Airports’ privatization: CIAL not qualified to bid for Trivandrum

By Jacob K Philip

The move to privatize the second batch of airports in India has evoked varying responses from the public and the stake holders. Though it seems the Airports Authority of India (AAI) top brass is all for it, the staff of the Mini Ratna company have made it pretty clear that they are dead against selling out the profitable airports and are already in the warpath.
But the most interesting response seems to be that of the Government of Kerala. To prevent the Thiruvananthapuram International Airport ending up in private hands, the govt has decided to take an extraordinary step – to participate in the competitive bidding to run the airport.
Reports are already allover the media that the Government has authorized Cochin International Airports Ltd (CIAL), the company that had set up and runs the Kochi International Airport in PPP mode, to bid for the right to run the state capital airport. And quoting state government officials and CIAL staff, the media reports assert that CIAL qualifies to bid, as per the criteria enlisted in the Request for Proposal (RFP) released by AAI.

But a careful study of the RFP makes it abundantly clear that CIAL does not have the PQs (Pre-Qualifications), at least for the time being.

Here is why:

Though all the media reports say CIAL qualifies, because the company has the minimum net-worth stipulated in the RFP, that is Rs 10,000 million (1000 crore), there still is one more PQ to meet.

See how the RFP describes this “Technical Qualification” (One may wonder why AAI preferred to call it technical when it too is all about finance):

For demonstrating technical capacity and experience (“Technical Capacity”), the Bidder shall over the past 7 (seven) financial years preceding the Bid Due Date have:
(i) paid for, or received payments for, construction of Eligible Projects; and/or
(ii) paid for development of Eligible Project(s); and/or
(iii) collected and appropriated revenues from Eligible Project(s),

such that the above amount is equal to or more than:
(i) 100% (one hundred percent) of Rs. 3500,00,00,000 (Rupees Three Thousand Five Hundred Crore) in case of 1 (one) Eligible Project; or
(ii) 50% (fifty percent) of Rs. 3500,00,00,000 (Rupees Three Thousand Five Hundred Crore) in case of 2 (two) Eligible Projects; or
(iii) 40% (forty percent) of Rs. 3500,00,00,000 (Rupees Three Thousand Five Hundred Crore) in case of 3 (three) Eligible Projects.

This means, for CIAL to qualify, the total revenue they have collected from the airport business during the past seven years must be more than or equal to 35000 million (3500 crores) Rupees.

But CIAL could earn only Rs. 2923.03 crores during this period, as per their annual reports:

  • 2017-18    553.42
  • 2016-17    487.28
  • 2015-16    524.53
  • 2014-15    413.96
  • 2013-14    361.39
  • 2012-13   306.50
  • 2011-12    275.95

But there still was a way out.

CIAL has five subsidiary companies in which it has 99% share holding. They can very well apply together. These are the companies:

  1. Cochin International Aviation Services Ltd
  2. CIAL infrastructure Ltd
  3.  Air Kerala International Services Ltd
  4. CIAL Dutyfree and Retail Services Ltd
  5. Kerala waterways and Infrastructure Ltd

Of these, only 1, 2 and 4 generate income.

CIAL’s annual reports give the combined income of CIAL and these 3 companies for the past four years. (It seems those companies generated nil or negligible revenue before that period) .

So the revised figures for seven years look like this:

  • 2017-18    701.13
  • 2016-17    592.65
  • 2015-16    539.38
  • 2014-15    423.53
  • 2013-14   361.39
  • 2012-13   306.50
  • 2011-12   275.95

Now the total is 3200.53 crores – but still Rs.299.47 crore less than the required magical figure of 3500 crores.

But even if the amount had reached 3500, there still was another obstacle.

