Annexure II - AERA

Annexure II-B 

CP No. 9/2013-14/T-12023(14)/1/2012- Tariff- Vol - III Annexure II-B Page 1 of 51


i. State Support Agreement dated so" September 2003 between GoAP & HIAL 

ii. Land Lease Agreement dated so" September 2003 between GoAP & HIAL 

iii. Concession Agreement (CA) for development, construction, operation and 

maintenance of the Hyderabad Airport, was entered into between Gol through 

the Ministry of Civil Aviation (MoCA) and HIAL, on zo" December 2004. 

5. As per Article 2.1 of the above said Concession Agreement, the Scope of the Project 

includes development and construction of the Airport, operations and maintenance of 

the Airport and performance of the Airport Activities and Non-Airport Activities. 

It is clear from the above that the scope of the Project indeed constitutes two 

components viz., [a] Airport Activities and [b] Non-Airport Activ ities. In order to 

implement these projects, the GoAP gave land on lease basis to GHIAL. It is submitted 

that the land was acquired and leased by GoAP as part of its State Support obligation for 

the Project since the acquisition of the land by GHIAL would have rendered the project 

unfeasible . The purpose of the land under Land Lease Agreement is to develop the 

above said Project comprising of [a] Airport Activities and [b] Non-Airport Activities. The 

Airport Activities indeed include all the aeronautical, non-aeronautical and airport 

centric activities at the Airport as set out in the Schedule 3, part 1 of CA. 

The Master Plan depicting the intended land utilization to cater to both Airport and 

Non-Airport Activities was annexed to the Concession Agreement as Attachment 1. 

6. Accordingly, the Airport was constructed and commissioned in March 2008. Thereafter 

MoCA approved levy ofUDF @ Rs.1000/- (inclusive oftaxes) per international departing 

23 rd 

passenger w.e.f. April 2008 and @Rs. 375/- (inclusive of taxes) per departing 

domestic passenger w.e.f is" August 2008 (vide letters No.AV.20015/03/2003-AAI 

dated zs" February 2008 and l\lo.AV.20036/28/2004-AAI (VoI.IV) dated is" August 

2008 respectively), on ad-hoc basis. 

7. HIAL, vide its letter no. GHIAL/UDF/Domestic/04/2008 dated 01 5t September 2008, had 

submitted that in its original business plan furnished to the Ministry, the average UDF 

amount was arrived @ Rs.725/- per passenger for both international and domestic 

passengers and since the UDF for international passengers was approved for Rs.1000/by 

the Ministry, the corresponding amount for domestic passengers should be Rs.600/so 

as to be in consonance with its business plan. HIAL subm itted that in the meanwhile, 

it had started collecting the provisionally approved domestic UDF @ Rs .375/- departing 

passenger, under protest. HIAL also stated that as a result of the lower UDF approved 

for domestic passengers, it was incurring a substantial loss. 

8. Pursuant to the enactment of the "The Airports Economic Regulatory Authority of India 

Act, 2008" on os" December 2008 the Airports Economic Regulatory Authority 

CP No. 9/2013-14/T-12023(14)/1/2012- Tariff- Vol - III Annexure II-B Page 2 of 51 

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("Authority") was established on iz" May 2009. Following the notification of the powers 

and functions of the Authority w.eJ. 01 51 September 2009 the Ministry of Civil Aviation, 

9. in October 2009, transferred the subject issue to the Authority for its consideration, 

along with copies of relevant extracts of files and correspondences. 

10. AERA thereafter had issued a White Paper on 'Regulatory Objectives and Philosophy in 

Economic Regulation of Airports and Air Navigation Services' dated nOd December 2009 

('White Paper'), highlighting various issues relating to economic regulation of airports, 

air navigation services, cargo, ground handling and fuel supply services. In the said 

White Paper, AERAhas asserted that Single Till is appropriate in India. 

11. In the said White Paper, the AERA sought views on the most appropriate tariff structure 

in the Indian context. HIAL inter alia provided its response and stated that as per the 

Concession Agreement Single Till cannot be adopted and also provided a series of 

cogent justifications to that effect and requested to adopt Dual till for its airport. 

12. Thereafter AERA issued Consultation Paper No. 3/2009-10 on zs" February, 2010, 

reasserting that the most appropriate till in the Indian context was the single till to 

which HIAL had made further submissions and suggestions regarding the said proposals 

and highlighted the merits of pursuing a Hybrid Till or Dual Till tariff structure, as 

compared to the Single Till tariff structure being proposed by the AERA in view of the 

provisions of the Concession Agreement executed between the Government of India 

through Ministry of Civil Aviation with HIAL. 

13. In the meanwhile HIAL had made a tariff filing with AERA for determination of UDF. 

AERA came out with a consultation paper (Consultation Paper 07/2010-11) for 

approving the UDF at HIALon ad-hoc basis till finalization of philosophy. 

14. During consultation MoCA had submitted as under: 


At the consultation meeting: 

Ministry had participated in the stakeholder's consultation meeting held on zs" 

September 2010. Shri Oma Nand, Under Secretary, representing the Ministry of 

Civil Aviation stated that the approach suggested by the Authority for economic 

regulation of airport, specifically the issue of "regulatory till", is under active 

consideration of the Central Government for giving its views. Pending the 

same, the Central Government would reguest the Authority to decide the 

subject proposal, purely on an ad-hoc basis. 

Written Submission by MoCA: 

Ministry in its letter: No AV.20036/028/2004 AAI (VoI.IV) Dated 12th October 

2010 submitted to Authority as under: 

"I am directed to refer to AERA's D.O. No. AERA/20010/HIAL-UDF/2010 

11/Vol.II/970 dated zs" September, 2010 on the subject noted above. The 


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comments of Ministry of Civil Aviation on the consultation paper No.07/2010-11 

dated 23.09.2010 circulated by AERA are as below : 

Ministry of Civil Aviation has already seized of the larger issue of deciding the 

regulatory till /framework. As such, the views of this Ministry would be 

conveyed to AERA on finalization of the issue..... 

...AERA should take into consideration the views of this Ministry as mentioned 

above, while determining the UDF for Rajiv Gandhi International Airport at 

Hyderabad. " 

15. AERA thereafter vide Order 6/2010-11 dated zs" October 2010 approved UDF of Rs. 

430/- per departing domestic passenger and Rs. 1700/- per departing international 

passenger (exclusive of taxes) on single till adhoc basis. 

16. Vide Order NO.13/2010-11 issued on iz" January, 2011, AERA finalized its regulatory 

approach and general framework for determination of tariffs for aeronautical services 

provided by the airport operators; adopting a single till philosophy for all major airports 

in India (except Delhi and Mumbai). AERA floated draft guidelines to be followed by 

Airport Operators by way of consultation paper 14/2010-11 issued on 2 nd February 

2011. Laying down methodology of assigning a value to the land and reducing the same 

from RAB for tariff determination was part of this consultation paper. This was later 

finalized by AERA by issuing Order 14/2010-11 dated zs'' February 2011 and Direction 

OS/2010-11 dated zs" February, 2011. 

17. The Single Till Order 13/2010-11, order 14/2010-11 and consequential Direction 

No.s/2010-11 issued by AERA were challenged by HIAL before the AERA Appellate 

Tribunal raising all the contentions and soughtthe Tribunal to set aside the impugned 

orders. During the above consultation process, Airport Authority of India, vide their 

letter Ref. AAI/CHQjREV/AERA/APT/201011 dated 22.02.2011 had submitted that the 

comments of AAI have been forwarded to the Ministry of Civil Aviation for its perusal 

and the same will be submitted to the Authority immediately on its receipt from the 

Min istry . 

18. However in the meanwhile AERA had issued above-mentioned Orders and Direction 

adopting Single Till fo r determination of tariff at HIAL and BIAL. These orders are not in 

line with the provisions of the Concession Agreements including State Support 

Agreement and Land Lease Agreement. 


19. The adoption of Till should be based on and in consonance with the provisions of the 

Concession Agreement signed by HIALwith MoCA. 


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As already mentioned earlier, MoCA during the ad-hoc consultation had submitted that: 

Ministrv of Civil Aviation has already seized of the larger issue of deciding the 

regulatorv till /framework. As such, the views of this Ministry would be conveyed to 

AERA on finalization ofthe issue..... 

20. HIAL has now submitted its application for tariff determination with Authority and the 

same is under consideration by the Authority. 

As such there is a need for MoCA to issue a direction in the form of clarification to AERA : 

(a) To adopt a Dual Till in compliance with provisions of Concession Agreement. 

(b) Not to deduct the value of land meant for Non Airport Activities from RAB and 

also not to consider the revenues generated therefrom, while fixing the 

Regulated Charges, as per Concession Agreement at RGIA, Hyderabad. 

