Summary:
- GMR made the highest bid for management and development of the greenfield Bhogaparum Airport;
- A new system is in operation by which the organisation which will pay the highest per-passenger fee wins;
- It has already produced an anomalous result with Adani Group bidding very highly for the concession on five airports, and winning easily on each one.
GMR made the highest bid for the management and development of the greenfield airport, with Adani Group bidding very highly for the concession on five other airports under a new system in which the organisation which offered the highest per-passenger fee won the management contract.
Bhogapuram Airport is a new international airport construction project for the Indian state of Andhra Pradesh. The airport is to be located in the town of Bhogapuram and will serve the wider port city of Vizianagaram, and Srikakulam, districts. The Government mandated that the project would have the capability to handle 18 million passengers per annum, when completed over three phases and it was planned right from the start to be capable of handling A380 services.
MAP - The greenfield airport is located in the town of Bhogapuram and will serve the wider port city of Vizianagaram, and Srikakulam, districts
Source: Google Maps
The Andhra Pradesh's Government created Bhogapuram International Airport Company, a wholly-owned special-purchase vehicle for its development, with authorised share capital of INR500 million (USD7.9 million). Following the preparatory phase, the Government would divest a stake in the company to a developer through a bidding process.
15,000 acres were initially required for the project, which will include airfreight facilities and cargo infrastructure but this was later scaled down dramatically to 5,040 acres in response to landowner protests, comprising 3873 acres acquired from private land holders and 1167 acres of government land. The project requires relocation of 10,241 residents.
As is sometimes the case with Indian airport construction and investment, the procedure, which began in 2015 with an anticipated opening date before the end of 2020, has been somewhat drawn-out, with strong local opposition. On several occasions land acquisition was halted. Moreover, several government ministries had to give approval after the project had initially received authorisation.
In the latest submissions, GMR offered INR303 as a per-passenger fee as against DOIT Smart Infrastructure's offer of INR261 and GVK's INR207, respectively per passenger to the Government.
The state government explained its decision-making process: "In the bids we opened, GMR offered the highest amount as passenger fee to the Government and thereby outbid others. "This is as per the new norms which the Government has adopted to encourage private sector players to develop airport infrastructure in the country. This is similar to what even Airports Authority of India has adopted."
Once the bids are approved by the Board of Andhra Pradesh Airports Development Corporation, they will be forwarded to the Government and after the State Finance Ministry approval, put up for State Cabinet approval. The winning developer must complete the project within 36 months. An earlier bid process was cancelled by the State Government after it decided to invite fresh bids with new terms, including development of an MRO and training facilities.
This new method of assessing bids by the value of the per-passenger fee payable has already led to some interesting consequences and may have caught out some companies which are inexperienced in the sector. Adani Group, an Ahmedabad-based conglomerate which had previously bid for airport concessions but which was only active at one airport - Dhamra - and only since late 2018, obtained five 50-year contracts to run Ahmedabad Dholera International Airport, Thiruvananthapuram Trivandrum International Airport, Lucknow Amausi Airport, Mangalore International Airport and Jaipur Sanganeer Airport from AAI.
TABLE - Airports Authority of India (AAI) has detailed the official bids for the five airports obtained by Adani Group
Source: Airports Authority of India (AAI) Note: bids are price per passenger in INR
The concession attracted interest from 15 potential investors and AAI issued a press release on 25-Feb-2019 detailing the bid figures for all five airports. As can be seen, Adani bid well over everyone else in each airport category, and in the case of the most lightly-used one, Mangalore (2.3 million passengers in 2018) bid over six times what GMR did.
It remains to be seen how the various parties will react to further concession activities (politicians and trade unions have already reacted adversely to this deal) and how the new procedure will weigh on the considerations of foreign investors, of which there were two (Flughafen Zurich and AMP capital) in this process, with both bidding relatively highly for the airports they showed interest in.