AIRPORT PRIVATISATION AND LOCAL GOVERNMENTS
AIRPORT PRIVATISATION AND LOCAL GOVERNMENTS
Air transport is a growth industry. While global GDP doubled between 1970 and 2000, passenger traffic quadrupled, while cargo grew six times. Governments across the world have found it hard to sustain the capital investments necessary to cope with this growth. Hence, the need to bring private players into the airport infrastructure space is driven substantially by fiscal constraints, and partly by ideology.
In India, we are just beginning the process of private sector participation in airport infrastructure, with a handful of projects at the major metros. There are many debates about the extent and nature of private sector participation; different forms of ownership, investment and management are available, each with its own trade-offs.
However, I want to focus on another aspect of airport privatisation: ownership of the public interest and related governance issues. I want to set this in a federal context, i.e. the roles played by union, state as well as local governments in such projects. There are close to 450 airports/airstrips in the country, and the Airport Authority of India (AAI) owns 92 of them, and civil enclaves at 28 defence airports. With privatisation, the doors are being opened for state governments to take a stake in the build-out of airport infrastructure. The Bangalore International Airport (BIAL) ownership structure is a classic example: while 74% stake is held by private players, the 26% public stake is held equally by AAI and the Government of Karnataka.
This ownership structure has implications not only for investments, but for governance, because it defines the primary stakeholders of the airport. There are two reasons why this is important. The first has to do with airport economics itself: there is a decreasing trend in “airside” revenues, what you would typically think an airport is about - runways, aprons, terminals; and an increasing trend in “landside” revenues – passenger services, food and beverage, parking, hotels, offices. The Ministry for Civil Aviation itself acknowledges, “Across the world, the trend is towards a very high percentage, ranging from 60 to 70%, of the total revenue of airport operators being generated from non-aeronautical sources at major airports.” If only 30% of airport revenues come from airside activities, what justifies the exclusive jurisdiction of AAI over the airport?
The second has to do with the impact that airports have on the regions in which they are located, right from the acquisition of land (4,000 acres were acquired for BIAL, much of which will be used for landside revenue generation). As we begin using these airports, we are bound to take shots at city governments when we get stuck in traffic jams, curse the lack of integrated transport planning that could allow us to take a train or a public bus, xlook wistfully at the drying lake-beds and shake our heads at the rampant zoning violations. And overlook the fact that the airport is actually not even in the city, but located in the Gram Panchayat on the outskirts, where we may occasionally catch a glimpse of the Panchayat President who now has to govern a fragmented jurisdiction over which he has little control.
If local governments have to deal with these implications, where will they get the resources from? How will the AAI and Karnataka government’s share of BIAL flow back into the Greater Bangalore region to ensure that the various challenges thrown up by the airport can be adequately addressed? Why should local governments –urban or rural – be at the bottom of the totem pole?
The London airport privatisation through BAA is often quoted as a success story. What is less known is the contribution of BAA to local revenues. In testimony that David Suomi of BAA gave to the US Congress, he said, “In 1998, BAA paid the equivalent of $100 million in local property tax.”
Consider that all the local governments in the Bangalore region generate barely Rs 350 crores in property taxes right now. 4,000 acres could fetch anywhere between Rs 20 - 50 crores of property taxes every year, not a small piece of change.
Given the impact that airports have on local governments, and given the economics of airports, can we not think of ownership structures that give local governments a stake? In addition to providing an economic stake, it could also give these governments a seat at the governance table, where continuing decisions will be taken. One solution could be to have a 3-way split between AAI, the state government and the local governments - 8% share for each.
These ideas are not far-fetched. The entire concept of airport privatisation is barely two decades old, with multiple models being attempted. There are cases where ownership exists with local governments, as in the United States: Chicago, San Francisco and Los Angeles are examples. In a study of airport privatization there, Tazewell Ellett wrote, “The FAA (Federal Aviation Authority) should recognize that there are several reasons why the desires of the FAA’s traditional aviation industry constituency should be secondary to the desires of the local government and its citizens. The federal government’s interference in local decisions relating to the ownership, financing, and management of a locally owned airport is particularly inappropriate in light of the federal government’s strong ‘federalism’ policies, which require that governmental decisions be made at the lowest appropriate level.”
As we move gears towards the serious development of our airport infrastructure, we also need to have more nuanced and substantive debates not just on the mode of bringing private sector participation, but about the roles played by various levels of government. Here again – as is invariably the case in India – it seems that there currently is no seat at the table for local governments, the ones most directly affected by the policies and politics of airport privatization. This must change.
.................................................................................................................
The author is founder of Janaagraha. He can be reached at ramesh@janaagraha.org