CAG report on Privatization of Delhi International Airport

The news-world in India is abuzz with the tabling of CAG report in the parliament and its implication on the government. Much has also been disclosed about the contents of the report. This write-up is an attempt to explain simplistically the contents of CAG report with respect the privatization of the Delhi International Airport so that even the novice could understand it.

Delhi International airport is built and maintained by Delhi International Airport Ltd (DIAL). It is a private company. It is a joint venture of consortium GMR group (54%), Airport Authority of India (26%) and Fraport and Eraman Malaysia (10% each). It means the money required (technically called ‘equity capital’) has been invested by these parties, in the capacity of proprietor, in the proportion indicated in the parenthesis next to them. The break-up of contribution of various players towards equity capital may be tabulated as below:

Investor	Contribution (in %)	Amount (in Rs crores)
Private GMR Group Fraport Eraman	54 10 10	1323 245 245
Government Airport Authority of India	26	637
TOTAL	100	2450

The CAG smells of corruption or irregularity in the award of contract to build and maintain Delhi airport because of the undue favors being granted to the private consortium for paltry sum of money.

There are many dimensions to the irregularities being reported by the CAG about DIAL.

a.       The CAG slams the government for the very intention of inviting private participation. The money required for the projected has been raised from the following sources and in the following proportions.

Source	Percentage	Amount (in Rs. Crore)
1.      Private equity capital 2.      Government Equity	14.4 5.0	1823 637
A.     Total Equity (1+2)	19.4	2450
1.      Loans 2.      Security Deposits 3.      Internal Accruals 4.      Airport Development Fee	41.6 11.6 0.4 27	5266 1471 50 3415.35
B.     Other Sources	80.6	10202
Grand Total (A+B)	100	12652

Thus, it is clear from the above table, that private companies just invested Rs. 1823 crore but were able to raise Rs.10202 crore from loans and other sources. This has been refuted by CAG. Any book on commerce would suggest that it is prudent to raise loans only to the extent of twice the equity capital. To put it numerically, the ratio between debts and equity should ideally be 2:1, but in this case, it is 4:1. A question as to what is wrong in raising loans may be pondering your mind. It is like this: the contributors of equity capital are entitled to the profit left over after making payment to those who have given loans (creditors). Thus, by making very small investment, private companies have been allowed to make windfall gains. The contention of the CAG is that this deal of award of contract to a private party has let the latter to make windfall gains by a meager investment. Instead, the government could only have made that investment and made profit.

The idea of inviting private participation must have emanated from the need to invest huge money into the project which the government is unable to finance on its own. So, if the private party is also raising loan instead of putting its own money, then government could only have raised loans and grab all the profits (the raising of little amount of loan is not objectionable but such disproportionate loan is not acceptable). What purpose has been served by this deal? It just paved the way for private party to make profit.

b.      Now the second dimension. Initially when the deal was struck, way back in 2004, the DIAL was granted the project for the period of 30 years with a further concession period of 30 years subject to “the mutual agreement and negotiation of terms”. But later when the deal was signed in 2006, the clause incorporating the words “subject to the mutual agreement and negotiation of terms” were mysteriously dropped and DIAL was given the unilateral right to extend the concession period by another 30-years – and as in the same terms as in the first concession period. Thus, it got a deal for 60 years when it bid for just 30 years. This undue favor to the private parties has also led to suspicion of corruption.

c.       The contract was awarded to the one who bid for the highest share of revenue to the Airport Authority of India (AAI). Thus, GMR group-led consortium was awarded the consortium on the merit of its bid to share the revenue to the extent of 45.99% with the AAI. But the catch lies in the fact that several key revenue areas- ground handling, cargo handling, parking fees etc., - have been left out of the definition of aeronautical revenue and are thus not taken into calculation of the revenue to be given to the AAI. The report says just 30% of revenue is taken into consideration while calculating the revenue to be given to AAI.

