Airports Authority to issue tax-free bonds of Rs 1,000 cr this fiscal

New Delhi, July 5:  

The Airports Authority of India (AAI) will issue tax-free bonds worth Rs 1,000 crore this fiscal. It also expects that work on 15 small airports would begin this year.

“The amount realised (from bonds) will be used to finance the development of small airports,” V.P. Agarwal, Chairman, AAI, told reporters here.

People investing in such debt instruments will be exempted from income tax on the interest earned. These bonds are normally for a longer period, say, 10 years, and can then be bought and sold in a stock market just like a share. The Finance Minister, in his Budget speech, had said that institutions can issue bonds up to Rs 50,000 crore.

The public sector airport developer’s announcement on tax-free bonds comes days after the Prime Minister chaired a meeting on June 28, to fix targets for infrastructure projects in 2013-14. It was decided that AAI would take up the development 51 new low-cost small airports. It was also decided that eight greenfield airports would be awarded this year in public-private partnership (PPP).

At the same time, operations and maintenance through PPP contracts will also be introduced in AAI-managed airports of Chennai, Kolkata, Lucknow, Guwahati, Jaipur and Ahmedabad.

Agarwal said that the issue of the operationalisation of PPPs at Chennai and Kolkata airports was under discussion.

A meeting of an Inter Ministerial Group on Thursday remained inconclusive, he said. AAI has modernised these two airports, but now the view is to bring in private partners to manage both the air and ground operations of these two airports.

The investor or consortium of investors is likely to be allowed to take over 51 per cent share in both the airports. The PPP model could be like Delhi airport, where the GMR-led consortium holds 74 per cent, while AAI has 26 per cent equity. AAI gets a share in the revenue from the Delhi and Mumbai airports.

However, a senior Government official said that the same revenue sharing formula is unlikely to be followed for Kolkata and Chennai.

“The revenue sharing mechanism for Delhi has some issues. There have been some problems on account of higher revenue share pay-out. We want to rectify that,” he said. This means that there could be fee-based mechanism rather than a revenue-sharing one.

Although there is also a view that since AAI has invested a substantial sum in the upgradation of these two airports and it is not fair to hand these over to private parties, the Government officials said that the public sector should construct and then get a private entity to operate and maintain.

“This is the principle behind the PPP for Chennai and Kolkata,” he added.

AAI used to earn Rs 150 crore before the modernisation of Chennai Airport, now its estimated earning will be around Rs 500 crore.