. In December last year, the chairman of AERA, the
official regulatory authority, raised the issue of DIAL's joint ventures with
the civil aviation ministry. "It has been alleged that various revenue
streams are being sub-contracted to joint ventures specially created by DIAL
on revenue-sharing basis," AERA chairman Yashwant Bhave said in a letter
to the civil aviation secretary. "This reduces the revenue share of AAI,"
he stressed.
DIAL has also drawn flak from the CAG for
the number of joint ventures it gave to people claiming allegiance to the
then civil aviation minister Praful Patel and senior functionaries of his
Nationalist Congress Party. Among those who were given contracts is Deepak
Talwar, a lobbyist who won two major business contracts with DIAL. Talwar
was a familiar face in the civil aviation ministry and his closeness to Patel
caused tensions between the minister and former aviation secretary, M. Nambiar,
after the latter protested a number of decisions taken allegedly at Talwar's
behest. Talwar denies the charge. "I have never been to the ministry
of civil aviation during the tenure of Mr Praful Patel," he says.
CAG has sought a probe into the duty-free
store contract being given to Aer Rianta Indian Duty Free Services (IDFS)
in the light of allegations that minutes of the meeting of the dial board
of directors were fabricated to select the combine in which Talwar has a 17
per cent stake. "Any inference that it was awarded to us due to our relationship
with anybody in the ministry of civil aviation is factually incorrect,"
Talwar said. On his proximity to Patel, Talwar said, "He is a friend,
that's all." Sources close to Patel insist that although he knows Talwar,
Patel did not grant him favours.
Talwar's clout in the civil aviation ministry
has seen a steady rise since upa came to power in May 2004. According to an
internal investigation by Air India, in 2005, Talwar's company supplied in-flight
special dvds at $3,000 (negotiated down from $3,600) each to the airline.
The market rate was $300 per piece. The contract, signed during the tenure
of V. Thulasidas as chairman and managing director, was pushed by Talwar through
one Gerald Betts, a representative of North Star Aerospace, which was considered
an exclusive representative for the product without any sort of documentation.
"You have abused your official position as a result of which Air India
was made to buy a hardware of NSA who were neither manufacturers or authorised
dealers of the product," Air India CMD Arvind Jadhav wrote in his chargesheet
to V. Srikrishnan, executive director (materials management).
CAG has questioned why dial did not undertake
a comparison between the joint venture model and the concession model and
went ahead to create 11 joint ventures. The cag has highlighted the case of
Garuda Aviation Services, a company with experience in ground handling and
car parking services at Indian airports. The firm has sued DIAL for the partisan
manner in which it entered into a joint venture with Greenwich Investment
and Tenaga Parking Services of Malaysia for 25 years. Tenaga owns only 10
per cent of the joint venture and the rest is in the hands of funds based
in tax havens of Bermuda and Mauritius. The substance of the suit is that
AAI is losing Rs 3,584 crore over the concession period of 25 years and how
it could have gained had the contract been awarded on a "straight concession"
basis. "Straight concession" is a standard tendering process followed
by AAI across most airports in India.
CAG, said officials, has also questioned the
loss of an estimated Rs 73.12 crore in revenue to the government-owned AAI
from the fall in cargo business at Delhi airport between November 2009 and
September 2010-a period when cargo tonnage globally increased by 250 per cent.
DIAL's contention that the revenue from the cargo business would increase
from the fourth year has been contested by CAG because AAI's share would be
limited to 45.99 per cent of dial's 36 per cent revenue-sharing arrangement
with an associate company formed for the cargo business. The auditors found
that AAI incurred a reduction in share of revenue to the tune of Rs 73.12
crore due to the formation of the associated company for running the cargo
business.
Some of the CAG findings already find reflection
in the audit done by AERA that blames DIAL for not checking surging costs,
keeping the civil aviation ministry out of the loop and exceeding its mandate
on the amount of work it was supposed to do. The cost of modernisation of
Delhi airport skyrocketed from Rs 5,900 crore to Rs 12,700 crore. For this,
AERA blames dial for taking the estimated cost of the airport to be Rs 5 lakh
per sq mt against a maximum cost approved by the dial board of Rs 1 lakh per
sq mt.
DIAL has already asked aera for about Rs 3,500
crore in airport development fees. It has also asked for an additional Rs
1,793 crore, of which aera has so far agreed to clear Rs 994.5 crore. aera's
observations were made on the basis of the technical and financial audit done
by Engineers India Limited (EIL) and consulting firm KPMG on Delhi airport's
modernisation.
The DIAL board, which included senior officials
of the ministry and AAI, realised there was a cost overrun only when the modernisation
process was nearing completion.
AERA said prior approval of the board was
also not taken for an increase in gross floor area (GFA) by nearly 84,000
sq mt from that finalised at the master plan stage. Another reason for costs
escalating was that a redesign was carried out even as modernisation was on,
EIL said in its report to AERA. It also says that "estimates, negotiations
and price reductions were done on a notional basis by DIAL. All contracts
were awarded in-house or to companies where GMR or group companies had a substantial
stake".
Financial manipulation to benefit the promoters
was clearly evident. "Due to the high risk involved in the project, the
percentage of risk premium considered by the principal contractor and sub-contractor
were also high, which were totally borne by DIAL, resulting in further increase
in project cost," EIL report said.
DIAL has argued that the board was apprised
of estimated project costs at various stages. "AAI and the civil aviation
ministry officials were constantly monitoring the project," K. Narayana
Rao, DIAL director, told India Today. "The ministry did not intervene
at the right time," said former aviation bureaucrat Sanat Kaul.
Once tabled in Parliament, the CAG report
is bound to generate more controversy in a country suffocated by scams, and
lead to further scrutiny of the operations of GMR-led dial and the aviation
ministry.
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Travel Trouble
* Dial has overshot its budget by over Rs
8,955 Crore; passengers will have to foot one fourth of the bill
* The Government lost at least Rs 1,185 Crore
in the development of 48.5 acres of land around the airport
* The Government Owned AAI has been cheated
out of its legitimate share of revenue through formation of joint ventures
by dial
* In December 2010, chairman of AERA. The
regulatory authority, raised the issue of dial's JVS with the civil aviation
ministry
* AAI lost Rs 73.12 Crore in revenue from
the cargo business at delhi airport between November 2009 And September 2010