d.      The government has also faulted in the sense that it granted a near-monopoly to the private party for running the airport in the area for about 60 years, A clause in the agreement reserves the right of the GMR group – led consortium to bid for any airport in 150-km radius and take away the deal even if its bidding price is less than utmost 10% of the best bid by matching the best bid. Why should there be so generosity towards one private party on the part of government?

e.       The most stinking part of the deal is the grant of land. Initially, about 4608.9 acres was granted in return for an infinitesimal rent of Rs. 100 per annum. About 5% of this land can be used for commercial purposes. Later, an additional 190.19 acres has been granted for a meager one-time payment of Rs. 6.19 crore, needless to say, even 5% of this land can be used for commercial purposes. Thus, the private consortium has been allowed to develop 239.95 acres of land (5% of the total) for a one-time payment of Rs. 31 lakh (5% of 6.19 crore) and annual payment of Rs. 100!!!

Thus, the action of the government has drawn ire of the CAG.

(Inputs to this article have been borrowed from THE HINDU daily and firsrpost.com)

Tit-Bits of Olympics 2012

·         Yi shilling of China snatched the first gold medal of the event when she won ‘the yellow metal’ in 10m rifle.

·         London 2012 volunteers are called ‘Games Makers’, as they are helping to make the Games happen.

·         ‘Towards One Planet 2012’ is the theme of sustainability upon which the London Olympics 2012 has been conducted.

·         The motto for London 2012 is 'Inspire a generation'

·         There are four original colors of London Olympics identity – pink, blue, green and orange representing energetic, spirited, bright and youthful respectively.

·         GET SET is the official London 2012 education programme.

·         Mascots of London 2012 Olympics – Wenlock and Mandeville.

·         Worldwide Olympic Partners – Coca-Cola, Atos,GE, Omega, Acer, Dow, McDonalds, Panasonic, P&G, Samsung and Visa.

·         London 2012 Olympic Partners – BMW, Adidas, British Airways, British Petroleum, British Telecom, EDF Energy, Lloyds TSB.

·         London 2012 Olympics Supporters – United Parcel Services, Arcelor Mittal, Cadbury, Cisco, Thomas Cook and Adecco.

·         Last Gold Medal – ASADAUKAITE L from Lithunia in Women’s Pentathlon.

·         Four athletes competed as Independent Olympic Athletes at the 2012 Summer Olympics. After the dissolution of the Netherlands Antilles and subsequent withdrawal of the country's National Olympic Committee, athletes from the country who qualified for the Games were allowed to compete independently. Three such athletes qualified.The National Olympic Committee for South Sudan was not established between the formation of that state and the 2012 Olympic qualifying. One athlete from South Sudan qualified for the Games, and was allowed to compete as an independent.

Oscar Pistorious

Oscar Pistorious hogged the lime light in London Olympics. This track athlete, known as Blade Runner, has run into the pages of history.  He is a double-amputee sprinter. He became the first double leg amputee to participate in Olympics when he took part in ''men's 400 meters''. He was also a part of South Africa's 4*400 meters relay. Indeed a source of inspiration to all!!!!

Adjournment Motion - An example

Dear Friends,

As we know, in parliament, an adjournment motion is introduced to discuss any issue of urgent public importance. The motion, if admitted, seeks to suspend the regular business of the house in favor of the discussion on the issue contained in the adjournment motion..

I came across a news item concerning an adjournment motion being introduced in Lok sabha on Aug 8, 2012. The adjournment motion was admitted to discuss the recent violence erupted in Bodoland Tribal Autonomous District in Assam.

An Illustration to the privilege of State Legislature

Privileges are special rights enjoyed by the state legislature. The privileges enjoyed by the state legislature as a whole and its members individually are contained in Article 194 of our constitution.

Accordingly, the state legislature is competent to punish its members and outsiders for breach of its privileges or contempt by reprimand, admonition.

I came across a case of the Karnataka State Legislature reprimanding Kiran Thakur, the editor of a Marathi daily, Tarun Bharat, published from Belgaum for publishing allegedly defamatory report on two MLAs. He was summoned to the floor of house and a resolution reprimanding the editor was passed on July 30, 2012.