21. We hereby reproduce various provisions of Concession Agreement as well as other 

relevant documents and facts in support of our contentions: 

A. Till Issue: 

a. Provisions of Concession Agreement: 

Article 10 of the Concession Agreement signed by GMR Hyderabad international 

airport signed with MoCA reads as under: 

i. Authority to impose charges: MoCA have granted rights to GHIAL with 

regard to the charges at the Airport. They have categorically and 

unequivocally granted certain rights to HIAL under Article 10 of the 

Concession Agreement. The said Art icle10 reads as follows: 

10.1. Parties having right to impose charges 

Subject to Applicable Law, no Person (other than HIAL, any Service 

Provider Right Holder granted a relevant Service Provider Right or 

the AAJ) may impose any charge or fee (a) in respect of the 

provision at the Airport of any facilities and/or services which are 

included within Airport Activities or (b) in respect of the movement 

ofpassenger, or vehicular traffic on the Airport or the Site. 


ii. Only the following Regulated Charges as enumerated in the Schedule 6 of 

. the Concession Agreement are to be regulated by the Independent 

Regulatory Authority (IRA): 


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1. Landing Charges 

2. Parking Charges 

3. Housing Charges 

4. Passenger Service Fee 

5. User Development Fee 

Clause 10.2 of the Concession Agreement reads as under: 

10.2 Airport Charges 

10.2.4 From the date the IRA has the power to aO/Hove the 

Regulated Charges, HIAL shall be required to obtain approval 

thereoffrom the IRA. In this regard HIAL shall submit to the IRA, in 

accordance with any regulations framed by the IRA, details of the 

Regulated Charges proposed to be imposed for the next succeeding 

relevant period together with such information as the IRA may 

require for review... 

iii. Freedom to determine Other Charges for other facilities or services: 

Clause 10.3 of the Concession Agreement reads asfollows: 

10.3 Other Charges 

HIAL and/or Service Provider Right Holders shall be free without any 

restriction to determine the charges to be imposed in respect of the 

facilities and services provided at the Airport or on the Site, other 

than the facilities and services in respect of which Regulated Charges 

are levied. 

The above Article proves beyond doubt that HIAL has been given 

right to determine the charges for the services at the Airport (other 

than the services for which Regulated Charges are applicable and to 

be determined by AERAs) or on the Site. 

For more clarity it is submitted that the above said provision in the 

Concession Agreement clearly shows that, even among the services 

provided at the Airport there are two categories i.e regulated and unregulated 

apart from the services provide on the Site (on the land 

other than the land earmarked for Airport Activities). 



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Conclusion: 

The Concession Agreement contemplates regulations of only the Regulated Charges by 

the Authority as mentioned in the Schedule 6 of Concession Agreement. 

The bifurcation of the charges into two categories viz.,[a] Airport Charges i.e. the above 

said Regulated Charges and [b] Other Charges as mentioned above, clearly shows that 

the CA envisaged a DUAL till and not a Single Till. 

Hence all the charges should not be brought under the Single Till method as this goes 

against the provisions ofConcession Agreement. 

Adoption of Single Till and consideration of revenues from Non-Airport Activities (Other 

Charges) for determining Regulated Charges is beyond the purview and jurisdiction of 

AERA/Authority. 

This is not in line with the provisions of the Concession Agreement. 

Fixing the return on entire RAB under Single Till leads to indirect regulation of Other 

Charges other than Regulated Charges which is contradictory to the provisions of the 

Concession Agreement. 

iv. Adherence to ICAD principles as per concession: 

As per the Concession Agreement, clause 10.2.1 the Airport Charges specified 

in Schedule 6 ("Regulated Charges") shall be consistent with ICAO Policies. 

ICAD 9082 8th Edition read as under: 

The Council also states that in determining the cost basis for airport charges 

the following principles should be applied: 

i) The cost to be shared is the full cost of providing the airport and its 

essential ancillary services, including appropriate amounts for cost of 

capital and depreciation of assets, as well as the costs of maintenance, 

operation, management and administration, but allowing for all 

aeronautical revenues plus contributions (rom non-aeronautical 

revenues accruing from the operation of the airport to its operators. 

ICAO has amended the language of ICAO 9082 8th Edition to remove ambiguity 

as regards till to be followed. The aforesaid clause now reads: 

ICAD 9082 9th Edition: 


The cost to be allocated is the full cost of providing the airport and its essential 

ancillary services, including appropriate amounts for cost of capital and 

depreciation of assets, as well as the costs of maintenance, operation, 


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management and administration. Consistent with the form of economic 

oversight adopted, these costs may be offset by non-aeronautical revenues. 

Conclusion: 

ICAD does not endorse the Single Till regulation as most preferred form of regulation and 

instead has taken a neutral position. 

ICAD left till issue to the respective member states to adopt their choice of till based on 

suitability to local condition. 

Since the Concession Agreement contemplated a Dual Till and ICAD left the choice of Till to the 

member states, we request MoCA being a member state to advise AERA to adopt Dual Till in 

consonance with the provisions of the Concession Agreement. 

A detailed analysis in this respect carried out by an independent agency M/s NERA (Consultant 

of International repute having 20 offices across North America, Europe and Asia pacific and 

ranked as No. 1 in consulting in year 2009, 2010 and 2011 by Vault .com) is enclosed as 

Annexure A 

b. Govt. of Andhra Pradesh (GoAP) stand on Till 

We understand that the Govt. of Andhra Pradesh (GoAP) has written to AERA 

clarifying its position on Till: 

GoAP has categorically clarified that article 10 (3) of the Concession 

Agreement gives the right to HIAL to set tariffs for non-airport facilities and 

services. The concession does not envisage cross subsidy of Non- Aeronautical 

revenues to defray aeronautical charges. 

CONCLUSION ON TILL: 

1 The reading of various provisions of the CA it can be concluded that a Dual till was 

envisaged in the CA. 

2 The Ministry of Civil Aviat ion has adopted Hybrid Till for smaller airports as also 

for Delhi and Mumbai and as such it is illogical to assume that a Single Till would 

have been envisaged for Hyderabad Airport. 

B. Land Monetization/Usage of Land 


As already mentioned earlier in this letter, the following are our submissions with 

regard to the treatment of land usage and revenue therefrom as per the provisions 

of Land Lease Agreement and Concession Agreement respectively: 


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a. Land LeaseAgreement 

As per Clause 3.1 (a) of the Land Lease Agreement dated 30th 

September,2003, the land is permitted to be used for the purpose of 

construction of Airport as per the provisions of the Concession Agreement 

i.e. Project as defined therein. 

As per Clause 3.1 (b) the land also has been permitted to use for other 

commercial purposes including but not limited to the following: 

"hotels, resorts, flight catering, air craft maintenance, cargo and logistics 

centre, convention centre, golf courses, recreation and entertainment 

facilities, industrial facilities, fuel farms, terminalling facilities, power plants, 

storage and processing terminals, water treatment facilities, commercial 

and residential complexes and to undertake any other lawful commercial 

activity at the Airport. II 

Thus it is clear that the purpose of land lease is twofold i.e. for (a) Airport 

and (b) Non-Airport activities. 

Hence, as per the provisions of the AERA Act, the Regulator is authorised to 

determine charges pertaining to the aeronautical charges at the Airport and 

as such the Regulator has no jurisdiction over the Non-Airport activities. 

b. GoAP position on land 


We understand that the Govt. of AP has written to AERA clarifying its 

position on the Equity IRR and utilization of land broadly as under. 

i. GoAP has categorically clarified that article 10 (3) of the Concession 

Agreement gives the right to HIAL to set tariffs for non-airport facilities 

and services. The concession does not envisage cross subsidy of Non 

Airport revenues to defray aeronautical charges. 

ii. GoAP also clarified that Cargo, Ground Handling and Fuel should not be 

regulated. GoAP also clarified that under clause 2.3b(i) of State Support 

Agreement, its necessary to maintain an Equity Internal Rate of Return 

of 18.33%. It was further clarified that 18.33% was not a cap on the 

return on equity. 

iii. GoAP also clarified that the land given was for the economic and social 

development of the state and by reducing its market value from the 

RAB, the desired objective will not be achieved. 


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Conclusion 

c. Concession Agreement vis-a-vis Land usage 

The Concession Agreement signed with the Union of India through MoCA 

has clearly earmarked two distinct set of activities namely: Airport activities 

and Non Airport activities. Details of these activities have been laid down in 

Schedule 3 Part I and Part II respectively. The Non Airport activities include 

various Real Estate related ventures and the entire list of Non Airport 

Activities as per Part II of schedule 3. 

Further, as per Article 13.5.2 GOI has the option of not taking over the !'Jon 

Airport Activities at the end of concession period and this clearly 

substantiates that the Airport Activities and Non-Airport Activities are two 

stand alone activities and that HIAL has the right to use the land for the said 

two activities distinctively. 

This clearly goes on to show that the Concession Agreement contemplated a Dual Till. If 

a single till was envisaged, the GOI would have opted to take over the Airport and Non 

Airport activities (which includes Real Estate). 

d. AERA act: 

Definition of airports as per AERA Act, 2008 is as under 

"Airports" means a landing and taking off area for aircrafts, usually with 

runways and aircraft maintenance and passenger facilities and includes an 

aerodrome as defined in clause (2) ofsection 2 of the Aircraft Act, 1934. 

Definition of aerodromes as per Aircraft Act, 1934 


"Aerodrome" means any definite or limited ground or water area intended to be 

used, either wholly or in part, for the landing or departure of aircraft, and 

includes allbuildings, sheds, vessels, piers and other structures thereon or 

appertaining thereto; 

Consequent to the provisions of the AERA Act, the authority given to AERA is to 

determine the charges for aeronautical services at the Airports only . By virtue of 

the definition of 'Airport', the jurisdiction. of AERA is confined only to the area 

for landing and taking off of aircraft. The proposal of ring fencing and reducing 

value of land, etc. are not envisaged in the AERA Act. 

By proposing exclusion of land from RAB by the prevailing market value of land 

that is associated with assets which provide amenities/facilities/services that 

are not related to or normally provided as part of airport services, or do not 


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derive any material commercial advantage from the airport, the Authority is in 

effect indirectly regulating the use of land by airport operators. 

CONCLUSION ON LAND USAGE 

1. It is clear that the purpose of Land lease is twofold i.e. for (a) Airport and (b) Non 

Airport activities as mentioned in the Land Lease Agreement. 