Read this clause:

(i) 100% (one hundred percent) of Rs. 3500,00,00,000 (Rupees Three Thousand Five Hundred Crore) in case of 1 (one) Eligible Project; or
(ii) 50% (fifty percent) of Rs. 3500,00,00,000 (Rupees Three Thousand Five Hundred Crore) in case of 2 (two) Eligible Projects; or
(iii) 40% (forty percent) of Rs. 3500,00,00,000 (Rupees Three Thousand Five Hundred Crore) in case of 3 (three) Eligible Projects.

This means, for the revenue from the businesses from the affiliate companies to add, they must be at least Rs. 1400 crore (40% of 3500) each. But none of the three sub-companies of CIAL meets that criteria.

So the answer is definite – if the figures given the annual reports of CIAL can be believed,  the company simply doesn’t qualify.

But it still is not the end of the road.

As a bidder of good standing, CIAL indeed can apply for a relaxation in PQs. It is all up to AAI -they can lower the limits any time.

And if Kerala Govt indeed is serious about the bid, they should be convincing the AAI to do that, instead of leaking incorrect info to the media, hoping that will boost their chances.

(Jacob K Philip is a Doha based aviation analyst. He can be reached at jacob@indianaviationnews.net)
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Comments

  • T13  On December 25, 2018 at 5:04 pm

    Thanks for clarifying. So why not count what CIAL has paid for development of Airport..i.e capex incurred in the past seven years as well..that makes it Revenue+Capex …which will be greater than 3500 crore..Won’t this make CIAL eligible for bidding???

    • admin  On December 25, 2018 at 10:19 pm

      ————–Jacob K Philip—————-
      Yes- that indeed seems to be a way out.
      But the RFP says this further:

      ” such that the above amount is equal to or more than:
      (i) 100% (one hundred percent) of Rs. 3500,00,00,000 (Rupees Three Thousand Five Hundred Crore) in case of 1 (one) Eligible Project; or
      (ii) 50% (fifty percent) of Rs. 3500,00,00,000 (Rupees Three Thousand Five Hundred Crore) in case of 2 (two) Eligible Projects; or
      (iii) 40% (forty percent) of Rs. 3500,00,00,000 (Rupees Three Thousand Five Hundred Crore) in case of 3 (three) Eligible Projects.

      AAI should make this more clear. What is a single project as far as CIAL is concerned?
      The Airport and its sub-entities (eg. Duty free shop etc) should taken as a single project or different projects? Should terminal T3 be considered as a new project or as part & parcel of a single project? If the new terminal is viewed as a separate project, that on its own have to bring in 1400 crore (40% of 3500).

      Jacob

      • T13  On December 26, 2018 at 2:30 am

        Right..AAI should have clarified it better..
        In any case, CIAL will make be eligible.
        Note the first set of three conditions is “And/or” which means it can be cummulative. So Revenue+Capex (Past years)..
        The second set of conditions is only “or” ; means any of the three needs to be adhered.

        So if AAI treats Airport as a single project; Revenue+Capex > INR 3500cr; If they allow splitting into multiple projects it only means Revenue+Capex>INR 1750 Cr (if considered as 2 projects) and if treated as 3 projects ; then Revenue+Capex > INR 1400 Cr.

        The more projects the easier it appears for CIAL !!
        Best T13

  • TRV Airport  On December 24, 2018 at 12:55 pm

    Interesting and insightful details on CIAL’s eligibility status to bid for TRV airport…
    But can the author explain on what basis he concluded that the condition of 7 years has to revenue..The statement clearly indicates Paid for/or received payments for “Eligble projects” ???…How does this mean its revenues ???

    It will either Capital spending or Contract executioner..
    So if CIAL has tendered contracts worth xxCr. (Paid For) , that will qualify and NOT what revenue the entity made.

    Please clarify ?

    • admin  On December 24, 2018 at 10:09 pm

      Jacob Philip has sent this reply:

      Please see the last clause-
      “(iii) collected and appropriated revenues from Eligible Project(s)”
      That means the revenue CIAL earned (fee collected from airlines and other revenues) can be counted.
      -Jacob

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