In 2019, the Modi Government awarded the Adani Group the rights to purchase six major Indian airports. Commentators questioned the decision because Adani had had no prior experience of running airports. Some said that the rules surrounding the privatisation process had been tweaked to favour the Adani Group's bids. A spate of lawsuits challenging the Adani Group's right to take over the airports ensued. Here, AdaniWatch explores the contentious issues raised in those litigations.
In the early hours of 14 October 2021, the Adani Group formally took over the operations and management of Thiruvananthapuram International Airport in the capital of Kerala in southern India. The group had signed a controversial agreement with the central government-owned Airports Authority of India (AAI) to run the airport for a period of 50 years.
In August 2020, the legislative assembly of Kerala had passed a unanimous resolution protesting the privatisation of the airport. The government of India and the AAI ignored the objections of the state government that has taken to the Supreme Court to challenge the central government’s decision. The legal dispute remains in abeyance. Thiruvananthapuram is the seventh airport to be operated by the Adani Group.
Earlier, unions of employees of the AAI accused the Narendra Modi government of allowing Adani to acquire control of the assets of several airports at artificially low rates. It has been further alleged that the AAI, a public-sector entity, has been deliberately bled to benefit a private corporate entity headed by a person perceived by many commentators to be close to Prime Minister Modi. Adani Group spokespersons have responded by saying that no rules have been violated.
In February 2019, Adani won a contentious bid to take over the operations of airports in six Indian cities from the AAI. The agreements signed between the group and the AAI mandate that the Adani-led conglomerate would have to take over the operations of airports in the six cities of Lucknow (in Uttar Pradesh), Ahmedabad (Gujarat), Thiruvananthapuram (Kerala), Guwahati (Assam), Mangaluru (Karnataka) and Jaipur (Rajasthan) within six months of winning the bid.
Subsequently, in August 2020, Adani acquired controlling interests in companies operating the second-largest airport in India at Mumbai and a new airport coming up to service the sprawling metropolis.
It took India’s second-largest private corporate group a year and a half to complete formalities for controlling three of the six airports and another one year to take over the management and operation of the other three whose operations were privatised. In June 2021, the Adani group sought a further six-month extension, to December 2021, to the deadline for taking over the remaining airports, the ones in Guwahati and Jaipur. In August, the government responded, granting it a three-month extension.
AdaniWatch has previously reported on how rules and guidelines were tweaked during the privatisation process in a manner that appeared to favour the bidding of the Adani Group. Controversial parts of the process included the rejection of advice from the government finance experts, the jettisoning of proposed guidelines stipulating that successful bidders had to have prior experience at running airports, the dumping of an earlier recommendation that successful bidders be allocated no more than one airport, the ditching of constraints applying to successful bidders’ access to attractive real estate close to airports, and the lightning speed of the process.
The outcome led to litigation against parts of the decision. Such litigation relating to the takeover of two airports at Thiruvananthapuram and Guwahati is pending. Meanwhile, the Adani Group has also been accused of violating rules in running the airports it has already taken over at Lucknow, Jaipur and Ahmedabad. Questions linger over the hurried process through which these six airports – five of which were making profits for the government – were taken out of the AAI’s hands, ignoring objections raised by various government authorities.
Thiruvananthapuram Airport (Kerala)
Within a week of Adani winning its bid, the government of Kerala challenged the decision as it pertained to the airport in that state’s capital city, Thiruvananthapuram, in the Kerala High Court. The state government had earlier approached the Modi government and the AAI informing them that it was ready to take over the airport, claiming that it had the right to do so. The Kerala government pointed out that out of the total area of 258 ha in which the airport is situated, the AAI owns only 0.024 ha and that the title to the rest of the land rested with the state government. The employees’ union of the AAI in Kerala filed a separate plea in court.
The state government had formed a company, the Thiruvananthapuram International Airport Limited (TIAL), to participate in the tender process. It argued that it had previous experience in successfully running an international airport in the state whereas the private entity, Adani Enterprises, had no such expertise. The Kerala government also argued that the AAI’s decision to hand over the development, management and operation of the airport was ‘not in the public interest, arbitrary, illegal and violative of the provisions of the AAI Act of 1994. The state government successfully developed and operates other airports in Kerala at Kochi (Cochin) and Kannur under a PPP model.
