Annexure II - AERA

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
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Annexure II-B
CP No. 9/2013-14/T-12023(14)/1/2012- Tariff- Vol - III Annexure II-B Page 50 of 51