Sucheta Dalal :Turbulence over Nagpur Airport project
Sucheta Dalal

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Turbulence over Nagpur Airport project  

Oct 24, 2005


The Karnataka International Airport is not the only one that is in the eye of a political storm. The loss-making Nagpur Airport, which was granted international status in April 2005, was on its way to become the focal point of a huge, 3310 hectare, industrial and transport hub. Instead, it may be headed for controversy if Civil Aviation Minister Praful Patel refuses to hand over the project to the Maharashtra Airport Development Corporation (MADC) as agreed. The minister made a public statement to this effect at the renaming ceremony of the Nagpur airport last week.


Airport development was the focal point of the Multi-Modal International Airport and Cargo Hub at Nagpur (MIHAN) and it involved transferring the assets of Nagpur airport by the Civil Aviation Ministry to the Maharashtra government at a nominal cost of Re 1.


In lieu of this transfer, the Civil Aviation Ministry had negotiated a waiver of stamp duty and other taxes applicable to the modernisation of Mumbai airport. This was agreed and crystallised in August 2005 and a draft Memorandum of Understanding (MoU) was also prepared on the basis of a due diligence and techno-economic feasibility report. The handover of Nagpur airport was considered such a done deal that when Alliance Air decided to convert its fleet into cargo carriers, the Civil Aviation Ministry wrote to MADC seeking clarification on various arrangements, says R.C. Sinha, managing director of MADC.


The minister’s statement has however set the cat among the pigeons at MADC; there is shock and consternation all around and Sinha is clear that an early transfer of the airport to MADC is crucial to the MIHAN project. Chief Minister Vilas Rao Deshmukh has already held a quick meeting with Sinha and he plans to seek the intervention of the Prime Minister if necessary.


We also learn that the tax exemptions to the tune of Rs 250 crore proposed to be granted by Maharashtra to the airport development project may now be in jeopardy. However, Sinha says he is hopeful that the issue will be resolved quickly and amicably.


Patel’s statement is carefully vague. He maintained that the airport will eventually be handed over, but only after the cargo hub is developed. Patel is surely aware that airport expansion and modernisation must happen simultaneously with other infrastructure projects. Instead of recognising this, he raised doubts about the MIHAN project with a rhetorical question about who would be responsible if it fails to take off. A quick look at MIHAN’s progress would put the minister’s comments in perspective.


The MIHAN project is being developed by MADC, which is a special purpose vehicle whose biggest trump card is probably that it is headed by Sinha, a bureaucrat with an outstanding record of implementing large infrastructure projects. Sinha was responsible for CIDCO city near Mumbai, the showpiece Mumbai-Pune Expressway and Mumbai’s 40 odd flyovers.


Many concession agreements developed under his leadership have now been adopted by states such as Andhra Pradesh and West Bengal. Sinha has already moved fast to put in place a 3310-hectare infrastructure development plan aimed at exploiting the unique location of Nagpur at the geographical centre of the country. After lying dormant for eight years, MADC has now completed acquisition of 1240 hectares, drawn up detailed development plans and appointed consultants for implementing key aspects of the project. This includes a Special Economic Zone (SEZ) that has already been cleared by the Commerce Ministry (1357 hectares), a health city, Information Technology Park (300 hectares), an ultra modern road terminal and other amenities such as hotels, international school, utilities and entertainment facilities.


In power-starved Nagpur, all these plans become feasible only with the setting up of a 100 MW captive power plant that expects to supply lower cost power than is currently paid by commercial establishments. Each segment will be developed as a separate public-private partnership, with MADC holding anywhere between 26 to 49 per cent of the equity. MADC’s equity contribution will be only in the form of land.


So far, Kirloskar Consultants have been awarded the contract for water supply, sewage disposal and storm water drainage. Mott MacDonald has won the bid for Power Transmission and Distribution network, Span Consultants for the Road Network, Ernst & Young has been appointed to work out the business plan for the 100 MW captive power project and M/s Darashaw is appointed to work on the concession agreements and details of the Road Terminal and Crisil for the Rail Terminal.


All this work could be affected as soon as there is ambiguity over the development of the Nagpur airport. The loss-making airport is suddenly attractive because of MADC’s plan to make it viable with minimal investment. For instance, Chief Minister Vilasrao Deshmukh, who is Chairman of MADC, has slashed sales tax on aviation fuel from 25 per cent to 4 per cent to make Nagpur an attractive night-parking and refuelling facility; airlines such as Kingfisher and Go Airways have already responded to this change.


It has also been talking to international aviation majors such as Boeing and Airbus to bring their maintenance business to Nagpur. Today Indian aircraft go to Brussels or Hong Kong for maintenance and certification. With over 500 aircraft expected to operate in India, a world-class maintenance facility is fast becoming an infrastructure imperative.


However, its expansion into a major passenger and cargo hub would require the broader MIHAN plan to drive business to the airport. Why should a Union Minister from Maharashtra raise vague doubts about implementation when the project is making rapid progress? Unfortunately, politicians are always keen to control large infrastructure projects.


An interesting sidelight to the MIHAN project is that Congress President Sonia Gandhi had written to Prime Minster A.B. Vajpayee in March 2000 asking him to hasten clearances to the project. Will she now make a push to ensure that nothing is allowed to sabotage the plan? The Finance Minister may express confidence at continued foreign investment in India, but the government cannot have failed to notice that the world is no longer gushing about our economic potential. Instead there is a growing consensus that bad government and pathetic infrastructure could derail India’s growth potential.


-- Sucheta Dalal