In December 2019, the Kerala High Court dismissed the petition as not maintainable under the specific provision of the Constitution of India under which it had been filed and asked the state government to approach the Supreme Court, which then set aside the verdict of the high court and remanded the case back to it for a decision on ‘merits’. During the subsequent hearings, the state government and the employees’ union argued that the RFP (request for proposal) was in violation of, and contrary to, the provisions of the AAI Act.
The High Court was, however, not inclined to listen to the state government’s arguments, stating that it had been approached only after the state lost the race during the tender process. The court added that there was ‘no valid ground to cause interference to the proceedings’ and challenge the privatisation of the Thiruvananthapuram airport ‘which is the declared policy of the Union government’.
The court concluded: ‘Interference to a policy framed by the elected government (in Delhi) is trite, is difficult, and the feeble challenge raised herein against the policy is devoid of merit…The bid (by the state government) failed and (it has) now turned against the very RFP under which they participated, with an edge over others…the case set up by them, according to us, is a classic example of the proverbial sour grapes,’ the court concluded, ruling against the state government.
Undeterred by the high court ruling, in November 2020 the Kerala government again approached the Supreme Court of India, asking it to set aside the ‘illegal’ decision of the AAI and the Union government to hand over the airport to a private entity which had had no previous experience in running an airport. The state government argued that the decision of the Modi government was not in the public interest, that the entire process of handing over control to Adani and the tendering process had been ‘vitiated’ by mala-fide intentions, in violation of the AAI Act and ‘an earlier undertaking’ by the Civil Aviation Ministry ‘rejecting the proposal of the State Government to form a Special Purpose Vehicle (SPV) to take over and run the Airport on revenue sharing basis’.
The petition said the airport at Kochi (Cochin) run by the Kerala government had been ‘internationally recognised’ for its performance, is ‘the only airport in the world which is being operated solely by solar energy’, and was earning ‘huge profits, unlike many other airports in the country’. It added that the Chief Minister of Kerala had written to the Union Civil Aviation Minister in November 2018 informing him that his government had ‘been actively associated in transferring land to the AAI, without having any legal obligation to do so, on the explicit understanding that Kerala would be associated by forming an SPV (special purpose vehicle) whenever the AAI felt the need to transfer the management of the airport to any entity’.
The legal dispute is pending before the Supreme Court. Still, as mentioned in the beginning of this article, on 14 October 2021, Adani took over the operations and management of the airport at Thiruvananthapuram.
Guwahati Airport (Assam)
In February 2019, a public interest litigation (PIL) was initiated in the High Court of Guwahati, Assam, in north-east India. The PIL was filed by a group of citizens against the privatisation of the airport in the city. After twelve hearings, the case remains pending. In its last order dated 5 March 2020, the court said that the Assistant General Manager (Finance) of the AAI, Sandeep Aggarwal, who was present in court that day, was ‘inappropriately dressed.’
‘He does not even have the courtesy to have worn a tie and jacket. Prima facie he is in contempt,’ the judge caustically remarked.
Media reports indicate that the Adani Group took over the airport on 8 October 2021. After the management of Guwahati airport asked employees to vacate their staff quarters by 31 August, they protested. Meanwhile, personnel engaged by the Adani Group had started to familiarise themselves with the working of the airport. According to a report in the Times of India, Adani’s takeover was delayed because elections were held in the state in April 2021 and because of pandemic-related travel restrictions. The AAI is constructing a new terminal at the airport at a cost of Rs 1232 crore (US $164 million) that is scheduled to be completed by June 2022.
Mangaluru Airport (Karnataka)
The Mangaluru unit of the AAI employees’ union approached the Karnataka High Court in February 2021 seeking a declaration that the ‘entire bidding process pursuant to the decision of the Cabinet committee’ on 8 November 2018 for privatization of all the six airports was ‘illegal, arbitrary and beyond the scope of the Airport Authority Act, 1994’. The union said the Cabinet decision of 3 July 2019 accepting Adani’s bid of the AEL was illegal and so was the ‘consequential concession agreement’ dated 14 February 2020 between the AAI and Adani.