2. As per the provisions of the AERA Act, the Regulator is authorised to determine charges 

pertaining to the aeronautical charges at the Airport. Hence, the Regulator has no 

jurisdiction over the Land earmarked for Non-Airport activities. 

3. Under the concession agreement HIAL or the service provider have been given 

unrestricted right to determine the charges in respect to the activities other than the 

Regulated Charges as mentioned in Schedule 6 of the Concession Agreement. There is 

no provision as regards to cross-subsidizing the aero revenue using the revenues from 

Non-Airport Activities/real estate. Nor is there any mention about assigning a market 

value to land and reducing it from RAB . In fact the GoAP had given the land on lease as 

the project (which also includes Non-Airport Activities) was not feasible if the promoters 

were to acquire the Land on its own for the Project. By assigning a value to the land and 

reducing the same from the RAB AERA is contemplating an action which is not envisaged 

in the Concession Agreement and also goes against the intended purpose of the Land 

Lease Agreement and would significantly affect the feasibility of the Non-Airport activity 

component of the project 

Hence we request to leave the usage and treatment of the Land to the GoAP and GHIAL 

being Lessor and Lessee respectively. It may be appreciated that GoAP had already 

clarified to AERA that the reduction of Land value from RAB was not envisaged. 

A. Apart from above we have the following additional evidences in support of 

adoption of DUAL Till 

a. Ministry Of Civil Aviation's affidavit in AERAAT 

MoCA has filed its reply clarifying its contractual obligations with HIAL. As per 

MoCA, the terms of the Concession Agreement with HIAL has to form a vital 

consideration and basis for the determination of tariff for aeronautical services 

at the airport. MoCA in its affidavit to AERAAT has mentioned that it has used 

Shared/Hybrid till for determination of UDFof following airports: 

Jalpur, 

Amritsar, 

Udaipur, 

Varanasi, 

Mangalore, 



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Trichyand 

Ahmedabad airports, 

Similarly a shared till approach has been use for: 

Delhi and 

Mumbai 

So the status of till looks like this: 

Jaipur Shared/Hybrid Till 

Amritsar Sha red/Hybrid Till 

Udaipur Shared/Hybrid Till 

Varanasi Shared/Hybrid Till 

Mangalore Shared/Hybrid Till 

Trichyand Shared/Hybrid Till 

Ahmedabad Shared/Hybrid Till 

Hyderabad Single Till 

Bangalore Single Till 

Delhi Shared/Hybrid Till 

Mumbai Shared/Hybrid Till 

Therefore, it is not logical to assume that Hyderabad Airport, a Greenfield investment, 

with significantly higher risks, have been privatized and developed on a Single Bill basis 

whereas for major airports in India like Mumbai and Delhi and for smaller airports like 

Jaipur, Amritsar, Udaipur, Varanasi, lVlangalore, Trichy, Visakhapatnam and Ahmedabad 

Shared/Hybrid Till is being adopted. 

b. ICAD member states have adopted Dual and Hybrid Till: 


It is very much pertinent to mention here that world over at major airports 

which are part of the majority of the contracting states (few mentioned below) 

of ICAO have adopted Dual Till. 


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Regulatory Approaches in Selected Countries 

Country Airport Regulatorv Till 

Australia Adelaide, Brisbane, Melbourne, Perth, Sydney Ex post regulation 

Belgium Brussels Single till (moving towards dual ti I 

Denmark Copenhagen Hvbrid till 

France Charles de Gaulle, Orly Single till .... 

Germany Frankfurt, Hamburg Dual till 

Germany Berlin, Cologne-Bonn, Dusseldorf, Hannover, Munich, Stuttgart Single till 

Greece Athens Dual till 

Huriaarv Budapest, Ferihegy Dual till 

Ireland Dublin Si ngl e ti II * *'* 

Italy Rome, Milan, Venice Dual till 

Italy Other airports Hybrid till 

Malta Malta International Dual till 

New Zealand Auckland, Christchurch, Wellington Ex post regulation 

The Netherlands Amsterdam Dual till 

Portugal ANA airports Single till 

South Africa ACSA airports Single till 

Spain AENA airports Administrated tariffs 

Sweden Stockhol m-Arlanda, Mal rno Single till 

United Kingdom Heathrow, Gatwick, Stansted Single t ill **** 

* No-airport-related (non-airport) real estate activities are excluded from the regulatory till 

** Activities such as retail, advertising, no airport-related (non-airport) real estate, ground handling and activities carri 

by subsidiaries are excluded from the regulatory till 

*** Activities with non nexus to the airport (AerRianta International, Cork and Shannon airports, International 

investments, property related to joi nt ventures) are excl uded from the regulatory ti II 

**** Some retail activities and real estate pertaining hotels are excluded from the regulatory till 

Source: NERA analysis 

Thus it is evident from the above that majority of contracting states of ICAO has 

adopted Dual Till approach for regulating the aeronautical service charges. A detailed 

analysis in this respect carried out by an independent agency MIs NERA (Consultant of 

International repute having 20 offices across North America, Europe and Asia Pacific and 

ranked as No.1 in consulting in year 2009, 2010 and 2011 by Vault.com) is enclosed as 

Annexure A 

c. European Union on Till : 


The EU Directive, that explicitly mentions policies on airport charges endorsed 

by ICAO, states that: 

"It is necessary to establish a common framework regulating the 

essential features of airport charges and the way they are set [oo.}. Such a 

framework should be without prejudice to the possibility for a Member 

State to determine if and to what extent revenues from an airport's 

commercial activities may be taken into account in establishing airport 

charges." (Emphasis added) . 

[Source: EU Directive 2009/12/CE of the EU Parliament and of the Council of 11 

March 2009 on Airport Charges.] 


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The above quotation provide evidence that the EU Directive, in consonence 

with ICAO policies, "does not prescribe the basis on which airport charges 

should be set, and explicitly leaves open key issues such as the regulatory till" 

[Source: Dr. Francesco Lo Passo and David Matthew, NERA (2009), The EU 

Directive on Airport Charges: Principles, Current Situation and Developments.] 

d. ACI on Till: 

ACI on The Airports Council International (ACI), Montreal while referring to 

the AERA Order 13/2010-11, has indeed brought to the notice of AERA about 

the amendment done to the Para 30(i) of Doc 9082 and clarified about the 

neutral position of ICAO on the matter of regulatory till and stated that the 

conclusions with regard to ICAO Doc 9082 as well as ICAO Doc 9562 in paras 

5.17 -5.32 of the AERA Order 13/2010-11, are therefore not tenable and 

require rectification. 

e. Planning Commission {PC} on Till: 

We understand that the Planning Commission of India (PC) has written to 

AERA clarifying its position on the choice of till to be adopted. We understand 

that PC has also advocated the need for a Hybrid Till regulation. This has been 

also in light of the fact that India required a huge private sector investment 

into the Airport sector under the 12th plan. PC has underscored the 

importance of the choice of economic regulat ion especially a Hybrid Till 

approach in achieving the investment goals. 

Therefore, we again reiterate that the views of the Planning Commission may 

be taken into consideration. 

Based on above it can be concluded that a Dual till was not just envisaged in case of 

HIAL but is also desireable given the need for long term growth of the airport sector. 

International Examples in support of the treatment of land: 

NERA has also analyzed the international examples and from their analysis we find that 

real estate is outside regulation in most of the countries. 

A detailed country wise analysis is enclosed in Annexure B 



14

The summary of such analysis is reproduced here: 

Country Airport 

Australia 

Regu I atorv ti ·11 an d rea I estate treatment In se Iecte d countnes 

Adelaide, Brisbane, Melbourne, Perth, Sydney 

Regulatory till 

Ex-post 

Real estate IN/OUT the regulatory till 

OUT 

Belgium Bruxelles Single till OUT 

Denmark Copenhagen Hybrid till Partially IN * 

France Charles de Gaulle, Orly Single till OUT 

Germany Frankfurt, Hamburg Dual till OUT 

Ireland Dublin Single till IN 

Italy Rome, Milan, Venice Dual till OUT 

Italy Other ariports Hybrid till Partially IN/OUT ** 

NewZealand Auckland, Christchurch, Wellington Ex-post OUT 

South Africa ACSAairports Single till IN 

The Netherlands Amsterdam Dual till OUT (but hotels IN) 

United Kingdom Heathrow, Gatwick, Stansted Single till IN (but hotels OUT) 

(*) A percentage of the difference between revenues and costs related to real estate is included in the regulatory till 

(**) Real estate with no monpoly condition or locational rent is outside the regulatory till. Otherwise 50"10 of the 

commercial margin (difference between revenues and costs) is included in the till 

Privatization and Till: 

We had submitted evidence to Authority showing that the privatization and single till do not go 

together. There are no major privatizations in world, which are on single till. UK's privatization 

was due to extraneous reasons. We produce the list of the various private airports and its Till for 

ready reference. 

List of privatised a irports and their till (Except UK Airports-BAA) 

Country Airport 

Majority Private 

Ownership 

Till at 

Privatisation 


Till now 

Belqlurn Brussels Yes Dual till oraduatlv Dual till q raduallv 

Denmark Copenhaqen Yes No till 

Hybrid 

Hunoarv Budapest Fer Yes No till 

No till 

ItaIv Rome Yes No till 

Hvbid 

Naples Yes No till 

Hvbld 

Venice Yes No till 

Hvbid 

Malta Malta Interna Yes Dual till 

Dual till 

Slovak Republic Bratislava Yes 

N/a 

Australia Melbourne Yes No till dual till? Unreoutated/duat 

Perth Yes No till dual till? Unrequ lated/dual 

Brisbane Yes No till dual till? Unrequlated/dual 

Adelaide Yes No till dual till? Unreoutated/duat 

Sydney Yes Unrequlated dual Unrequlated/dual 

New Zealand Auckland Yes unreoutated dual Unrequlated/dual 

Wellinqton Yes Unrequlated dual Unreuu lated/dual 

Mexico cancun Yes Dual till 

Dual till 

Guadaleiara Yes Dual till 

Dual till 

Monterrey Yes Dual till 

Dual till 

Mexico City Yes No till/dual till? No till/dual till? 


