No.AV.24032/4/2012-AD Government of India

Ministry of Civil Aviation *****

B-Block, Rajiv Gandhi Bhavan, New Delhi-110003 9 th March, 2012

To

The Chairman, Airports Economic Regulatory Authority, AERABuilding, Safdarjung Airport, New Delhi

Sub.: Determination of aeronautical tariff in respect of IGI A, Delhi ­Consultation Paper 32/2011-12.

Sir,

Kindly refer to the above mentioned Consultation Paper.

2. . -In this regard also refer to Section 13(1) (vi) of the AERA Act which provides that the Authority while determining the tariff for 'aeronautical service' shall, inter­alia, consider the concession offered by the Central Government in any agreement or memorandum of understanding or otherwise. The Authority has also reiterated that in the determination of tariff for individual airports, it will give due consideration to the extant concession agreements.

3. In this connection, it is clarified that as per State Support Agreement entered with DIAL by Government of India, the agreement provides that the Base Airport Charges (i.e. Landing, Parking, Housing & X-Ray Baggage charges and Passenger Service Fee) have been stipulated as aeronautical charges. Cargo and Ground Handling Services have been stipulated as non-aeronautical services in Schedule 6 of Operation, Management and Development Agreement (OMDA) entered into with the JVCs by AAI.

4. The AERAAct, 2008 provides that any service provided "for Ground Handling services relating to aircraft, passengers and cargo at an airport", "for the cargo facility at an airport"; are aeronautical services in terms of Section 2(a) and the tariff therefore has to be determined by the Authority in terms of Section 13(1) (a) of the Act. The nature of these services is clearly indicated as "aeronautical services".

5. It is seen that Cargo and Ground Handling services are being treated as aeronautical services as per Section 2 (a) of the AERA Act (Para 402 of the Consultation Paper). However, as per the Provision of OMDA and SSA, cargo and

~

Ground Handling services are categorised as non-aeronautical and the revenues accruing from these services may be treated as non-aeronautical revenue.

6. AERA should adhere to the relevant provisions of the contractual agreements in the process of determination of tariff.

7. This issues with the approval of Hon'ble Minister of Civil Aviation.

Yours faithfully,

(0& Under Secretary to the Govt. of India

Ph.0l1-24640214,0l1-2461054 2(Fax)

No.AV.24026/001/2009-AAI Government of India

Ministry of Civil Aviation *****

B-Block, Rajiv Gandhi Bhavan, New Delhi-riooog 9 th March, 20121"/'0/

/ The Chairman, Airports Economic Regulatory Authority, AERA Building, Safdarjung Airport, New Delhi

Sub.: Determination of aeronautical tariff in respect of IGI A, Delhi ­Consultation Paper 32/2011-12.

Sir,

Kindly refer to the above mentioned Consultation Paper.

2. On perusal of the Paper, it is seen that vide Para 456 of the Paper, a separate rebate mechanism as part of tariff is proposed to be prescribed as a penalty for not meeting the service standards in addition to those prescribed under the contractual Agreements in force. Kind attention is also invited to sub-section (1) (d) of Section 13 of the AERA Act which stipulates that AERA is to monitor the set performance standards relating to quality, continuity and reliability of service, as may be specified by the Central Govt. or any Authority authorized by it in this behalf. Therefore, AERA can only monitor the set performance standards.

3. This Ministry has been asking AERA to indicate the proposed performance standards, and also forward the related draft Rules for notification. The response of AERA to the above is long awaited despite repeated reminders from this Ministry. It needs to be appreciated that in the absence of any Rules prescribing performance standards, it may not be justifiable to prescribe a separate rebate mechanism as part of tariff determination as has been proposed in the Consultation Paper. Under the statute, AERA clearly has not been mandated to impose additional quality parameters and penalties over and above those prescribed in the OMDA.

4. It is pertinent to mention that there is a provision under OMDA prescribing fixed objective and subjective service quality standards and also the mechanism of penalty and fines in the event of a failure by DIAL to meet such service quality standards. This Ministry had advised AERA vide its letters dated 04.01.2010 and 15.06.2011 to monitor the performance standards as prescribed in the Concession Agreement (for Hyderabad and Bangalore airports) and OMDA (for Delhi and Mumbai airports) entered into with respective JVCs.

5. In the light of above, AERA may re-consider its decision regarding separate rebate mechanism as part of tariff, as it is in non-conformity of the agreement entered into with the Nes.

Yours faithfully, (;:. ~ //

W)~,/' (Oma Nand)

Under Secretary to the Govt. of India Ph.Oll-24640214,Oll-24610542(Fax)

,/ ./

No.AV.24032/037/2011-AD Government of India

Ministry of Civil Aviation -X-·)l--l(· _x, -)l­

B-Block, Rajiv Gandhi Bhavan, New Delhi-ll0003

12 th March, 2012

The Chairman, Airports Economic Regulatory Authority, AERA Building, Safdarjung Airport, New Delhi

Sub: Regulatory Approach on Fair Rate of Return on Equity (RoE) - reg.

Sir,

I am directed to refer to your D.O. letter No. AERA/35090/PMO REF/2009­10 dated 08.09.2011 on the above subject and to say that Airports Authority of India got a study conducted through a Financial Advisor namely M/s SBI Capital Markets Ltd. (SBI CAPS). The Financial Advisor has since submitted its report and has opined that a return on the Equity in the range of 18.5% to 20.5% would be reasonable for airport sector in India. A copy of the report of the Financial Advisor is enclosed.

':1- . On the Quasi Equity for the airport sector, the study has concluded that the rate of return would depend on the type and features of the instrument being used

-for such form of finance. The report further states that in case of Quasi Equity, the risk/return profile lies above that of debt and below that of Equity.

3. The report of the Financial Advisor may kindly be consideredm taking decision in this regard.

4. This has the approval of the Hon'ble Minister of Civil Aviation.

(m and) Under Secretary to the Govt. of India

Ph.01l-24640214, 01l-24610542(Fax) Encl: as above