Govt against AERA proposal on tariff

New Delhi: Government has opposed a proposal of airport regulator AERA for evolving a mechanism to match tariff with the quality of services at Delhi airport, that would allow airlines and other users to pay less for any dip in standards.

The Airports Economic Regulatory Authority (AERA), which is in the process of taking a final decision on fixing a tariff structure for Delhi airport, had proposed to evolve a rebate mechanism for its users as a penalty for GMR-led Delhi International Airport Limited (DIAL) in case it did not adhere to the laid down service standards.

Noting that AERA could "only monitor the set performance standards" at the airport, the Civil Aviation Ministry has told the airport regulator that it would not be justified to prescribe a separate rebate mechanism as part of tariff determination.

Under existing law, AERA was not mandated to impose additional quality parameters and penalties over and above those prescribed in DIAL`s 2006 agreement with the government (Operation Management Development Agreement or OMDA), the Ministry is believed to have told AERA.

The DIAL has proposed an eight-fold (774 per cent) hike in airport charges for approval by AERA, claiming it was necessary to ensure financial sustainability of the new airport infrastructure.

The airport charges relate to landing, parking, X-ray baggage checks and other such activities.

This has been opposed by the airlines and other users on the grounds that the raise sought was massive. It would not only burden the cash-strapped airlines but would also discourage people from flying out of Delhi.

Official sources said the Ministry has asked AERA to draft rules on performance standards for the airport operator.

AERA should only monitor the set performance standards relating to quality, continuity and reliability of service, as specified by the government or any of its agencies, they said, adding that it should adhere to the provisions of contractual agreements like OMDA while determining airport tariff.

On the issue of providing a fair rate of return on equity (RoE) to DIAL, the Ministry has referred to the recommendation of SBICaps, Financial Advisor to Airports Authority of India, that it should range from 18.5 to 20.5 per cent.

RoE is the net income returned as a percentage of shareholders` equity. DIAL, in its presentation for a tariff hike, had referred to the RoE allowed in power, ports and highway sectors, saying that its base rate was between 16 and 25 per cent.

The Delhi airport operator, which has registered a loss of Rs 1,300 crore since it took over Delhi airport from AAI in 2006, claimed that it would also help the state-run airports` body to earn more revenue.

DIAL has also claimed that AAI would be a major beneficiary of the airport tariff hike at Mumbai and Delhi airports, where the latter has 45.99 per cent and 38.7 per cent revenue shares respectively.

The proposed 774 hike, if approved by AERA, would lead to an increase of only 100-150 per cent for various airlines, DIAL has claimed, adding that this revenue share would help AAI to fund the growth of other metro and non-metro airports, including those in Kolkata and Chennai.