The petitioner pointed out that the request for financial bids and the draft concession agreement had been prepared without a ‘proper feasibility study’ and that the PPPAC (Public Private Partnership Appraisal Committee) gave its ‘in-principle approval’ after evaluating documents in just four days, including a Saturday and Sunday. It added that within, three days, the AAI prepared, finalised and uploaded the voluminous RFP and Draft Concession Agreement. In addition, the key criterion of the highest ‘per passenger fee’ for domestic passengers on the basis of which Adani won the bid was ‘contrary’ to international procedures and normal bidding processes. Moreover, ‘no base price (was) fixed and thus the bid was beyond the analysis of profit and loss calculations’, it was stated in the petition.
Quoting from the AAI Act, the petitioners claimed that only certain functions of the airport could be leased out and that the concession agreement with Adani went beyond the scope of the provisions of the Act. It was stated in the agreement with Adani that the concessionaire shall be broadly responsible for operation and management of the existing assets of the airport as well as for designing, engineering and financing the construction and development of further/additional ‘Airside, Terminal Side, Land Side and City Side infrastructure for the Airport’. The allocation of these immensely attractive real-estate assets created a veritable gold mine for Adani. Furthermore, the concessionaire was entitled to collect charges from users of the airport for half a century.
The petition alleged that neither the MoCA nor the AAI had explained the criteria adopted for selecting these six airports. It questioned the undue haste shown by the government in privatising the airports that had been ‘functioning smoothly, both from the economic and operational point of view’, adding that the PPPAC had bypassed its own norms in approving the bid. The government had ‘overlooked’ important issues such as avoiding a two-stage system for bidding (using the RFQ and the RFP); that the PPPAC adopted a single-stage approval process instead of two stages (an ‘in-principle’ approval followed by a ‘final’ approval; that the project proposal had been hurriedly scrutinised in two working days; that ‘feasibility’ and ‘socio-economic’ studies had not been done by either the MoCA or the AAI before approaching the PPPAC; and that the total project cost had not been determined.
The union’s petition also alleged that neither AAI nor the MoCA fixed and disclosed the ‘minimum per passenger fee’ (PPF) in the bid document and that even after the opening of the financial bid, the AAI never tried to compare the price offered by Adani with its ‘existing per passenger fee’. Several other questions were raised. If AAI employees were unwilling to join Adani, would the expenses of employing them remain with the AAI after the ‘joint management period’ expired.
While the concessionaire can recoup its investment from passengers by levying a ‘user development fee,’ Adani does not have to share the extra income with the AAI, it was pointed out by petitioner, adding that this was contrary to the way the concessionaires in Delhi and Mumbai airports were operating. In the country’s two largest airports, the private concessionaires earn fees without any cap or ceiling from commercial and cargo revenue but not from levied on passengers.
On the bidding process, the petition pointed out that while GMR quoted a PPF of Rs 303 for a ‘greenfield’ (or completely new) airport that it is constructing with its own money, the fee quoted by Adani for existing brownfield (or already developed) airports with huge traffic flows was considered ‘low.’ The petition also alleged that the bid documents that were circulated by AAI ‘lacked clarity’ and consequently, led to these being interpreted differently resulting in a wide variation in the bids placed.
There were three bidders for operating the Mangaluru airport. GMR quoted a PPF of Rs 18, Cochin International Airport Limited quoted Rs 45 while Adani quoted Rs 115. The increase from the lowest bid (18) to the highest bid (115) was a whopping 539%. For Lucknow airport, the lowest bid was Rs 27 by PNC Infratech while Adani bid a PPF of Rs 171, an increase of 533.33%.
As for the user development fee (UDF), the AAI was levying UDFs at the following rates. In Ahmedabad, domestic passengers were each paying Rs 110 while international fliers were paying Rs 415 from August 2010.In Thiruvananthapuram, the UDF was applicable only to international fliers at Rs 755 and the AAI started collecting these amounts from 1 August 2010. The Airports Economic Regulatory Authority (AERA) of the Indian government that operates under the Ministry of Civil Aviation, determines the UDF and these vary from airport to airport. The rationale for allowing the AAI to levy an UDF is to enable it to recover the money it has invested in the development of terminals and other facilities, akin to a toll on a highway constructed by a private company. These charges are revised once in every five years by the AERA.
