Last year Finance Minister P Chidambaram said there is visible progress in improving India’s airports, ports and rural roads. A staggering Rs 40,000 crore of investment is needed by 2010 for airports alone. Infrastructure has been a state of objective for this government.

Sanjay Reddy, Managing Director, Mumbai International Airport talks as a person who is part of a company which is taking up many infrastructure projects and also someone who is trying to change the way India’s busiest airport really functions. 

Reddy states that as far as infrastructure is concerned, there are challenges in the country and the govenment has realized that as well. It has already done a lot but it will have to continue.     

Excerpts from CNBC-TV18's exclusive interview with Sanjay Reddy:

Q: What more do you think needs to be done on the infrastructure side?

A: As far as infrastructure you know that there are a few challenges in the country and the good part is that the government has already recognised that infrastructure needs to be fixed if we have to grow at the 8-10% GDP Growth rate in India. The government has already done a lot in certain sectors like for example in road, power, in airports, these two path breaking projects have been privatized, so I think there is a lot that the government has done but the pace has to continue that is number one.

Secondly as far as infrastructure is concerned earlier there was problems of financing and raising capital, today capital is unlimited and opportunities also are unlimited. The key issue is how do you convert the opportunity. The government has to identify the opportunity and quickly make them available under a private public partnership programme so therefore they can be quickly expatiated, that is where certain delays are occurring, for example, there are different politics that are being played with respect to one party wanting certain projects and certain party not wanting certain projects that is more an issue of politics. As long as the government is able to get these projects to bid and give them out to various parties execution will happen as far as financing is concerned.

Q: You are not worried about financing side?

A: Financing side, I am not at all worried.

Q: You are looking for sops, don’t want tax sops etc?

A: Not really. At the end of the day we have to factor in all those and then we bid accordingly. The second area which is an issue is, may or may not be related to government, an execution issue in terms of construction companies, their ability to execute large projects.

They are already at their limits in terms of their bandwidth that is an area where we need to as a country really scale up our execution capabilities. As far as government is concerned clearly with respect to construction companies and infrastructure companies they can certainly give sops for example in relation to any import duties or making it easier or more cost effective to be able to implement these projects.

As far as tax sops and other matters are concerned it is not an issue of making the projects viable, it is a question of at what cost do you eventually deliver these infrastructure projects to the people and that is when government tax sops come into picture where the more tax sops they give, they make it more attractive and more effective, like for example, if you are talking about ultra mega projects which were bid out and eventually the bidder got it at Rs 1.18. It was only possible because of that size and also the fact that the government has decided to give all duty exemptions those kind of things will go a long way.

Q:  You have been running this airport for about 7-8 months. This wasn’t even there when we last met when you had press conference, how has your experience been in terms of execution, in terms of on the ground. In December you have broken a record and handled 2 million passengers this is the busiest airport, have the changes really started kicking off?

A: Today is an anniversary for us, actually because 31st January in 2006 was when we actually won the bid in Delhi, so today is the first day after that, so it is quite an important day for us. It is second year after the day we won the bid. We have actually taken the operations from the 3rd May of 2006 and what we have focused on in the first six months was basically trying to complete preparation of the master plan which we have planned will get into execution and therefore the new terminal and the new airport will be ready by 2010, that was one major challenge and objective.

The second thing we did was try to make immediate improvements in terms of cleanliness, passenger experience, trying to open more checking counters, seating, opening canopies in the rain, trying to organize the whole traffic flows, trying to make the airside a lot more efficient so that more aircrafts can land and take off.

Let's take for example, check in and security hold, when we first came in the government had already completed one part of this terminal which was quite good but what was happening was there were very limited check in counters and the security hold was very tight, so there were lot of complaints as far as that was concerned.

Once we opened up the new area, now you see that it is a lot more spacious and people are quite happy with this terminal and also the security hold has increased. Very soon we are also going to open the arrival section of this terminal, once we do that part of the pressure on arrivals and the quality of arrival experience will improve. This is one part as far as this terminal is concerned.

The other experience is in terms of pickup and drop off. When we came in there were lot of issues in terms of the vehicular movement and the traffic flow of how that was managed, we have put in a lot of effort trying to streamline that and today in Bombay by and large.

Clearly, I am satisfied with what we have achieved, I would say no if you are satisfied, then we are doomed because we have to continue to keep pushing. There is a lot more work that we have to do because to an extent we have to use existing infrastructure, existing manpower and it takes time for creating change physical change is easier but mental mindset change takes a little time time. That is where we are working on.

Q: About the larger issue, the fact is that even today flights are taking off late; people are still mid-air for much longer, so that is really the larger issue of being able to create the infrastructure to facilitate more, You have a space problem, there is no doubt about that. You probably run one of the toughest airports in that sense, you have got slum inside the airport, a river inside the airport, so space is truly a constraint. Going forward, how is that going to change?

