In an interview to CNBC-TV18, Sanjay Reddy, vice chairman, GVK Power & Infrastructure says Airports Economic Regulatory Authority (AERA) has floated consultation papers on tariff last week. "We expect that by December the tariff will be announced officially. The consultation paper suggests that from January 1, 2013 it will become effective," he adds.
Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Sonia Shenoy.
Q: All your investors are looking keenly at the kind of tariff hikes that can be affected at the Mumbai airport. How soon do you expect an announcement from AERA on that?
A: AERA has uploaded consultation papers, last Friday, for both tariff hike as well as the development fee (DF) for the Mumbai airport. That has happened last week.
Q: When is the final decision expected?
A: Once the consultation papers are uploaded then they give about a month for comments from all stakeholders. Depending on the comments then AERA takes few weeks. So, we expect that by December the tariff will be announced officially. The consultation paper suggests that from January 1, 2013 it will become effective.
Q: You had proposed more than 600 percent hike in the tariff. Do you think it is likely that AERA would consider something as stiff as that because the number, which we hear doing the rounds, is closer to a 150 percent?
A: I think the consultation paper suggest an increase of about a 160 percent. The 600 percent is based on what our understanding of the OMDA (Operation Management and Development Agreement) is, our concession agreement with the government.
Obviously, there are gaps between the way we see it and the way AERA sees it. So, some of these things we may have to go for appeal and see how things go. But the first and the most important thing is that once the tariff is implemented then we know where the gaps are and then we can decide how to take it forward.
Q: But would 160 percent cover what you are talking about the kind of cost structures or does it still leave a yawning gap?
A: In terms of cost, yes, it does cover. It depends on how you define cost. It is a little complicated. I can't just simply say it covers it. But if you mean that does it cover basic things like operating cost and debt service? Yes, it does. There is a gap in terms of the way they see return on equity, the way we see return on equity. There are certain tax calculations. Is this something which covers cost? Yes, it covers the basic cost.
Q: Do you think there is a good case for the user development fee or is it something that is likely to be struck down?
A: Currently, the user development fee is slightly different. It used in Bangalore and Hyderabad. What they are talking about is the development fee (DF). I think the DF has been approved many years ago, keeping in mind the various options that were available in terms of financing the project. As far as I am concerned, it is behind us. It has already been approved.
In the case of Delhi International Airport Limited (DIAL), some of the committees have raised an objection. CAG has raised issues. It will have to take its own course. I can't say what will happen in the future. But as far as the ministry is concerned, as far as AERA is concerned, last week, AERA has uploaded the development fee proposal also, based on whatever has been decided in the past.
Q: You must be tracking the huge hue and cry between GMR and the Delhi airport in terms of land monetisation there. Is it likely to come in the way of your land monetisation plans from this airport in 2014?
A: I don’t think so. As far as land monetisation is concerned, I still don’t understand what the issue is. In my view, it is fairly simple. Has anything changed from the time that the tender was called out and is it as per our agreement with the government? The answer is simple, it is yes. So, now, whether it is the right principle to use, is it the right philosophy to use? That is not something for us to comment. The government should comment.
Now, obviously, what CAG has projected as numbers, they are totally wrong. The way the headline read atleast in the news papers after the CAG report came out, it said the land is leased for Rs 100 and today it is valued at Rs 160,000 crore. I mean this is just creating sensation, it is totally wrong. Even the calculations were wrong. They don’t even discount for the next 60 years, they are just doing a summation of next 60 years. So, these numbers, first of all, are not correct. That has created a lot of misconception in the people’s minds. It is not the only way we can pay such high revenue shares. I want to emphasis the revenue share, you are not paying a profit share of the entire revenue. In the case of Delhi, it is 46 percent. In the case of Mumbai, it is over 38 percent because we have real estate which we can use to generate profit. We are giving revenue share on everything.
If it was so profitable then that would have reflected that in the stock price. You can see the stock price. It doesn’t show some Rs 150,000 crore plus that we are going to make any windfall of any such nature. So, first of all, one has to come down to the ground reality and the facts and then debate the facts. That is something which we are quite open to. It is quite clear, we are confident that nothing will happen on that front because it is exactly as per the tender that we had submitted five-six years ago.
Q: You had an overrun on the capex on the Mumbai airport. How do you time the funding for that? Are you sure about getting extra debt? You have been talking about selling a part of the airport to reduce your debt. Where are those plans?
A: As far as the project cost of Mumbai airport is concerned, it comprises of multiple sources of funding. One is debt. Equity, which includes primary equity as well as internal accruals that is profit that we make, is going to more than Rs 2,400 crore. Then we have debt of about Rs 4,300 crore and then we have user development fee (UDF) and we have real estate development. These are the four sources of funding that we have.
As far as that is concerned, from that plan, it is completely tied up. We have to get the regulatory has uploaded a Rs 3,400 crore UDF. Based on that, we have to see what the final order is in December. But from that perspective, it is tied up.
Q: When do you sell part of the Mumbai airport stake as you have been saying to a private equity player to raise in the vicinity of Rs 3,000 crore?
A: That is at the holding company. I may clarify that is not at the project level, it is at the holding company. The holding company owns both 50.5 percent of Mumbai airport as well as 42 percent of Bangalore airport. At the holding company level, we had raised debt to buy additional stakes in Bangalore airport and in Mumbai airport. That is where we are bringing in private equity player.
We had somebody in the final stages in January-February, but because of the general perception of the environment in India and also the regulatory orders hadn’t come out, they had postponed their decisions. So, right now, we are in discussion with few people. But I must say that in the current environment, if typically something takes two-three months, in today’s environment things take longer. So, we are hoping that in the next few months we will be able to announce something. We are working towards that. So, we can reduce our debt at the holding company level.
Q: You are looking at some kind of equity offloading even in your road and coal projects. By when do you expect the first of any such transactions on the equity front to materialise?
A: As far as your priority is concerned, the airport holds the priority because we want to retire the debt. As far as other things are concerned, we have more time. It is not something that we need to do it immediately. We have a little more time. So, we are just looking at options.
I can’t give specific dates because it requires a decision from both sides. All I can say is that there is a lot of interest. It is just that the interest has to be converted to somebody who is approving it and then that will be invested. In the last one month, the general outlook of India as you are aware has significantly changed for the better because of various decisions made by the government and the perception of reforms coming back into business. That has certainly helped things. That will also help in speeding up this entire process.