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NERA Economic Consulting 

NERA Via Basento 37 

Econorrnr Consulti:)CJ 

2nd Floor 

Rome 00198, Italy 

Tel: +39 06 4888101 Fax: +3906485838 

www.nera.com 

1. Introduction 

ICAO PRINCIPLES AND REGULATORY TILL 

; ; 

I I March 201 I 

In January 2011, AERA has published the Order No, 13/20 I0-11 (hereinafter, the 'Order'), 

which prescribes that the regulatory approach to set aeronautical charges in the major airports of 

India is a single till price cap regulation. In the Order, AERA justifies the adoption of a single till 

regime for all airports in India by stating that: 

"The current ICAD airport charging policy specifies the costs ofan airport that 

should be charged to airport users, explicitly including therein contributions from 

non aeronautical re venues. [. ..] ICAD encourages contribution from non 

aeronautical revenues towards aeronautical charges. [...] Regarding cost 

relatedness, ICAD clearly states that non aeronautical revenues are generated by 

passengers and hence they should benefit from the non aeronautical surpluses. 

[. ..] It is, thus, clear from harmonious construction that ICAD guidelines indicate 

that non aeronautical revenue should be either used for funding investment needs 

(capex) ofaeronautical activities or to defray aeronautical charges'. I 

The general regulatory framework defined by AERA in the Order - based on a single till price 

cap regulation - applies to the GMR Hyderabad International Airport Limited. 

GMR Hyderabad International Airport Limited (HIAL) has decided to appeal under Section 

18(2) of the Act against the AERA's Order on the ground that a single till tariff structure proves 

to be inapplicable to HIAL airpolt, because of the incompatibility of such regulatory till 

approach with provisions of its OMDA. In this context, HIAL has asked us to provide an 

assessment ofprinciples endorsed by ICAO in terms of regulatory till applicable for the 

economic regulation of airports and to provide evidence of regulatory approaches adopted in 

other jurisdictions, and draw some conclusions. 

This Memorandum is organised as follows: 

AERA (201 J), Ord er No. 1312010-11, In Ihe MeuerolReguletory Philosophy and Approach In Economic Reguletton of 

Airports Operators, par. 5.17 , 5.18, 5.19 and 5.24. 

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"Given the different local circumstances and fast-changing conditions, with 

respect to airport ownership and management, as well as regulatory regime, 

there are likely to be a range ofdifferent appropriate treatments ofnonaeronautical 

income by sirports" (Emphasis added)" 

Common reading of these words would indicate that, in emphasising the importance that airport 

charges are able to ensure the full cost recovery of providing airport services, ICAO does not 

indicate explicitly which approach might be considered more appropriate to reach cost 

recovery. On this issue, ICAO recognises that the more appropriate approach to be followed in 

determining how costs are to be shared and at what extent revenues from non-aeronautical 

activities shall be taken into account, can not be identified per se, but it should be determined 

case-by-case, on the basis of the specific factors of each airport. 

Therefore, neither single till nor dual till or hybrid till are recommended or supported by 

ICAO. On the contrary, the regulatory till recommended by ICAO should be defined for 

each airport on the basis of characteristics and peculiarities of the single airport. 

As a consequence the conclusions drawn by AERA, according to which "single till is 

recommended or supported by ICAO,,6and that, consequently, this approach shall be adopted for 

all major Indian airports in an indiscriminate way, arise from an incorrect interpretation ofICAO 

policies. 

More specifically, ICAO, in emphasising the need for airport to recover its full economics costs 

associated with provision of airport services and in recognising that different treatments ofnon 

aeronautical income may apply to different airports, indicates that: 

"In general, three approaches have been used to describe how an airport 

recovers the full costs associated with the sirport and its essential nonaeronautical 

services. These approaches are commonly refereed to as: a) single 

till (sometimes referred to as the "residual" approach; b) dual till (sometimes 

referred to as "compensatory "); and c) hybrid till. "(Emphasis addedr' 

The above quotation confirms that, in laying down guidelines on methods to allocate nonaeronautical 

revenues to an airport's cost base, ICAO recognises the possibility to adopt 

different approaches, which range from a single till (where aeronautical costs are adjusted to 

reflect non-aeronautical revenues that accrue to the airport) to a dual till (where no adjustment is 

made to the aeronautical costs to adjusted to reflect non-aeronautical revenues that accrue to the 

Idem, page 4-15. 

AERA (2011), Order No. 13/2010-11 , In the Matter ofReguletory Philosophy and Approach In Economic Regulation of 

Airports Operators, par. 5.32. 

Idem, par. 4.55. 



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airport), Between these two extremes, also an intermediate approach (i.e, an hybrid till) may 

be followed. Appendix A provides a description of these three different regulatory till 

approaches. 

The fact that ICAO explicitly mentions different approaches to be adopted by regulators in tariff 

determinations, and that these approaches range from a single till to a dual till, confirms that 

AERA's interpretation ofICAO policies - according to which the single till is the only 

regulatory till which comply with ICAO guidelines - is not correct. 

We also believe that , in few cases, AERA's conclusions may represent a twist ofICAO 

principles. For example, in order to demonstrate that "it is clear from harmonium construction 

that ICAO guidelines indicate that non aeronautical revenues should be either used for funding 

investment need (capex) of aeronautical activities or to defray aeronautical charges", AERA 

mentions the following extracts from ICAO's documentsr' 

" When determining contributions from non aeronautical revenues, high priority should 

be given to the investment needs ofairports [...]. It may be appropriate for airports to 

retain non aeronautical revenues rather than lise such revenues to defray charges. 

However, there is no requirement for airport to do so and, in appropriate circumstances, 

there may be solid grounds for charges to be lower, consistent with Doc 9082,9 

It is interesting noting that AERA adds emphasis to the last sentence ("However, there is no 

requirement for airport to do so and, in appropriate circumstances, there may be solid grounds 

for charges to be lower, consistent with Doc 9082'). Complete reading of the entire paragraph 

(and not of the single sentence) would indicate that, in general (i.e, in most cases), ICAO 

policies specifically state that it may be appropriate for airports to retain non-aeronautical 

revenues, rather than to use such revenues to defray charges. However, in some specific 

circumstances (i.e. in some cases), ICAO recognises that it may be appropriate for airports to 

deem a full or partial use of non-aeronautical revenues to defray aeronautical charges as 

appropriate or necessary to increase their competitiveness. Therefore, emphasis added by AERA 

on the second sentence instead of the first one unavoidably leads reader to misinterpretations of 

ICAO principles. 

In the past, the issue on which regulatory till approach should be regarded as consistent with 

international practice and, in particular, with ICAO policies and guidelines, has been discussed 

for a long time . 

AERA (20 II), Order No, 13120I0-11, In the Matter ofRegutntory Philosophy and Approach In Economic Reguletton of 

Airports Operators, par. 5.23. 

ICAO (2006), Airport Economics Manual (Doc. 9562/2) , page 4-15. 



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The EU Directive, that explicitly mentions policies on airport charges endorsed by ICAO,14 

states that: 

"It is necessary to establish a common framework regulating the essential 

features ofairport charges and the way they are set [. ..}. Such a framework 

should be without prejudice to the possib1l1ty for a Member State to determine if 

and to what extent revenues from an airport's commercial activities may be 

taken into account in establishing airportcharges." (Emphasis added)" 

The above quotation provide evidence that the EU Directive, in coherence with ICAO policies, 

"does not prescribe the basis on which airport charges should be set, and explicitly leaves 

open key issues such as the regulatory till,,16 

The conclusions drawn by AERA, according to which "no definitive position for or against any 

form of regulatory till is available on this issue in the EU directives" implicitly recognize that 

ICAO principles allow dual till and hybrid till regulation, and not only single till. 17 

4. Regulatory approaches adopted in other countries 

The Convention on International Civil Aviation (also known as the Chicago Convention), which 

set up ICAO, was signed in 1944 and, after that date, was ratified by the single States. Currently, 

about two hundred countries are numbered in the contracting States. 

The regulatory approaches - in terms of regulatory till- adopted at national level by the single 

States that have ratified the Chicago Convention can differ significantly. 

In some countries the regulatory framework is based on an ex post regulation, also known as 

"light handed" regulation. Under this approach, there is no explicit ex ante regulation of prices 

(i.e. airports may freely set prices); prices are subject to ex post monitoring from Competition 

Authorities. However, regulation shall be imposed if airport performance is considered to be 

poor (e.g. if airports reduces service quality beyond certain critical levels). Ex post regulation is 

currently implemented, inter alia, in Australia and New Zealand. 

14 

15 

Idem, par. 9, lOand 17 ofthe Preamble. 

Idem, par. 2 of the Preamble. 

16 Dr. Francesco Lo Passo and David Matthew. NERA (2009), The EU Directive on Airport Charges: Principles. Current 

Situation and Developments. 

II AERA (2011), Order No. 13/2010-11 , In the Maller of RegulatoryPhilosophy and Approach In Economic Regulation of 

Airports Operators, par. 5.32 . . 



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In other countries, the regulatory framework employed to regulate airports is based on an ex ante 

regulation. When ex ante regulation applies, the scope of the regulatory till ranges from a single 

till regime to a dual till regime, with also a number of intermediate solutions (hybrid till regime). 