It is not clear if Adani will be allowed to charge UDF. But what is clear is that the more the number of passengers using the privatized airports, the higher would be the total revenue for the concessionaire and this would not have to be shared with the AAI.
Compounding the opacity in the bidding process, a RFQ (Request for Qualification) was absent. Before awarding a contract for a PPP project, a government authority almost always evaluates the previous experience of a bidder. This clause was wilfully removed in this instance by the EGoS, contrary to the guidelines notified by the Ministry of Finance for the PPPAC. In addition, the petition of the employees’ union of the AAI in Mangaluru alleged that the absence of a clause relating to operations and maintenance (O&M) violated the Aircrafts Rules of 1937.
It added that while the Union Cabinet headed by Prime Minister Modi ‘rushed’ through the bidding process. After Adani won the bids, it took five months for the government to approve the formal handing over of the assets of the airports. The petition added the following airport-wise calculation sheet for monthly revenues while claiming that the ‘per passenger fee’ basis on which Adani won the bids would result in the AAI and the national exchequer losing substantial revenue (see Chart 1).
The petition of the AAI Employees Union submitted before the Karnataka High Court also calculated the effective per-passenger revenue that the two largest privately operated airports in the country, Delhi and Mumbai, earned through a revenue sharing model, which pays a share of gross revenue to the AAI instead of a per passenger fee, to show, that under the new model, AAI (and hence, the government) would stand to lose revenue (see Chart 2).
The petitioner asked the court for all records related to the entire bidding process for verification to ascertain whether the request for proposal (RFP) and the concession agreement between the government and Adani were legal. During the court hearing, the lawyer representing the employees’ union argued that since no revenue was being generated for the AAI the agreement could not be described as a public-private partnership project: ‘The airport is given to a third party… This is not a partnership but just giving away. The premises of the airport can be leased but the entire airport is (being) given away to a private person for operations. This is against the principles of Section 12 of the AAI Act’.
He alleged that runways, taxiways and buildings for fire-fighting and rescue staff, that constituted part of air traffic services, were being leased out in an illegal manner. Fire rescue buildings were also being leased out.
‘These … could not have been leased at all,’ he said.
The Union government submitted that since it was very difficult to raise enough funds for development of airports, the money generated by leasing out the airports would be used by the AAI to develop new airports in smaller cities and towns. New Delhi’s views prevailed and the Karnataka High Court dismissed the petition of the union stating: ‘… the policy decisions of the executive are best left to it and a court should not interfere with the policy decision unless the decision of the authority is mala fide, arbitrary, irrational or unreasonable’.
AAI Sinks into the Red Because of Adani?
Despite this setback, the union has evidently not given up its struggle against the privatisation programme and of the Modi government.
In an open letter to Prime Minister Modi, it raised the question as to how public assets worth Rs 1300 crore (US $173 million) in the airports at Mangaluru, Lucknow and Ahmedabad had been ‘handed over’ to Adani for Rs 500 crore (US $66 million). The letter acquired salience since the AAI reported a loss of Rs 2814 crore (US $374 million) in the financial year that ended on 31 March 2021 against a profit of Rs 1985 crore in the previous twelve months. This was the first time since the authority started functioning in April 1995 that its books of account were splashed in red ink. In July, the AAI imposed a pay cut for its employees for six months.
The question that naturally arises is whether the AAI’s losses were on account of the impact of the pandemic on India’s aviation industry in the financial year that ended on 31 March 2021 (FY21)? While this is undoubtedly an important factor, it does not tell the full story. The annual report of the AAI apparently shows that although passenger volume came down between FY19 and FY20, the company’s revenue went up. In FY19, the year before the six airports run by Adani were privatized, the AAI earned a net profit of Rs 2271.44 crore. However, in FY21 the public sector company sank deep into the red.
