GMR, GVK to oppose move to regulate airport revenues

NEW DELHI | BANGALORE: Infrastructure companies GMR and GVK, operators for Delhi and Mumbai airports, respectively, may go to the appellate tribunal to appeal against the Airport Economic Regulatory Authority's ( AERA) recent order to regulate airport revenues.

AERA passed an order in January that airport operator's revenues will be regulated on the basis of the 'single till' approach. Under this, revenues from aeronautical as well as commercial activities on airports are taken into account to determine returns to operators and airport charges.

Airport operators think that this model caps the upside to their revenues and doesn't incentivise them adequately to invest in this high-risk sector as revenues from commercial activities on an airport - car park, hotels, retail, duty free shops, - will be capped.

"It is an issue of serious concern and the order should be relooked at. In the next week or so we will take a call on taking the legal course of action in this regard. We will also ask the aviation ministry to help review this order," said Sidharath Kapur, CFO, GMR Airports.

A GVK official said the company was likely to appeal against AERA's order. "It sounds crazy. We would certainly go for an appeal. We hope we would be able to push our point," said the official, requesting anonymity.

Apellate tribunals generally do not interfere with regulators' judgements if these are in good faith and are not malafide, said an AERA official. "We have not left is scope for speculative returns and that should not bother airport operators when we are giving them a fixed rate of return," he added.

Even the civil aviation ministry feels that investor sentiments have been dampened by the regulator's approach. "It is a conservative approach that AERA has taken and sends the wrong signals to developers," said an official requesting anonymity.

Mr Kapur said the order will impact future airports as operators will develop cold-feet to bid. "This makes GMR very cautious in bidding for any new airports in the country in future, even Navi Mumbai for that matter," he said.

Sector analysts are also of the view that the single till model will have an adverse impact on private participation in airport development in future. "The single till model of revenue regulation is intended to provide simplicity but the returns under this model to airport operators may not be commensurate with the cost of operations and investments in the long run," consultancy firm Ernst and Young Infrastructure Practise Partner Kapil Arora said.

The dual and hybrid tills are other models for economic regulation of airports that have found support from many stakeholders, like industry bodies and private airport operators. In the dual till model, aeronautical revenues are regulated, while the commercial stream is not. The hybrid till is a mix of single and dual till. In this, some percentage of commercial revenue is used to cross subsidise and determine the aeronautical tariff.