Except for sporadic reports on progress of some "reopen HAL airport" related appeals in the courts, BIAL is rarely in the news these days. After some allegations of misdeeds in the way land was acquired around, and perhaps even for the airport, dust has settled there as well. For me, I am trying to make sense of the PPP aspect, how exactly has the "public" participated in this exercise.
BIAL collects UDF (User Development Fee) from users of the airport. Here is some text on why and how much (PDF on BIAL site, page 5)
The User Development Fee is a fee charged by the airport to develop world class facilities. UDF would apply only from/after the date of operation of the new airport, and would enable BIAL to make the project viable.
Next, GVK acquired some stake in the airport about two years ago. Quoting Livemint report of the time, on "valuation:
With this, GVKPIL, which also runs the Mumbai airport, has increased its stake to 29% in Bial. The Bangalore airport, opened in May 2008, handled 8.7 million passengers in the first year and has been valued at around $1 billion (Rs4,630 crore).
On the gains made by L&T
L&T, which exited the airport project, got Rs105 per share, a return of at least 10 times in five years. The stake acquisition, announced on Sunday, comes on the heels of GVK buying a 12% stake from another shareholder last month.
That 12% stake was acquired from Zurich Airport. Quoting Business-standard July 17, 2010
In November, GVK had acquired 12 per cent of Zurich Airport’s stake in BIAL for Rs 484.6 crore. Both the deals priced BIAL shares at Rs 105 apiece.
Enough of quotes etc, Key point is, the investors got "10 times" their money in just over four years.
Last, "sources" say that BIAL is in black now, has been profitable for a few months or better now.
Now, to end this post, the point is this.
- Why is UDF a fee, and not an exercise to "increase" public's share (via GoK, or some other vehicle) in the PPP? After all the UDF is collected to "develop world class facilities" in a PPP. Granted that private entities take business risk when investing in a PPP. But so does the public (via government holdings). And when public is paying to fund further development, why is that to be seen as "fee", and not as "stake expansion".
- Now that we know that investors got out with a windfall, and the airport is profitable, will BIAL be nice and return the UDF back to us? We can't legally demand that. But do private parties have moral obligation to share the "windfall", esp when part of the windfall has come from tax paying citizens themselves?
- Till when will this UDF continue to be collected. If the Airport is profitable, and even more valuable, what is the reason to persist with it?
I have nothing against BIAL, not as jazzy as some people wish it to be, but its the most efficient of all new airports with good services. I also understand the very valid "what if the Aviation industry had seen a de-growth instead" argument, yes private parties take some "risk". However, I want to know more about how these large PPPs work or should be structured, and how exactly does the 'public', or citizens (who may part with land, who may pay usage or development fees) participate in sharing or shielding the "risk".
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capital gains
If UDF's were to be returned then share price would have been 10 Rs instead of 105 Rs.
How much is the UDF worth
Assuming 10 mill passengers per year, 80% domestic, 20% international. At Rs 200 per domestic, and 1000 per international, you get:
Rs 360 Crores per year from UDF. About $90 million / year
See this in context of BIAL's value, which as of last year was in excess of Rs 4000 crores ($1b). Is it all due to UDF? What will the value be without the UDF? Don't have enough time right now build a DCF model.
Do we have the right to see their balance sheets? How do we know that they are not running a tight enough operation so that they can justify the need for UDF? After all, they have no competition to worry about.
See, they have done nothing wrong. UDF was promised, it is a perfectly legal thing for the them to collect and use. But when people are making 10x returns in 4 years time, should they have some obligation to the "public" in a PPP company or not is my question. Should there be a "windfall tax"on such monopoly situation PPPs?
As for how to return the money, there are a lot of ways BIAL can do this. 320 crore for two years, Rs 640 crore can fund Bus Priority System on many Big-10 routes :) That would be some real corporate social responsibility, BIAL will live on for ages in case studies and on the streets of Bangalore !
p/e
If you say P/E ratio 15, then 360 crore UDF would result in market cap of 5400 crore. That much is just by udf alone. Others factors would be maintainance and other sources of income. Yes, metro or BIAL are public as govt has 26% stake, so all information is accessible by RTI.
Now the airlines pay the UDF
I believe that the user development fee is now included in the ticket fare. The UDF so collected by the carrier companies in turn goes to BIAL, which maintains the airport. This is perfectly legal. One can protest by choosing other modes of transport.
From their own pocket?
Instead of paying to airport, we now pay via the airline.
Hmm, so you are saying PSA Sir, that we can protest by choosing 2 day-long train to Delhi. Or may be, by chartering a private plan from HAL Airport :)
Unprecedented protection from competition should imply "windfall tax" in return. Government's share in the PPP is useless anyway, Govt wouldn't want to sell their share and create a purely private monopoly.
Sounds socialist isn't it. But then a PPP has govt and public involved. If Airport promoters were to take all the risks - acquire land yourself at market prices, put HAL Airport out of competition through superior service, then why not. Keep all the returns with you, 10x or 100x.
Can the HAL airport be opened for domestic flights?
I remember the traffic jams at old airport road. Once my son was about to miss his flight to USA. He had to abandon my car and walk the final kilometer with his huge suitcase to make it. The new airport could not have been delayed any more that it did.
It may be a good idea to reconsider opening of HAL airport for domestic flights. This will save a lot of wasted man-hours and UDF money at least for domestic flights!
neo public sector
With ever increasing demands for higher budget allocations for merit goods, and rightly so, PPP becomes the inevitable route for all future development activities, particularly in the area of infrastructure. And, with each of them having its own peculiarities, structuring the individual deals to make the participants totally accountable to the public is a major challenge. Adding to the complexity are the various external factors, over which the participants may not have any control. Given such a scenario, perhaps the term 'public sector' should now be re-defined to cover these, with higher demands on them for transparency and accountability in the functioning.
Perhaps PRAJA should suggest this to the National Advisory Council.
Frauds and Scams in PPP should be in lokpal!
With tempers running high with solidarity for Anna, misplaced though, many of us have missed the important issues that doesn't find way in lokpal bills. As Murali sir said, PPP is going to be the preferred route for execution of the public projects. Strangely in our blinders with one or the other lokpal bill, we are overlooking some important issues corruption via PPP and areas alike.
There is a very interesting view point put forward by the lawyer Mukul Sinha in DNA.