The following table provides an overview of regulatory approaches implemented in selected 

countries. The table gives evidence that the regulatory approaches that enforce ICAO principles 

may comprise ex post regulation as well as ex ante regulation. In this latter case, the scope of the 

regulatory till may include contributions of all or some non-aeronautical activities performed by 

airport (single till approach), or may include only a percentage of contributions of nonaeronautical 

activities (hybrid till approach). 

A brief description of the regulatory approaches implemented in each selected country is 

provided in Appendix B. 



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Table 4.1 

Regulatory Approaches in Selected Countries 

Country Airport Regulatory Till 

Australia Adelaide , Brisbane, Melbourne, Perth, Sydney Ex post regulation 

Belgium 

Brussels 

Single till (moving 

towards dual till) * 

Denmark Copenhagen 

Hybrid till 

France 

Charles de Gaulle, Orly 

Single till ** 

Germany Frankfurt, Hamburg 

Dual till 

Germany Berlin, Cologne-Bonn, Dusseldorf, Hannover, 

Munich, Stuttgart 

Single till 

Greece 

Athens 

Dual till 

Hungary 

Budapest, Ferihegy 

Dual till 

Ireland 

Dublin 

Single till *** 

Italy 

Rome, Milan, Venice 

Dual till 

Italy 

Other airports 

Hybrid till 

Malta 

Malta International 

Dual till 

New Zealand Auckland, Christchurch, Wellington 

Ex post regulation 

The Netherlands Amsterdam 

Dual till 

Portugal 

ANA airports 

Single till 

South Africa ACSA airports 

Single till 

Spain 

AENA airports 

Administrated tariffs 

Sweden 

Stockholm-Arlanda, Malmo 

Single till 

United Kingdom Heathrow, Gatwick, Stansted 

Single till **** 

* No-airport-related real estate activities are excluded from the regulatory tiIJ 

*-* Activltles such as retail, advertising, no airport-related real estate, ground handling and activities carried out 

by subsidiaries are excluded from the regulatory till 

*.** Activities with non nexus to the airport (AerRianta International, Cork and Shannon airports, International 

investments, property related tojoint ventures) are excluded from the reguletoty til! 

****Some retail activities and real estate pertaining hoteis are excluded from the regulatory till 

Source: NERA anaiysis 

The fact that each State, though having ratified the Chicago Convention, has decided to 

adopt different regulatory regimes confirms the absence of international obligation to 

preclude or encourage the single till approach rather than the dual till approach, or the 

hybrid approach. 



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5. Conclusions 

Article 13 of the Act requires that AERA determines "the tarifffor the aeronautical services 

taking into consideration [.. .] the concession offered by the Central Government in any 

agreement or memorandum of understanding or otherwise". 18 

The HIAL Concession Agreement prescribes that only aeronautical charges will be regulated 

(namely, Landing, Housing and Parking charges, Passenger Service Fee and User Development 

Fee) consistently with ICAO Policies (see Clause 10.2.1 and Schedule 6 of the RIAL Concession 

Agreement). 

The Act requires regulation to be put in place such to allow economic viability of airports and to 

be coherent with the agreements between each airport and the Central Government. Therefore, 

the regulated tariffs of RIAL should set such to allow economic viability and by taking into 

account the specificities of each airport, including the fact that RIAL pays an annual 

contribution (expressed in terms of a percentage of gross revenues) as a result of the 

privatization process. 

On the contrary, the AERA's Order of 12 January 2011 prescribes that the regulatory approach 

in the major airports of India has to be a single till price cap regulation, since, according to 

AERA, a single till regime is the solely approach that may be regarded as consistent with ICAO 

policies and guidelines. ' 

We believe the AERA interpretations of ICAO principles not to be appropriate. By making an 

erroneous reference to the fact that single till regulation is recommended or supported by ICAO, 

AERA does not make a reasonable case to support the adoption of a single till price cap 

regulation to major airports and more specifically to HIAL airport. 

Differently, we have assessed the principles endorsed by ICAO, which deal with the scope of the 

regulatory till and on how non-aeronautical revenues should be considered in setting aeronautical 

charges. Our conclusions are that ICAO policies do not indicate a unique approach to be 

regarded as more appropriate to regulate aeronautical charges. As consequence, neither single till 

nor dual till or hybrid till are recommended or supported by rCAO. 

ICAO guidelines envisage that the appropriate regulatory till should be defined case-by-case on 

the basis of characteristics and peculiarities of the single airport. The approaches suggested by 

rCAO range from a single till to a dual till, with the possibility of intermediate solutions (i.e. a 

hybrid till). 

1M AERA (2008), The Altports Economic Regulatory Authority ofIndia Ac/. 2008. 



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activities from the regulatory till (e.g. UK, Ireland, etc.). Therefore, with the term "single till", 

we refer also to those approaches in which some non-aeronautical activities are excluded from 

the regulatory till. 

Under a single till approach, revenues that airport is allowed to receive from aeronautical 

services (defined as "allowed revenues") are calculated as difference between (i) total allowed 

costs (i.e remuneration on capital, depreciation and opex, related to both aeronautical activities 

and non-aeronautical activities included in the regulatory till) and (ii) revenues from nonaeronautical 

activities included in the regulatory till. 

Dual till approach 

Under a dual till framework, only those activities in which airport has market power (generally, 

those services which rely on "bottlenecked" facilities) are considered in tariff calculation. Under 

this approach, allowed revenues are assessed considering exclusively allowed costs (i.e 

remuneration on capital, depreciation and opex) associated with aeronautical activities. Revenues 

and costs of non-aeronautical activities are not taken into account in setting regulated tariffs. 

Hybrid till approach 


Under a hybrid till framework, the airport cost basis is determined based on a combination of the 

single till and the dual till approaches. A hybrid till regime may be structured in a variety of 

ways. For example, a hybrid till framework may prescribe that costs to be considered in tariff 

determination are exclusively costs associated with aeronautical activities and that a predefined 

percentage of non-aeronautical revenues is used to defray the cost base for charges. 

Alternatively, a hybrid till framework may prescribe that the regulatory till includes both 

aeronautical activities and a predefined percentage (e.g. 50%) of non-aeronautical activities; this 

implies that aeronautical costs are reduced of an amount equal to the predefined percentage of 

the commercial margin (calculated as difference between non-aeronautical revenues and nonaeronautical 

costs, including remuneration on capital, depreciation and opex) that accrues to the 

airport. 


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B.2. Belgium 

The regulatory approach to set aeronautical charges in Brussels airport is an single till price cap 

regulation. Hence, aeronautical charges are determined by taking into account: 

(i) costs pertaining aeronautical services; and 

(ii) costs and revenues pertaining commercial activities included in the regulatory till. 

The regulatory till does not include all commercial activities. 

Currently, commercial activities that are included in the regulatory till (i.e. activities that 

contribute to defray aeronautical charges) are: 

• Retail activities; 

• Car parking; 

• Advertising; 

• Airport-related real estate activities. 

On the contrary, commercial activities that are excluded from the regulatory till are: 

• No airport-related real estate activities. 

Regulation (which was implemented in 2005) prescribes that contribution from commercial 

revenues towards aeronautical charges shall decline linearly in the course ofyears, and be 

completely removed within, at maximum, four regulatory periods. At that time, the single till 

approach will be replaced by a dual till approach. 

B.3. Denmark 

The regulatory approach to set aeronautic al charges in Copenhagen airport is a hybrid till grice 

cap regulation. 22 Hence, aeronautical charges are determined by taking into account 


22 


For some airports, distinction between single till and dual till is not clear cut. Copenhagen airport, for example, is purported 

to operate under a dual till sys tem; however, comme rcial inco me doe s make a contribut ion to reducin g ae ronautical charges. 


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B.5. Germany 

The regulatory approaches to set aeronautical charges in the eight airports with the highest traffic 

volume in Germany are: 

• A price cap regulation based on a: 

- Single till approach in Hannover airports; 

- Dual till approach in Hamburg and Frankfurt airports; 

• A single till rate of return regulation in Berlin, Colonia-Bonn, Dusseldorf, Munich and 

Stuttgart airports. 

Where a dual till approach applies (i.e. Hamburg and Frankfurt), aeronautical charges are 

determined by taking into account only costs pertaining aeronautical services. In these airports, 

revenues from airport's commercial activities are not considered in tariff calculation. 

Where a single till approach applies (i.e. Berlin, Colonia-Bonn, Dusseldorf, Hannover, Monaco 

and Stuttgart), aeronautical charges are determined by taking into account: 


(ii) costs and revenues pertaining all commercial activities. 

B.6. Greece 

The regulatory approach to set aeronautical charges in Athens airport is a dual till rate of return 

regulation. Hence, aeronautical charges are determined by taking into account only costs 

pertaining aeronautical services. Revenues from airport's commercial activities are not 

considered in tariff calculation. 

B.7. Hungary 


The regulatory approach to set aeronautical charges in Budapest and Ferihegy airports is a dual 

till price cap regulation. Hence, aeronautical charges are determined by taking into account only 

costs pertaining aeronautical services. Revenues from airport's commercial activities are not 



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B.8. Ireland 

The regulatory approach to set aeronautical charges in Dublin airport is an single till price cap 



(ii) costs and revenues pertaining all commercial activities included in the regulatory till. 

The regulatory till does not include all commercial activities (single till). 

Currently, commercial activities that are included in the regulatory till (i.e . activities that 

contribute to defray aeronautical charges) are: 

• Retail activities (except activities carried out by AerRianta International); 



• Real estate activities. 