A: Even on that one issue, in terms of number of aircraft movements, it is actually calculated what is called ATMs (Air Traffic Movements) per day, when we first came, it was in the low 500s per day, 520-530 that many number of aircrafts movements were there. The cross-runway operation was being used very limited, but I must say, we worked very closely with the government and with the Air Traffic Control department of AI; they have done a phenomenal job. Now they are actually touching 650 movements a day in less than one year.

Also a lot more usage of the cross runway, we are actually pushing them to add more and more hours, actually they need more trained manpower, so in the next six months to one year, as they add more trained manpower to add air traffic controllers to manage simultaneous operations then the pressure will come down.

But I can tell you that these are constrained airports and the traffic growth is so high, 20-30% traffic growth anywhere in the world is a phenomenal growth, it is one of the highest in the world, so when India is going to see that kind of change, there are going to be issues in terms of the traffic, because until in Mumbai, the entire work gets completed even then this is a constrained airport, we can only go upto 40 million passengers.

So even if we complete the work unless Navi Mumbai opens again by 2012, we are going to face these problems in Mumbai because this is a very constrained environment, but in the last six months, we have added two rapid exit taxi bases, we have started off work on parallel taxi base, once we add all those, the airport will become much more efficient and therefore the delays will reduce.

Q: You made a lot of changes here but you also have another terminal where the Indian Airlines and the Kingfisher flies out from which perhaps has a different problem that they have far lesser amount of traffic for the kind of infrastructure, which already exists there. So do you see during the course of the next few months that you are going to align these two terminals a bit more?

A: Yes, of course, I think there are few things that we are planning to do; one is that the entire arrival, domestic arrival in Mumbai comes through that terminal right now, so it is being actually under constrain.

 Secondly, the arrival section of terminal 1B will finish by March, so once it finishes, we will actually move a lot of the arrival passengers here, we have the designs for terminal 1A already ready in terms of redoing the terminal and so that will start by end of March or so and in three-four months a lot of that work will progress ahead. So we will have a nice new terminal also and terminal 1A, I think that is one part of it.

The second part of it is that both these terminals are entirely connected. So what we are going to do is, we are going to do interconnect them and also in the center we are going to put a transit launch where people who arrive and then want to go to the international terminal, we will also create a transit launch.

Q: I had also been told that you have a peculiar situation where you have got lot of aircrafts, which have turned junk, which are still occupying space, one of the biggest problems that airlines especially raise is the fact that they do not even have hangers, there is no space, what kind of progress have you made on that front?

A: The problem of maintenance facilities, today the maintenance facilities are available only for the larger, older airlines like Air India, Indian Airlines but some of those have to be removed as well, the problem here in Mumbai is that we have only 2000 acres, which is very constrained.

So as far as maintenance is concerned, we can provide limited inline maintenance facilities here but actual major maintenance facilities have to be built somewhere else because every airport cannot provide everything and we have to prioritize, do we want more traffic, what kind of traffic do we want, do we want to handle cargo, do we want to do maintenance, so based on the priority, we have to go about it and maintenance is not one thing that airport can handle in a large way in the long run.

Q: So when is the Navi Mumbai project likely to come, have you heard from the government at all on that?

A: I am told that the government is doing some DPR (detailed project report) and environmental studies and it should be, maybe there is a talk about anywhere in the next six months to twelve months, they will call for bids, our company has right of its refusal, so we will also be bidding for it and there are some issues from the point of that development and things like that, so it is going to take atleast six-eight years to get that project off the ground.

Q: You have raised a very important point when we started off our conversation on execution of infrastructure projects and how you feel that is a very serious issue, that is interesting because most of the times you have companies who talk of, we need more sops, we need more government expenditure, government spending but you said that is not really the issue, money is there in the system but it is the execution outline that a little bit more that what is the extent to which this concern exists?

A: I think executions are at different levels, one is that once the government decides its policy, how fast they can execute that policy so that the effect of that policy is felt fast, that is at one level, I think that government in many cases have succeeded and in some cases they were not able to execute.

Second is that once a private party gets involved in a project, how quickly and effectively can they execute to the required standards, they are the biggest challenges. Today I think that the execution in these infrastructure projects, I mean more from the point of view of two elements, one is financing and second is construction. Financing today is not a problem at all and hopefully it will not be so in the foreseeable future.

In terms of construction, I think that we have many medium size construction companies, maybe one or two large construction companies but all of them are stretched at their limits and quality will start suffering, time lines will start suffering, costs are going up because today they say that they wont take any job, so we have to build that execution capability as a country, if we cannot then we will have to see this problem. At today’s pace, you may continue but if you really want to leave for long, you will not be able to do it.

