Adani monopoly concerns push Modi government to rethink airport auctions
What's the story
The Indian government is mulling a cap on bids by a single entity for the privatization of 11 airports. The move comes amid concerns over market concentration and potential monopoly in the civil aviation sector. The discussions were triggered by last year's IndiGo crisis, which sent shockwaves across the industry.
Policy discussions
New bidding rules to be framed
Officials involved in the privatization process have begun talks on how to frame new bidding rules. The aim is to promote competition and prevent critical infrastructure from falling into the hands of a single player. This comes ahead of what is likely to be one of the most significant airport privatization exercises undertaken in the country.
Past performance
Adani's aggressive bidding raised concerns last time
In the 2018 privatization round, Adani Enterprises emerged as the highest bidder for all six airports on offer. The company had quoted up to double the tender amount of its closest competitor. Jeet Adani, Director at Adani Group, has already indicated that they will aggressively bid for all 11 airports this time around.
Bid cap debate
Potential drawbacks of bid cap
Some officials are concerned that a strict bid cap could make bidders conservative, potentially reducing auction proceeds. One proposal being discussed is to limit a single entity to a maximum of two blocks (four airports). If the same entity tops the bid for a third block, the second-highest bidder would be given the option to match the price.
Investment strategy
Bundling of airports to attract investment
In a first-of-its-kind approach, the government plans to bundle seven smaller airports with six bigger ones in similar geographies. This is aimed at attracting private investment for the development of these less commercially viable facilities. Under this structure, Varanasi will be paired with Kushinagar and Gaya while Amritsar, Bhubaneswar, Raipur, Trichy will be clubbed with Kangra Tirupati Aurangabad Hubli respectively.
Market risks
Brazil has similar safeguards in place
A senior official at the Civil Aviation Ministry has warned that airports are natural monopolies and excessive concentration poses a systemic risk. The official cited IndiGo's recent network meltdown as an example of the dangers of depending on a single dominant player. Brazil, which has seen multiple rounds of airport privatization, has similar safeguards against this issue.