On the contrary, commercial activities that are excluded from the regulatory till are: 

• Retail activities carried out by AerRianta International; 

• Activities that have not sufficient nexus to the airport: these activities include: 

- Cork and Shannon airports; 

- International investments (e.g. Birmingham and Hamburg airports); 

- Property related to joint ventures. 

The regulator has also clarified that "The inclusion of investments in new commercial activities 

within the regulatory till is carried out on a case-by-case basis - so it is not possible to say 

definitely whether a given investment will or will not be included in the till" . 

B.9. Italy 

The regulatory approaches to set aeronautical charges in the Italian airports are: 



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• A dual till price cap regulation in Rome, Milan and Venice airports (i.e. airports with annual 

traffic higher than 8 million passengers); 

• A hybrid till price cap regulation in the other airports. 

Where a dual till approach applies (i.e. Rome, Milan and Venice), aeronautical charges are 

dete rmined by taking into account only costs pertaining aeronautical services. In these airports, 

revenues from airport's commercial activities are not considered in tariff calculation. 

Where a partial single till approach applies (i.e. the other airports), aeronautical charges are 

determined by taking into account: 


(ii) 50% of commercial margin, calculated as difference between costs and revenues pertaining 

commercial activities included in the regulatory till. 

The regulatory till does not include all corrunercial activities. Currently, commercial activities 

that are included in the regulatory till (i.e. activities that contribute to defray aeronautical 

charges) are those activities in which airport may reap benefits form monopoly or locational 

rents . 

B.10.Malta 

The regulatory approach to set aeronautical charges in Malta International airport is a dual till 

price cap regulation. Hence, aeronautical charges are determined by taking into account only 

costs pertaining aeronautical services. Revenues from airport's commercial activities are not 


B.11. New Zealand 

The regulatory approach to set aeronautical charges in Auckland, Christchurch and Wellington 

airports is an ex post regulation (also known as light handed regulation). 

Monitored airports are free to set their own charges, and users have recourse to litigation where 

they believe charges to be unreasonable. Despite the lack of formal price controls, New Zealand 

airports have undergone several reviews since privatization was introduced. 

Furthermore, the Government reserves the right to re-introduce explicit price regulation at 

airports if it is deemed necessary. 



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8.12. The Netherlands 

The regulatory approach to set aeronautical charges in Amsterdam airport is officially a dual till 

rate of return regulation. Hence, even though aeronautical charges should be determined by 

taking into account only costs pertaining aeronautical services (in coherence with a dual till 

approach), in practice, some non-aeronautical activities are considered in tariff calculation. 

Currently, commercial activities that are considered in tariff calculation are: 

• Shopping areas; 


• Real estate activities (only hotels) . 

8.13. Portugal 

The regulatory approach to set aeronautical charges in ANA airports is a single till price cap 



(ii) costs and revenues pertaining all commercial activities." 

8.14.South Africa 

The regulatory approach to set aeronautical charges in ACSA airports is a single till price cap 



(ii) costs and revenues pertaining all commercial activities" 


23 The commercial activities included in the regulatory till are the "relevant commercial activities", defined as "the majority of 

commercial activities carried out in the airports or other aerodromes by the airport managing body". However, 

"exceptionally, by means of a concession contract with the State, and taking into account a principle of adequate return on 

the capital invested by the airport managing body, commercial activities carried out by the airport managing body may be 

included or excluded from the relevant commercial activities" (art. 10 of Decree-Law no. 217/2009). 

24 Regulating Cometee Investments which are not part of the core business of the Company, for example, a portfolio of shares, 

shall be excluded from the RAB and the related income and expenditure ringfenced out of the single till. 


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• Real estate activities (except hotels). 

On the. contrary, commercial activities that are excluded from the regulatory till are : 

• Retail activities (such as profits accrued by World Duty Free); 

• Real estate activities (only hotels). 



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NERA Via Basento 37 


2nd Floor 

Rome 00198, Italy 

Tel: +39 064888101 Fax: +39 06 485838 

www.nera.com 

1. Introduction 

LAND TREATMENT 

28 March 2011 

On January 2011, AERA (the Airport Economic Regulatory Authority) issued the 

Order No. 13/2010-11 which states that: 

"the scope of the RAE is that, in normal course, all airport assets will come 

under the scope of the single till. However, the Authority may, based on due 

consideration of relevant factors, exclude certain assets from the scope of RAE, 

provided that if such assets are integral to the airport, the Authority may decide 

not to exclude them from the scope of RAE. This approach is reasonable as it 

treats the airport as one business yet at the same time enables the Authority to 

insulate the users from non related activities, ifany, undertaken by the airports by 

suitably ring fencing the relevant assets'.' 

The Order provides the principles governing ring fencing to be followed by AERA: 

"Normally, the land is given free or on highly concessional terms by the 

government to the airport operator. (...) In many cases, the land is much in excess 

of the requirements purely for the airport development. The Authority also 

understand that the excess land is given by the government to make the airport 

viable and attractive as a worthwhile investment especially for the private 

investors who can exploit the land for the purposes of airport development. The 

Authority is mandated by the Act to ensure the financial viability of the airports. 

Hence it would be giving Fair Rate of Return to the investors on the capital, 

consistent with the risk profile of the airport in question. (. ..) The Authority thus 

considers that the benefits of land exploitation should go to the passengers and 

cargo facility users in terms ofmoderating the aeronautical charges. (. ..) It would 

not be feasible for the Authority to prescribe treatment for all such different forms 

of land transfers/alienation. After deliberating on all these factors, the Authority 

considers that the best way to capture the benefits of land exploitation for 

moderating the aeronautical charges is to make suitable adjustments itself It 

would therefore take into account the valuation of land (and any asset thereon) 

See article 7.2 of Order No . 13/2010-11 issued by AERA 

NERASrl 

tscntta CCIAA II 27/0912001 REA 987

NERA 


only at the time oftaking it out ofRAE and would not monitor any fluctuations in 

its value thereafter.,,2 

According to this order these principles would apply to GMR Hyderabad International 

Airport Limited (HIAL). 

In this context, HIAL has asked us to carry out an analysis of land treatment, 

providing examples of regulation in other jurisdictions. Our analysis will present 

international evidence and will draw some conclusions. 

Airport land can be used for both aeronautical activities and non aeronautical 

activities. The international evidence on land used for non aeronautical activities 

varies across jurisdiction as a single rule does not apply. 

The use of land for non aeronautical activities comprises a variety of conunercial 

activities like retail shops , car parking and real estate development. The real estate 

development is defined as the development and management of different kind of 

airport areas, for example hotels, conference centers and shopping malls. 

In case where a dual till regulation applies, non-aeronautical activities are excluded 

from regulation. In case where a single till regulation applies, in many instances, the 

regulation allows some non aeronautical activities to be excluded from the regulatory 

till. In case where a hybrid till regulation applies, only some non-aeronautical 

activities are included in the regulatory till and only part of their profits is included in 

the till. 

Another issue related to the treatment of land concerns the treatment of surplus airport 

land, i.e. land in excess of what is needed for aeronautical use. This land, in some 

instances, can be sold and the airport operator can retain all revenues. 

This memorandum is structured as follows: 

• Section 2 provides an international benclunark on the inclusion of the land used 

for non aeronautical purposes on the perimeter of the regulatory till; 

• Section 3 describes how surplus airport land is treated in other jurisdictions; 

• Section 4 concludes. 

Articles from 7.5.1 to 7.5.5 of Order No. 13/2010-11 issuedby AERA 

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Economic Con sulting 

2. Inclusion of the land used of commercial 

purposes on the perimeter of the till 

We have examined how airport regulation treats land used for non-aeronautical 

activities in the following countries: Australia, Belgium, Denmark, France, Germany, 

Ireland, Italy , New Zealand, South Africa, The Netherlands and UK. 

For each country we have detected whether and to what extent revenues of nonaeronautical 

activities contribute to cover costs ofaeronautical activities. We have 

then made specific reference to revenues of land used for non-aeronautical activities. 

The results of our analysis are the following: 

• Under dual till regulation non-aeronautical activities are out of the scope of the 

regulated till; real estate is excluded in Germany at Frankfurt and Hamburg, in 

Italy at the major airports and in Netherlands at Amsterdam (with the exception of 

hotels); 

• In general, there is no pure single till regulation. Selected non aeronautical 

activities, where no general rule applies, are excluded from the regulatory till. 

More specifically, real estate is outside the regulatory till in France at ADP and in 

Belgium at Bruxelles airport. Real estate is included in Ireland at Dublin airport, 

at South African Airports, in UK at Heathrow, Gatwick and Stansted (but hotels 

are outside). 

• Where a hybrid till applies, non-aeronautical activities are partially included in the 

regulatory till. This is the case of Denmark, as at Copenhagen, where between 

10% and 50% of the margin of non-aeronautical activities is used to remunerate 

costs of aeronautical activities, and of Italy, at all airports but the large ones, 

where it is used 50% of the margin of non-aeronautical activities, but only if such 

activities are provided under monopoly or locational rent. The same principles 

apply to real estate in both countries. 

• Finally, where ex post monitoring applies, as in the case of major Australian and 

New Zealand, non aeronautical activities, including real estate, are excluded by 

any regulatory till. 

Table 2.1 summarizes the international evidence examined. 