Q: So how do you tackle this problem?

A: This is something we have been talking to a lot of construction companies because we are not in construction ourselves and they have their own strategies and I am sure they will find ways.

Q: Does this also mean there is an opportunity for infrastructure companies to get into it on the road?

A: It is a huge opportunity, as far as we are concerned, we have actually started off our own construction company because originally GVK started off its life in construction but we won’t be doing actual construction, we want to get into more of project management and programme management that is where the challenge is, that is where the problem is, where to be able to project, manage and complete something in time and to required quality, there the number of people are very limited, I am not saying it will not get fixed, I am sure every company is taking its measures but that has become a little bit of an issue today.

Q: We are now at the international airport and how has the experience here changed, for instance, we are right now at the immigration side of it, we have got feedback from a lot of corporates who travel a lot that it has certainly got faster but what are the other changes that are in line?

A: For immigration, I must credit the government and the immigration department especially Mr. Deven Bharti who is looking after immigration here, they have done a phenomenal job in redoing the entire immigration process which has made it one of the fastest, if not the fastest immigration clearance in the world. If you go to any other part of the world, if you go to London, Frankfort, there are huge queues, you come anytime normally you will never find the queue here and it is extremely fast.

Q: How do you manage that, have you built in more desks here?

A: This was done more or less at the same time when we took over the airport and the government did build a lot more desks and we have repeated the same thing in the departure also, we have increased the number of desks, so even there also it has become much faster, so I would like to credit the government for doing this.

In addition to that, we made a lot of changes in terms of the whole organization of the queuing system, the trees, the plants, the direction of the signs, and those kind of things. As far as the international terminal is concerned, it is a lot more challenging than the domestic because we have three terminals here 2A and 2C, which are operational and 2B which is closed but the international terminal, which we are going to build is completely new, so all this will be demolished but it is in the same location.

So the challenge we have is that we have to build in the same location where the international airport is operating while it is operating and we have to open a new terminal. So I think that is the biggest challenge that we have here in the international terminal, so a lot of planning is going on to see that, it is done.

Q: What is the progress of the new terminal, by when would that happen and how does that change my life as a passenger?

A: There are two things, as far as changing your life as a passenger, we are actually making some immediate improvements, which will also help, as far as the international terminal is concerned in the next three-six months, a lot of changes will occur, even in the existing facilities, as far as the new facilities are concerned, they will be ready by 2010 not 100% but a majority of it will be ready by 2010 when you will have a completely new experience as far as a new terminal is concerned. So I think that is the timeframe that we are looking at, on one end, look at short-term measures; the other end, look at the medium-term measures.      

Q: How has the public-private partnership worked so far?

A: In this particular experience the government has moved so fast that at the time when we won the bid, it was actually the private companies who were falling behind in terms of catching up with the government, in the way they have actually implemented the transfer of the entire asset and the operations. So they did it phenomenally quickly.

Q: Give me an example that surprised you too, of the government?

A: We won the bid on 31st of January, after that we had to negotiate all the agreements, finalize documents, complete due-diligence and we signed the OMDA (Operations Management and Development Agreement) which is the key document on April 3, and the government said that by the end of April, the airports will be handed over, which to us sounded impossible because these are the two largest airports of the country and handing it over to a private party to operate we thought was impossible but although we never expected the government handed over the entire airports to us on the May 3, which is just a few days late.

They did a good job because at any time when you transfer it the issues are the same. So we got into on a positive note.

In this case,I can say that the private-public partnership model is absolutely a best example that one can take.

Q: Are you then disappointed that after these airports were privatized there was a full stop due to political oppositions?

A: Taking advantage of these two, I was hoping that a lot of the other projects will get kick started but due to various reasons they have been held out like issues of land, political issues, some other constraints which I am not aware of but that is something which the government is going after. They are talking about Chennai, about 35 non-metro airports, so government is bring in lot of new policies which will drive further demand in aviation sector.

Q: When you create an infrastructure project of the kind that is operated now on a profit basis; costing will become an issue at some point of time. I understand barely Rs 70 comes to you per passenger and clearly the cost of doing all this is going to be far greater than that, so how do you see projects such as this becoming financially viable for players like you?

A: I think it is financially viable because the way the government is structured it, is in a good manner and is transparent. The government is looking at appointing a regulator for airports and this regulator will go into our investment and see if we have made any reasonable investment and then based on that they will assure us a reasonable rate of return. That is the model on which it is worked out and we are confident that based on that we would be fine.

Secondly on any such infrastructure problem we have to look longer-term and not short-term. In short-term we may have some issues but in longer-term it is a fantastic project and airports all over the world are doing exceedingly well being valued highly. So we won’t have much of an issue in my view.