Privatization of Delhi & Mumbai Airports - A Bumpy Take Off
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Case Code: ECON016 Case Length: 21 Pages Period: 2003-2006 Pub Date: 2006 Teaching Note: Available |
Price: Rs.400 Organization : Airport Authority of India, Ministry of Civil Aviation Industry : Civil Aviation Countries : India Themes: - |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Mumbai and Delhi Airports
The Mumbai and Delhi airports combined handled the bulk of Indian passenger and cargo traffic. Delhi and Mumbai airports together, accounted for over 70% of total passenger traffic and 80% of AAI's revenues (Refer Table III (A)/III (B) for Passenger Traffic and Aircraft Landings/Take-offs at Mumbai and Delhi Airports). In 2000, the International Air Transport Association (IATA) conducted a survey of the biggest airports in the world. The airports at Mumbai and Delhi were ranked amongst the three least favorable airports in the Asia-Pacific region on all 19 service elements. The service at the two airports was considered to be inadequate despite the airports having a large administrative staff...
Call for Airport Development
The economic liberalization of 1991 was meant to liberalize the economy from the stronghold of the GoI and to encourage private investment. The GoI also wanted to create a tourism industry which would not only earn valuable foreign exchange but would also create numerous jobs. It was at this time that the need for world class airports at Mumbai and Delhi was felt by the GoI...
The Privatization Process of Mumbai & Delhi Airports
In 2004, the Congress (I)-led UPA government came to power and immediately announced plans to modernize the Delhi and Mumbai airports by forming two joint ventures with private consortia. The GoI offered 74% of the ownership stake in Mumbai and Delhi Airports to private players keeping 26% for itself. Of the 74%, Foreign Direct Investment (FDI) from international airport operators was allowed up to 49%. The plan included the development of airport infrastructure and the construction of shops, eateries, etc, with a view to earning extra revenue...
The Bidding Process
The bidding process for the privatization of Mumbai and Delhi airports began in July 2004 when the GoI invited interested parties to participate in the three stage bid process. The three stages were - Request for Quotation (RFQ), submission of technical and submission of financial bids with elimination at each stage. The last date for submission of technical and financial bids was September 14, 2005. The bids were to be technically evaluated first. Only the financial bids of the consortia which crossed the cut off per cent in the technical evaluation were to be opened. The two consortia that offered higher revenue share to the GoI were to be awarded the Delhi and Mumbai airport modernization contracts...
The Release of the Note
In order to bring transparency to the bidding process, the GoI made public a confidential note dated December 3, 2005. The note, which was prepared for the EGoM, contained the views of the GRC and IMG on the bidding process, comments on the various parties' ability to fulfill the contract, several observations regarding the bidding process like the technical evaluation and the apparent interests, if any, of the consultants. According to the note, the GRC was of the view that there was no apparent bias or prejudice against any individual bidder in the process. However, the GRC found the evaluation criteria, as specified in the RFQ, subjective in nature which, therefore, made it difficult for the evaluators to allocate a purely objective marking for the bidders...
Efforts to Bring in Transparency
To quell the controversy that arose with the announcement of the technical bid results, Reliance sent an open letter to the EGoM dated December 20, 2005. It was signed by J.P.Chalasani (Chalasani) Director, Reliance Energy, and stated that the bidding process was not manipulated. The letter stated that most airport evaluations undertaken by international organizations were subjective in nature...
Continuing Controversy
The announcement of the successful bidders gave rise to other controversies. Reliance-ASA, which earlier was one of two technically qualified bidders and was sure to get at least one airport, ironically, did not get either airport. Immediately on the announcement of the financial bid results, Reliance protested against the award of the bids, pronouncing the modification in tender conditions hours before the final decision as 'untenable' and 'illegal'. It challenged the bidding process in the Delhi High Court and sought a stay order. Even Sterlite-Macquarie-ADP and DS Constructions-FMG dissented on the award of the bids..
Outlook
Analysts were of the view that even if the case did get sorted out, it was unlikely that the projects would be completed on time and in line with the several conditions, some of which were quite difficult to comply with. One of the responsibilities given to the bidders was to clear the slums at the Mumbai airport. It was anticipated to become another roadblock to the modernization of the airports...
Exhibits
Exhibit I: Services Provided by AAI
Exhibit II: World's Top Ten Airports
Exhibit III: Mandatory Projects to be completed by the Winning Consortium by 2010
Exhibit IV: Information about the Bidders
Exhibit V: Marks Awarded to various Bidders by EC for Delhi Airport
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