3 



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Table 2.1 

Regulatory till and real estate treatment in selected countries 

Country Airport Regulatory till 

Australia Adelaide, Brisbane, Ex-post OUT 

Melbourne, Perth, Sydney 

Real estate IN/OUT the 

regulatory till 

Belgium Bruxelles . Single till OUT 

Denmark Copenhagen Hybrid till Partially IN * 

France Charlesde Gaulle, Orly Single till OUT 

Germany Frankfurt, Harrourg Dualtill OUT 

Ireland Dublin Single till IN 

Italy Rome, Milan, Venice Dualtill OUT 

Italy Other ariports Hybrid till Partially lN/OUT ** 

New Zealand Auckland, Christchurch, Ex-post OUT 

Wellington 

South Africa ACSA airports Single till IN 

The Netherlands Amsterdam Dual till OUT (but hotelsIN) 

United Kingdom Heathrow, Gatwick, Single till IN (but hotels OUT) 

Stansted 

(*) A percentage of the difference between revenues and costs related 10 real estate is included in the regulatory till 

(**) Real estate with no monpoly condition or locauonal rent is outside the regulatory till. Otherwise 50%of the 

comrrercial margin (difference between revenues and cos ts) is included in the till 

Source: NERA analysis 

2.1. Australia: Adelaide, Brisbane, Melbourne, Perth, Sydney 

In Australia, the formal price regulation was abandoned in 2002 and it was repla ced 

by an ex post regulation (also known as light handed regulation)". This light handed 

regul ation is essentially an ex post monitoring of the aeronautical activities and, more 

recently, also of airport car parking. Mon itored airports (i.e. Adelaide, Brisb ane, 

Melbourne, Perth and Sydney) are free to set their own charges under competition 

law. 

Non-aeronautical activities, including real estate with the exception ofairport car 

parking, are outside the perimeter of the regulatory till. 

2.2. Belgium: Bruxelles 

The Bruxelles airport is under a single till regulation which will become a dual till 

regulation by 2025 . 4 Currently, the regulatory till includes the following non 

aeronautical activities: 

• Car parks; 

Productivity Com missio n, Price Regulation of Air Services,Report No. 19, January 2002 

The regulation is defined by the Royal decree 21/612004 

4 



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Economic Con sulting 


• Retail; 

• Commercial sub-concession. 

All other real estate activities are excluded from the regulated till as not directly 

connected to aeronautical activities. 

2.3. Denmark: Copenhagen 

The airport of Copenhagen is under a hybrid till regulation. 5 Aeronautical charges are 

calculated on costs of aeronautical services reduced by a percentage of the difference 

between revenues and costs ofall the non-aeronautical activities." 

This percentage is in the range 10% -50% and is the result of a negotiation between 

the airport and the airlines aimed to ensure that tariffs are in line with the average 

airport charges of a benchmark of airports. 

Revenues and costs related to real estate activities are partially included in the 

perimeter of the regulated till as all other non aeronautical activities. 

2.4. France: Paris 

The Paris airports are under a single till regulation, however, not all the nonaeronautical 

activities are included in the regulatory till. 7 

The regulation currently in place provides a list of non-aeronautical activities which 

are excluded from the regulatory till, such as commercial activities (such as those 

related to shops, restaurants and bars, in-terminal hotels, car rentals, banking and 

foreign exchange services and advertising), and the diversification real estate." As a 

consequence, the only non aeronautical activities included in the till are car parking 

and aeronautical real estate activities. 

The airport follows a dual till approach in the official documentation, but on the contrary the regulation 

substantiates in a hybrid till as a fraction of the margin of the commercial activities contributes to set 

aeronautical charges. Source: Danish Civil Administration, Regulations on payments for use of airports 

(airport charges), BL 9-15, December 2008 

Article 5.4, Regulatory model for fixing airport charges under the incentive-based model in relation to 

Copenhagen airports A/S 

The new French Economic Regulation Agreement (ERA) signed for the period 2011-2015 modifies the 

previous Economic Regulation Agreement expired in 20 IO. Source: Economic Regulation Agreement 

between the State and Aeroports de Paris 20I 1-2015, ADP, 20 II 

Commercial activities and diversification real estate activities were included in the regulatory till in the 

previous first regulatory period. 

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2.5. Germany: Frankfurt and Hamburg 

The Frankfurt and Hamburg airports are under dual till regulation", Aeronautical 

charges are determined by taking into account only those costs pertaining to the 

aeronautical services IO. 

In both these airports, non-aeronautical activities and, more specifically, real estate 

activities are not included in the regulatory till. 

2.6. Ireland: Dublin 

The Dublin airport is under a single till regulation, where all non-aeronautical 

activities are included in the regulatory till with a few exceptions related to its 

subsidiaries. II 

All other non-aeronautical activities Including real estate are integrated by the CAR in 

the regulatory till: retail, car parks, property rents , ground handling, property 

concessions, advertising and corporate. 

2.7. Italy: major airports and all other airports 

A dual till price cap regulation applies to the large airports with more than 8 min 

passengers that are Rome, Milan and Venice airports and a hybrid till price cap 

regulation applies in the other airports. 12 

Where a dual till approach applies, aeronautical charges are determined by taking into 

account only costs pertaining to the aeronautical services. Non-aeronautical activities 

and therefore real estate activities are not included in the regulatory till. 

Where a hybrid till approach applies, aeronautical charges are determined considering 

50% of the commercial margin (difference between revenues and costs) of nonaeronautical 

services carried out by the operator on the airport area under monopoly 

or localization rents. All the other non-aeronautical services are excluded from the till 

and do not contribute to the calculation of the conunercial margin. 

2.8. New Zealand: Auckland, Christchurch, Wellington 

The regulatory approach to set aeronautical charges in Auckland, Christchurch and 

Wellington airports is an ex post regulation (also known as light handed regulationj'

NERA 


This ex post regulation applies only to aeronautical activities, while prices for nonaeronautical 

activities including real estate are out of the perimeter of the regulatory 

till. 

2.9. South Africa: all regulated airports 

The airport regulation applied to ACSA is based on a single till approach." Non 

aeronautical activities, including real estate activities, are included in the regulatory 

till. 

Only investments which are not part of the core business of the company are excluded 

from the till. 

2.10. The Netherlands: Amsterdam 

The airport of Amsterdam is under a dual till regulation." However, some nonaeronautical 

activities are included in the till, i.e.: 


• Shopping areas; 

• Hotel space. 

All other non aeronautical activities, including real estate, are not considered in the 

perimeter of the regulatory till. 

2.11. United Kingdom: Heathrow, Gatwick and Stansted 

Heathrow, Gatwick and Stansted airports are under single till regulation. Nonaeronautical 

activities are included in the regulatory till. Real estate activities are 

included in the regulatory till with the exception of hotels owned by BAA as they are 

located outside the airport, or subject to competition from other hotel operators. 

In summary, non-aeronautical activities that are included in the regulatory till are: 

• retail activities (regarding World Duty Free, awholly owned subsidiary ofBAA, 

only the royalty will be included in the calculation of the margin, while the 

remaining rart of the profits will remain out to the benefit of the airport 

operator); I 

• car parking; 

• advertising; 

14 Approach to the 2010111 to 2014/15 permissions, April 2009, Regul ating Committee to ACSA and ATNS 

15 

See : Dec ree 333 dated 7 July 2006 entailing rules regarding the operation of Amsterdam Airport Schiphol 

(Amsterdam Airport Schiphol Operation Decree) and Dutch Aviation Act- Section 8.25d( 12) 

lfi Competition Commission repo rt: BAA Ltd - A report on the economic regulation of the London airports 

companies (Heathrow Airport Ltd and Gatwick Airport Ltd), Anne x l, pg, 19 

7 



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• sub-concession; 

• real estate activities (except hotels). 

Conversely, non-aeronautical activities that are excluded from the perimeter of the 

regulatory till are: 

• retail activities (such as profits accrued by World Duty Free); 

• real estate activities (only hotels run by BAA). 

3. Evaluation and sale of surplus land 

We have examined how surplus land - i.e. land in excess of what is needed for 

aeronautical use - is treated in the following countries: Australia, Belgium, Denmark, 

France, Germany, Ireland, Italy, New Zealand, South Africa, The Netherlands and 

UK. 

For each country we have detected: 

• How surplus land is evaluated (e.g. current cost or historic cost) if it is included in 

the till; 

• Whether the surplus land can be sold and, if this is the case, whether such 

revenues will be included in the regulatory till. 

The results of our analysis can be summarized as follows: 

• In cases where surplus land (i.e. land used for non-aeronautical activities) is 

included in the till, it can be evaluated either at current cost (Ireland, Italy, UK) or 

at historic cost (Belgium, Denmark, South Africa, The Netherlands). None of the 

considered airports include such land in the RAB at market price. 

• Surplus land can be sold in some countries (Australia, Belgium, Ireland, Germany, 

New Zealand, South Africa, UK). In general, sale revenues follow the same rule 

which applies to non-aeronautical real estate revenues. In Italy surplus land cannot 

be sold but it can be subleased at the same conditions which apply to nonaeronautical 

real estate revenues. In some other countries (France, Denmark, 

Sweden) there are no clear rules on the matter. In most instances there have not 

been precedents. 

The following paragraphs illustrate our analysis of the treatment of surplus land in the 

different jurisdictions. 

3.1. Australia: Adelaide, Brisbane, Melbourne, Perth and Sydney 

In Australia, only a price monitoring applies, therefore land used for non aeronautical 

activities is not evaluated in order to calculate aeronautical charges. 

8 



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Airports can sell land developed for non -aeronautical purposes (e.g. commercial 

activities) and in general surplus land. They retain all revenues associated to the sale. 

3.2. Belgium: Bruxelles 

In Belgium, land connected to aeronautical activities is evaluated at historic cost and 

included in the RAB. 

All other land is not included in the regulatory till and, in principle, can be sold, 

although there are no precedents. Price will be set by the market and the airport will 

keep all sale revenues. 