AAI operates 137 airports in the country. The Indian government states that 102 of these airports incur operational losses. Of the total profit that is earned by the AAI, a significant portion comes from the revenue shared by the private concessionaires that operate the two largest airports at Delhi and Mumbai airports. According to a report on the AAI prepared in September 2020 and presented to Parliament on 29 January 2021, the Committee on Public Undertakings (COPU), a multiparty panel of MPs, the airports at Delhi and Mumbai together generated more than a quarter (27.41% to be precise) of the public sector company’s total revenue in FY19. The report added: ‘The revenue share accrual to AAI from Delhi and Mumbai airports is more than 130% of the Profit After Tax (PAT) of AAI in 2015-16.’
Another notable revelation in the COPU report is that the AAI acknowledged: ‘No comparative study has been conducted by AAI to show that PPP model would be more beneficial for the growth of aviation industry in India.’
Yet the Modi government decided to privatise six brownfield airports of the AAI that were all profit-making at one go. Furthermore, the manner in which the six airports were privatized ensured that Adani doesn’t have to share total revenue, but levy a nominal fee per passenger. In effect, AAI’s earning from these airports, from now onwards, will completely depend on number of passengers using the airport. Earnings from the following sources will not be shared with the AAI: aeronautical charges, cargo movement, land leasing, car parking, advertising income from leasing billboards and hoardings on the airport premises and finally, revenues earned from restaurants, hotels and other recreational facilities within the premises of the six airports.
It should also be noted that in recent months, the government has removed most restrictions of domestic air travel. Whereas airlines operating certain routes still restrict the number of passengers carried by not allowing middle seats to be used, airports charge full fees per aircraft. Moreover, domestic and international cargo movement has been had been opened fully in late-2020. In Delhi airport, hotels and restaurants are functioning almost ‘normally,’ that is, the way they did before the pandemic.
The short point: AAI’s revenue earning potential has been squeezed and the biggest beneficiary is Adani.
Undervaluing Assets of Airports?
The Hindu stated that it had verified the figures cited in the contracts and the record of discussions of a meeting of the Public Private Partnerships Appraisal Committee (PPPAC) held on 11 December 2018 (that approved the bidding process for private concessionaires) and the difference with estimates prepared by the Ministry of Civil Aviation (MoCA) worked out to a deficit of 80% for Mangaluru airport, 75% for Lucknow and 28% for Ahmedabad.
The PPPAC recorded that the aeronautical and non-aeronautical assets of the Mangaluru, Lucknow and Ahmedabad airports were valued at Rs 363 crore, Rs 583 crore and Rs 384 crore respectively. However, in the contractual agreements subsequently signed between Adani Enterprises Limited and AAI, the value of the assets of the airports had come down substantially. Adani has to pay only Rs 74.5 crore for the assets of Mangaluru airport or a fall of 80%, Rs 147 crore for Lucknow airport (minus 75%) and Rs 277 crore for Ahmedabad airport (minus 28%).
‘As per bid documents given to all bidders, the Concessionaire was required to pay the amount of investments made by AAI as on … (31 March 2018), which was predefined in the respective Concession Agreement,’ a spokesperson for the Adani Group told the publication, adding that the costs had been paid by Adani.
This statement by Adani needs elaboration. In the airports that have been privatized, the AAI had invested huge amounts of public money after 2010 for the modernisation of terminals and for other facilities. For example, we have mentioned that AAI is modernising Guwahati airport terminal at an estimated cost of Rs 1232 crore. On 3 February 2021, the Minister of State for Civil Aviation Hardeep Singh Puri informed the Upper House of Parliament (the Rajya Sabha) that AAI will get back the investments it has made in these six airports upfront, the amount coming to Rs 2299.26 crore (AUD.
The AAI employees’ union has alleged that Adani has not paid this amount. Adani denies the allegation. Only an independent investigation can determine the claims and counter-claims.
In addition, the concessionaire was required to reimburse additional expenses incurred by the AAI for the work undertaken after 31 March 2018 until the date of the takeover. It was not clear from the response whether this had been paid by Adani, The Hindu added.
The General Secretary of the Airports Authority Employees Union, B S Ahlawat, was quoted by the publication saying: ‘In a growing business, how is it that the value of assets depreciated between 2018 and 2020? We would like to know if the government helped Adani by bringing down the costs.’
