According to sector experts, UDF charges are
likely to go up in the absence of ADF
|
While Civil Aviation Minister Ajit Singh and
some experts say abolition of the airport development fee (ADF) at the Delhi
and Mumbai airports from January 2013 would lead to lower cost of travel, it
might actually do the opposite.
Experts say the expected financing gap in the
case of Mumbai International Airport Ltd (MIAL) will be Rs 4,200 crore and in
the case of Delhi International Airport Ltd (DIAL) Rs 1,500 crore. Domestic
passengers pay Rs 200 and Rs 100 as ADF at Delhi and Mumbai airports,
respectively, and international passengers pay Rs 1,300 and Rs 600 a trip,
respectively. Delhi also levies a user development fee (UDF) of between Rs 190
and Rs 450 on domestic passengers and Rs 400-1,000 on international travellers.
Sector experts say in the absence of ADF, the
UDF charges are likely to go up. The amount will be fixed by the Airports
Economic Regulatory Authority.
A GMR Group (it runs DIAL) spokesperson earlier
told Business Standard that raising funds in the next two to three months to
compensate for the loss of ADF (that is, raising debt and debt/equity to fill
the gap) would be difficult. Adding, the government's move will pose challenges
for private investors in the project, too.
Amber Dubey, partner and head-aviation at global
consultancy KPMG, feels the low passenger traffic and profitability could make
it difficult for airport operators to raise fresh debt or equity. Add an
increased cost of funding in the present business environment, making debt and
equity more expensive. In the project agreements, experts say an airport
operator is allowed to recover the entire funding gap plus returns on the debt
or equity brought in, plus the additional taxes, if any, from passengers.
That's what will make airport rates higher for passengers in the long run.
Plus, UDF can always be revised if traffic
falls, say experts. If the project cost increases, UDF will be used to provide
more returns.
Another analyst feels even if we assume UDF will
not be raised, with most airlines not seeing a good business environment, they can't
afford to pass on the benefit of no ADF. And, passengers are only given a fixed
figure they need to pay for travel, not a breakdown of costs.
Therefore, nothing stops airlines from not
retaining the cost they charge today. Especially on the Delhi-Mumbai route, the
competition will not let airlines/airports allow a lower charge structure.
ADF is charged to bridge the project funding
gap. That is, it is a 'capital receipt', not taxable. Assume the airport
company needs Rs 1,000 crore and manages to get Rs 800 crore. For the remaining
Rs 200 crore, the government allows it to raise this by way of ADF. This Rs 200
crore can be put to use entirely for infrastructure costs like building
terminals, runways and so on. For calculation of fare, only Rs 800 crore will
be factored in and not the Rs 200 crore.
UDF makes up for a revenue shortfall if an
airport is not able to get enough returns on its investment and is not
economically viable. It is a 'revenue receipt'; that is, taxable. Taking the
earlier example, the airport company is supposed to pay taxes to the Airports
Authority of India and other taxes from the Rs 200 crore raised. Hence, it
retains very little for its own usage. For calculation of fare, only Rs 1,000
crore will be factored.’
http://www.business-standard.com/india/news/cheaper-air-travel-could-be-illusory/490013/\
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