3.3. Denmark: Copenhagen 

In Denmark aeronautical charges are calculated on costs of aeronautical services 

reduced by a percentage of the difference between revenues and costs of all nonaeronautical 

activities. Land is evaluated at historic cost. 

The regulation does not explicitly mentions whether land in excess of the land needed 

for aeronautical purposes (i.e, surplus land) can be sold and how this should be 

treated. We understand that, in case the airport sells such land revenues will be 

included in the till in a percentage corresponding to the one which applies to the 

difference between revenues and costs of non-aeronautical activities. 

3.4. France: Paris 

In France, the land of non-aeronautical activities included in the till (car parking and 

aeronautical real estate activities) is evaluated at historic cost in the RAB. 

Our understanding is that the regulation is unclear whether land used for nonaeronautical 

activities and, in general, surplus land can be sold. There are also no 

precedents on the matter. 

3.5. Germany: Hamburg 

In Germany, in the case of the Hamburg airport non-aeronautical activities are outside 

the regulated till. Land used for non-aeronautical activities is not evaluated in order 

to calculate aeronautical charges. 

Our understanding is that the land used for non-aeronautical activities, and more 

generally surplus land, can be sold. In such cases prices are set by the market and the 

airport will keep all the sale revenues. 

3.6. Ireland: Dublin 

In Ireland, the land of non-aeronautical activities is included in the RAB at current 

cost, i.e. historical book values are expressed at current value by using a price index. 

In recent discussions related to the development of Dublin airport city, a high-density 

development announced by the DAA in 2008, to include commercial offices, retail, 

9 



NERA 


industrial, hotels and car parking, the regulator has clarified that some ofthe land is 

included in the RAB of the airport. 

In such instance, the land will be subtracted from the RAB at market value and 

revenues and costs ofthe real estate developments will be excluded by the regulatory 

till. The land which is not included in the RAB will not be subtracted. 

3.7. Italy: major airports and all other airports 

In Italy, in the case of the major airports non-aeronautical activities are outside the 

regulated till. Land used for non aeronautical activities is not evaluated in order to 

calculate aeronautical charges. In the case ofall other airports the land ofnonaeronautical 

activities is included in the RAB at current cost, i.e. historical book 

values are expressed at current value by using a price index. 

Airports are not allowed to sell land used for non aeronautical activities, and more in 

general surplus land, according to their Concession Agreements. However, airports 

can sublease land. Revenues of sublease are: 

• Out of the perimeter of the regulatory till in case of large airports; 

• In the margin ofcommercial activities if such land benefits of monopoly or 

locational rents, and outside the regulatory till in absence of monopoly or 

locational rents . 

3.8. New Zealand: Auckland, Christchurch, Wellington 

In New Zealand, only a price monitoring applies, therefore land used for nonaeronautical 

activities is not evaluated in order to calculate aeronautical charges. 

Airports can sell land developed for non-aeronautical purposes (e.g. commercial 

activities) arid in general surplus land. They retain all revenues associated to the sale . 

3.9. South Africa: all regulated airports 

In South Africa, the land used for non-aeronautical activities is included in the RAB 

at histori c cost. 17 

That land not currently in use for airport operations and which the company is 

permitted to dispose, shall be excluded from the RAB and the associated income and 

expenditure ring-fenced out of the single till. 

Our understanding is that this currently applies to the land of the old Durban airport 

which is not any more in operation. The estimated market sale value of the land seems 

to have been subtracted by aeronautical costs as a single till regulation applies in 

17 As underlined by the regulating committee, the valuation of land cost "is highly subjective, complex, 

uncertain and results ill a wide range of values. Historic cost has the advantage ofbeing readily quanti fiable. 

certain and less subjective. "Article 8 .2.3.2.3, Approach to the 2010111 to 201411 5 permissions, April 2009, 

Regulating Committee to ACSA and ATNS 

10 



NERA 


South Africa. The airport is disputing such approach and is asking to benefit from the 

sale revenues of land related to non-aeronautical activities and to include in the till 

only the sale revenues of aeronautical land. 

3.10. The Netherlands: Amsterdam 

In Netherland, some non-aeronautical activities (car parking, shopping areas, hotel 

space) are included in the till and related land is evaluated at historic cost and 

included in the RAB. 

Our understanding is that no clear answers currently are available 011 the treatment of 

land disposals. 

3.11. UK: Heathrow, Gatwick and Stansted 

In UK, the land of non-aeronautical activities is included in the RAB at current cost, 

i.e, historical book values are expressed at current value by using a price index. 

Airports can sell land non related to aeronautical activities. In case land is included in 

the regulatory rerimeter of the till, the value of the sale is taken out of the RAB at 

market value .I In case land, included in the regulatory perimeter, is sub-leased, the 

revenues are included in the regulatory perimeter while the value of the asset in the 

RAB does not change. 

In case land is excluded from the regulatory perimeter of the till, the value of the sale 

will have no effect on the RAS. The same principle applies in case of sub-lease. 

Regulated airports are now required to consult with airlines prior to disposal of some 

RAB assets. 

IR See: Heathrow and Gatwick quinquennial review, 2007 , CC - Final Report, paragraph 4.50: " Disposals of 

assets from within the RAB require a reduction Irom the RAB. As discussed In Appendix E, we agree asset 

disposals should for that purpose generally be valued at market value rather than the written down book 

value." Stansted price control review, 2008, CC - Final Report , appendix D, paragraphs 28-32: "The 

alternative ways to account for disposals In Q4 when rolling forward the RAB are to subtract either the net 

book value (NBV) or the proceeds. (...j We concluded that the exlstlug policy {ofusing the value of the 

proceeds rather than the NBVj should continue. {...j users should be entitled to the ga ins arising Itom the 

sale of airport assets." 

11 



NERA 

Economic Consulti ng 

4. Conclusions 

The international evidence on land used for non aeron autical activities varies across 

jurisdictions as a single rule does not apply. 

The use of land for non-aeronautical activities comprises a variety of commercial 

activities like retail shops, car parking and real estate development. The real estate 

development is defined as the development and management of different kind of 

airport areas, for example hotels, conference centers and shopping malls. 

When a dual till regulation is applied, non-aeronautical activities are excluded from 

regulation, whereas when a single till regulation is applied, in many instances the 

regulation allows some non aeronautical activities to be excluded from the regulatory 

till. In cases where a hybrid till regulation applies, only some non-aeronautical 

activities are included in the regulatory till and only part of their profits is included in 

the till. 

Another issue we have examined is the treatment of surplus airport land, i.e. land in 

excess to what is needed for aeronautical use. This land, in some instances, can be 

sold and the airport operator can retain all revenues. 

In the case of HIAL we have pointed out that the airport has been privatized in 2004 

on the basis of a Concession Agreement. 

Our understanding, in the light of the explanations provided to us by GMR and after 

studying such agreements, is that HIAL has been privatized under a dual till 

regulation, where revenues of non aeronautical assets do not contribute to remunerate 

aeronautical costs. 

The international evidence examined shows that revenues from land used for non 

commercial activities have to be treated according to the regulatory regime which has 

been established at privatization. 

Furthermore, revenues of land disposal should be treated according to such regulation. 

Revenues from sale of non aeronautical assets should be for the benefit of the airport 

and should not be used to reduce aeronautical costs. 

As AERA has pointed out in Order No. 13/20 I0-11, the asset value monetization can 

be substantiated in a number of different ways (outright sale 'with or without 

restrictions on further transfer by the lessee, premium lease or lease rental, deposits or 

a combination of all these form, etc) ." As a consequence, the same principles which 

apply to land sales should apply to the other forms of alienating land. 

19 See article 7.5.1 of Order No. 13/20I0-11 issued by AERA. whi ch states . "Authority is also aware of the 

different forms of alienating ofland by the owner/lessor to actual users (generally lessee s). like outright sale 

'with or without restrictions on further transfer by the lessee, premium lease or lease rental. deposits or a 

combination ofal/ these forms. It Is also not feasible to contemplate, exhaustively, all such forms as may be 

devised for purpos es of operational flexibility by the Airport Operator. Such forms change the nature,and 

sometimes the quentum of the receipts from land exploitation, i.e whether they are to be regarded as capital 

12 



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The price paid by investors at privatization reflec ted the regulatory principles 

identified in the agreements at that time. The HIAL Concession Agreement provides 

that the airport operator has to pay an annual fee to the government as a percentage of 

gross revenues. This percentage is 4% for HIAL. 

Thus, the price paid at the time of the privatization takes into consideration also the 

value of the land implicit in the annual fee paid by the airport to the government. Such 

land can be used for both aeronautical and non aeronautical activities according to the 

location and the design of the airport. 

In the "The Airports Economic Regulatory Authority ofIndia Act , 2008" AERA 

prescribes that regulation has to be consistent with the principles that govern 

privatisation. 20 

Therefore, the AERA argument expressed in the Order No. 13/2010-11 (and reported 

in the introduction of this memorandum) flaws in many respects. It is not true that 

land has been "given free or on highly concessional terms by the government to the 

airport operator", since at the moment of the privatization the bidders knew that they 

would have paid a significant annual fee on gross revenues. 21 The land has been paid 

by taking into account future annual fees . Investors will be able to have a proper 

remuneration on their investment only if land will be monetized according to what 

promised at privatization. 

receipts or revenue receipts. Moreover, the Airport Operator, for reasons of flexibility In operations, may 

alienate only land, or construct asset thereon and alienate land along wIth the asset In different forms 

indicated above. Additionally the nature ofthese receipts shills from one to s nothet", 

20 AERA (200 8), The Airports Economic Regulatory Authority ofIndia Act, 2008. 

21 

See article 7.5.1 of Order No. 13120 I0-1 I issued by AERA 

13

Annexure II - AERA

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