Role of Subhash Garg
The senior government official who had headed the PPPAC at that time, the then Secretary, Economic Affairs in the Ministry of Finance, Subhash Chandra Garg – who had ‘brushed aside several key suggestions made by the Finance Ministry and NITI Aayog, which effectively led to Adani winning all six airports’ – also responded to The Hindu.
Garg, who had put in his papers after he was shunted to a ‘junior’ post in the Power Ministry was quoted stating: ‘The decisions were taken by the PPPAC. I was the Chair of that Committee and I stand by those decisions, but the decisions were not mine alone. They were unanimous decisions of the entire Committee, which also included the Joint Secretary of Department of Economic Affairs and the NITI Aayog Advisor, who made the suggestions (being referred to) and both signed on the decisions. Their suggestions were in the nature of initial observations, but finally even those two members were part of the decision taken by the PPPAC.’
Garg led the committee that hurriedly approved the government decision in two days. As the chairman of the government-appointed Empowered Group of Secretaries, the bureaucrat (who was considered a hand-picked choice of Prime Minister Modi till he fell out of favour with the Finance Minister Nirmala Sitharaman) played a crucial role in overruling the suggestions and objections raised by the DEA and NITI Aayog.
Whereas the employees’ union has called for a judicial inquiry into the way in which Adani was given control over the assets of the three airports, the present government seems unlikely to accede to the demand. The story does not end here.
Violation of Branding Norms
Adani Enterprises Limited, after winning the bids, formed six subsidiary companies to operate the airports. In the first week of November 2020, it took over the operations of Ahmedabad, Lucknow and Mangaluru airports. In the following months, it was alleged that Adani violated branding norms stipulated in the concession agreements, an allegation denied by the Group.
In January 2021 the government nevertheless set up three committees for the three airports to investigate the allegations. Each committee had four members, two from the AAI, one from another government company Engineering Projects (India) limited, and a representative of the Adani Group. The committees found that the branding done by Adani companies indeed violated clauses in the concession agreement after the names of Adani companies and their logos had been prominently displayed in various places in the airport premises.
One committee noted that in Ahmedabad airport, the name of the AAI was completely omitted from the display board that said ‘Adani Ahmedabad International Airport Limited’ and that the size of its logo was nearly six times larger than that of the AAI. Another committee observed that at Lucknow airport, the ‘hoardings displayed by concessionaire (ALIAL) at the airport entrance and exit roads have Adani Airports written on both sides. ’The display signage was no different at Mangaluru airport.
Clause 5.15.1 of the concession agreement states: ‘The airport or any part thereof shall not be branded in any manner to advertise, display or reflect the name or identity of the concessionaire or its shareholder. Save and except as may be necessary in the normal course of business and always with the name of the Authority (AAI), the concessionaire undertakes that it shall not, in any manner, use the name or identity of the airport to advertise or display its own identity, brand equity or business interests, including those of its shareholders.’
Clause 5.15.2 of the three concession agreements stated that the airports will be known, promoted, displayed, advertised and branded by their name only such as Sardar Vallabhbhai Patel International Airport in Ahmedabad, Lucknow International Airport and Mangaluru International Airport. And, ‘if the concessionaire intends to display its own name or its shareholders at the spots where other public notices are displayed for the users, the same will be preceded by the AAI’s name.’
By the end of June, the old hoardings and display boards were changed. The Press Trust of India quoted a spokesperson of the Adani Group stating: ‘We are proud to partner with the AAI and continue to work together to offer best-in-class airport infrastructure to the passengers, ensuring the most seamless and secure airport experience. AAI and Adani Airports have mutually agreed for co-branding at the airports and other related avenues. As per the agreement, logos of both – the authority and the operator – are displayed together in the same size on all the agreed signages and hoardings. Presence of both strong brands demonstrates the true spirit of Public Private Partnership that aims at improving the passengers’ travel experience besides connecting India and the world better.’
What Lies Ahead
Different petitioners, from state governments to employees’ unions, have raised a variety of issues in litigation that has contested the way in which the Indian government privatised six airports, allowing their assets to be taken over by the corporate group headed by the second-richest man in India. Time will tell if, when and how the courts would act (or not) and whether concerns raised by the petitioners would be addressed.