Friday, August 10, 2012

DIAL pleads not guilty

Posted by- Neelam Mathews
Aug 10, 2012

The note below was sent out by DIAL clarifying issues pointed out in the media.

Allegation: ... DIAL got the airport modernization project for 60 years with an earning potential of Rs. 1,63,557 Crores

DIAL says-
• The number of Rs. 681.63 Crore per acre indicated by DIAL was the sum total of the lease rental that could be generated 
through license fee over a period of 58 years and 45.99% of these earnings were to be passed on to AAI
‒ (Rs. 681.63 Crore per acre is calculated by taking the sum total of lease rental over 58 years @ Rs. 1.58 Crore per acre p.a., and an average escalation of 5.8% p.a.)

Also, it is unrealistic to assume that the entire area for commercial usage can be monetized in a short-term. In fact, as per estimates it may take 20-25 years to completely develop this land – thereby the calculation of Rs. 1,63,557 Crore is  erroneous

• Notwithstanding the above points, the allocation of 5% land for commercial purposes was a bid condition and the same was priced in by all bidders
• Moreover, all Aeronautical and airport assets created by DIAL will be transferred back to AAI – free of cost – at the end of concession period
• Also, AAI receives 45.99% share of all Gross Revenues (including all revenue receipts from all Commercial usage of  land) and 26% of dividends from DIAL

Allegation: Entire area of Delhi airport was leased to DIAL at Rs. 100 per annum 
Allegation: AAI has permitted usage of 5% of land for commercial purposes
DIAL says-

• As per the bid structure, the airport land has not been given to DIAL on a rental basis. The primary  purpose is to grant a concession for the operations & development of the airport and associated infrastructure. Rs. 100 is just a part of lease rentals and the rest of the consideration being recovered through concession fees, which is called as Revenue Share (includes revenue from Commercial usage of land), to be determined through International competitive bidding process. (as per the draft agreement made available to all the bidders)

• As a result, AAI receives 45.99% share of all Gross Revenues and 26% of all dividends from DIAL• The right to use 5% of airport land for commercial purpose was defined in the bid and known to all bidders (through the draft OMDA – Article 2.2.4).

• The same was factored in by all bidders while quoting their bid value – for both Delhi and Mumbai airports; in fact this was one the reasons why the bidders quoted a revenue share as high as 45.99% for Delhi and 38.7% for Mumbai airports

• In fact one of the bidders had challenged the bidding process and results. While giving this verdict in Nov 2006, the Honorable Supreme Court had duly noted and considered all points related to the bid conditions and the bid process and had upheld the entire process as valid and correct

Allegation: Unilateral right to extend Concession Period by 30 years without renegotiation was an 
undue benefit to DIAL
DIAL says-

The concession period of 30 + 30 years (extension at the option of JVC), mentioned in Article 18.1(b) in the draft Concession Agreement (OMDA) was released to all the bidders during the bid process in 2005
‒ This condition was for revenue share maximization to the government
‒ As this was made available to all the bidders, it created a level playing field with no preference to any single bidder – and was factored in by all the bidders
‒ In fact, the same terms & conditions were made available to the bidders of Mumbai airport as well and not just for the bidders of Delhi airport
 As a result, the Government was able to get a revenue share as high as 45.99% from the winning bidders for Delhi and 38.7% for Mumbai airport
 Hence, there is no undue benefit to DIAL
 It is quite common to have long concession periods for infrastructure projects globally ‒ There are many examples – both in India (Bangalore and Hyderabad airport, Hyderabad Metro, many Port projects) and globally (Mexico airports, Australia airports, Road & Rail in US, Spain, Brazil etc.) which have concession period in excess of 50 years.

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