Andy Mukherjee BIAL Article in Bloomberg - How BIAL distorts the truth

Commentary by Andy Mukherjee

June 2 (Bloomberg) -- What should have been a moment of fulfillment for India, after 17 years of false starts, delays and disappointments, is rapidly turning into a farce.

It has been less than a week since a brand-new airport opened in Bangalore, India's computer-software capital, and already there is a big question mark over whether the Indian government will be able to keep a key promise it made to private investors to get them to build the airfield.

The $618 million project, partly owned by Siemens Project Ventures GmbH and Unique Zurich Airport, is embroiled in a law suit initiated by Bangalore City Connect.

The citizens advocacy group is contesting the government's 2004 commitment to Bangalore International Airport Ltd. -- which owns and operates the new facility -- to close down the city's rickety, old, state-managed airbase, which was built in 1964 to test military planes and was later pushed into civilian service.

In granting monopoly rights to the new company, public interest has been neglected, City Connect says in its petition.

One objection is that the new airport is too small because planners underestimated demand.

As a result, it will be operating at full capacity in its very first year with traffic growing 30 percent annually. To close down the existing airfield, situated inside the city, and direct all travelers to a new one at Devanahalli, 40 kilometers (25 miles) from the city center, is madness, the critics say.

``All over the world wherever a private monopoly is created, public interest predominates,'' says T.V. Mohandas Pai, a member of the citizens group and a director of Infosys Technologies Ltd., India's second-largest computer-software developer.

Monopoly Rights

``Government has given a monopoly and it was done in circumstances that existed five years ago,'' says Pai. ``Things were totally different, there wasn't much traffic and growth was slow. Bangalore wanted an international airport.''

Albert Brunner, chief executive officer of the new airport, disputes that assessment. The existing runway can handle 20 million passengers a year, he says, compared with the 12.5 million expected in the first year of operations.

Besides, there's a plan to build a second runway, he says. But what he can't do anything about -- and what I suspect is the real issue here -- is ground transportation.

It has been eight years since the location of the new airport has been known; in all that time the state government of Karnataka state -- of which Bangalore is the capital -- didn't bother to build an expressway.

$488 Billion

The net result is this: A software engineer working in Electronic City on Bangalore's outskirts may end up spending three hours on the road to catch a one-hour flight to another destination within India.

That, more than anything else, is why frequent fliers of Bangalore are feeling cheated with an airport they have eagerly awaited for so many years.

The new airport is spread over 4,000 acres, has eight aerobridges, nine remote bays, 53 check-in counters and parking space for 2,000 cars. The old airport didn't even have a lounge for international business-class passengers.

India can't allow the Bangalore airport to become a public- relations disaster.

At stake is $488 billion in capital that the government estimates it would need to ease shortages in infrastructure: roads, ports, airports and power stations.

Independent Regulator

In the future, the national government has to view every project in its totality by making an inventory of amenities that a state or a municipal authority is expected to provide. The fees, tolls and levies accruing to sub-national governments from any project must be linked to these milestones.

And when the rules of the game have to be tweaked midway -- as at times they must be -- it helps to have these judgments come from independent regulators who have the expertise to make nuanced, data-based decisions that may be acceptable to all stakeholders.

Finally, demand estimation is too important to be left entirely to experts.

Companies such as Google Inc. are harnessing the power of prediction markets -- which gather information from a large number of participants -- to generate useful forecasts.

There's no reason why governments can't do the same.

(Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Andy Mukherjee in Singapore at amukherjee@bloomberg.net