The Indian government has proposed to make per passenger concession fees the main bidding parameter for evaluating new airport projects, in a move away from its focus on revenue sharing.

Under the proposal, the concession fee given by the airport operator to the granting authority will be based on a "yield per passenger model", which is proposed to be set at Rs400 ($5.68) per passenger for fiscal 2019 and would undergo "minor adjustments" to account for inflation over time.

"The bids will differ for each airport in line with its projected traffic, financial returns and risk profile," says New Delhi.

It has also proposed future airport concession periods to be fixed at 40 years.

Yield and concession fees may be measured against 50% of the country's inflation, at the three-year mark from the date of operation of the airport.

Concessionaires are also allowed to propose the yield figure and seek tariff revision once every five years for the next five.

"With yield capped, future airports in India will be simple, functional and cost-efficient. There will be no incentive to enhance capex and opex to demand higher tariffs. The era of high revenue share (30-50%) for the Concessioning Authority may end. All these, along with growing traffic and increased competition among airports will bring down the cost to passengers," says New Delhi.

In most airport privatisation projects, the Airport Authority of India has maintained a minority shareholding in the operating company as part of the revenue share model.

"By linking the Concession Fee to number of passengers, the disagreements around ‘gross revenue’ and the risk of ‘revenue leakage’ will be significantly reduced," New Delhi adds.

The government believes that both the regulator and airport operators will stand to gain from the change in processes - particularly in tariff setting - removing audits of capital expenditure, operating expenses and non-aeronautical revenue of the airport operator.

New Delhi is looking to launch the new bid process at Jewar, Bhogapuram and Pune airports.

It is also seeking public feedback on the proposal until 14 September.

Source: Cirium Dashboard

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