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Earlier this week, Rajya Sabha passed the Airports Economic Regulatory Authority of India (Amendment) Bill, 2019, and the Bill is now pending in Lok Sabha. The Bill amends the Airports Economic Regulatory Authority of India Act, 2008. The Act established the Airports Economic Regulatory Authority of India (AERA). AERA regulates tariffs and other charges for aeronautical services provided at civilian airports with annual traffic above 15 lakh passengers. It also monitors the performance standard of services across these airports. In this post, we explain the amendments that the Bill seeks to bring in and some of the issues around the functioning of the regulator.
Why was AERA created, and what is its role?
Few years back, private players started operating civilian airports. Typically, airports run the risk of becoming a monopoly because cities usually have one civilian airport which controls all aeronautical services in that area. To ensure that private airport operators do not misuse their monopoly, the need for an independent tariff regulator in the airport sector was felt. Consequently, the Airports Economic Regulatory Authority of India Act, 2008 (AERA Act) was passed which set up AERA.
AERA regulates tariffs and other charges (development fee and passenger service fee) for aeronautical services (air traffic management, landing and parking of aircraft, ground handling services) at major airports. Major airports include civilian airports with annual traffic above 15 lakh passengers. In 2018-19, there were 32 such airports (see Table 1). As of June 2019, 27 of these are being regulated by AERA (AERA also regulates tariffs at the Kannur airport which was used by 89,127 passengers in 2018-19). For the remaining airports, tariffs are determined by the Airports Authority of India (AAI), which is a body under the Ministry of Civil Aviation that also operates airports.
What changes are being proposed in the Bill?
The Bill seeks to do two things:
Definition of major airports: Currently, the AERA Act defines a major airport as one with annual passenger traffic over 15 lakh, or any other airports as notified by the central government. The Bill increases the threshold of annual passenger traffic for major airports to over 35 lakh.
Tariff determination by AERA: Under the Act, AERA is responsible for determining the: (i) tariff for aeronautical services every five years, (ii) development fees, and (iii) passengers service fee. It can also amend the tariffs in the interim period. The Bill adds that AERA will not determine: (i) tariff, (ii) tariff structures, or (iii) development fees, in certain cases. These cases include those where such tariff amounts were a part of the bid document on the basis of which the airport operations were awarded. AERA will be consulted (by the concessioning authority, the Ministry of Civil Aviation) before incorporating such tariffs in the bid document, and such tariffs must be notified.
Why is the Act getting amended?
The Statement of Objects and Reasons of the Bill states that the exponential growth of the sector has put tremendous pressure on AERA, while its resources are limited. Therefore, if too many airports come under the purview of AERA, it will not be able to perform its functions efficiently. If the challenge for AERA is availability of limited resources, the question is whether this problem may be resolved by reducing its jurisdiction (as the Bill is doing), or by improving its capacity.
Will the proposed amendments strengthen the role of the regulator?
When AERA was created in 2008, there were 11 airports with annual passenger traffic over 15 lakh. With increase in passenger traffic across airports, currently 32 airports are above this threshold. The Bill increases the threshold of annual passenger traffic for major airports to over 35 lakh. With this increase in threshold, 16 airports will be regulated by AERA. It may be argued that instead of strengthening the role of the regulator, its purview is being reduced.
Before AERA was set up, the Airports Authority of India (AAI) fixed the aeronautical charges for the airports under its control and prescribed performance standards for all airports and monitored them. Various committees had noted that AAI performed the role of airport operator as well as the regulator, which resulted in conflict of interest. Further, there was a natural monopoly in airports and air traffic control. In order to regulate the growing competition in the airline industry, and to provide a level playing field among different categories of airports, AERA was set up. During the deliberations of the Standing Committee examining the AERA Bill, 2007, the Ministry of Civil Aviation had noted that AERA should regulate tariff and monitor performance standards only at major airports. Depending upon future developments in the sector, other functions could be subsequently assigned to the regulator.
How would the Bill affect the regulatory regime?
Currently, there are 32 major airports (annual traffic above 15 lakh), and AERA regulates tariffs at 27 of these. As per the Bill, AERA will regulate 16 major airports (annual traffic above 35 lakh). The remaining 16 airports will be regulated by AAI. Till 2030-31, air traffic in the country is expected to grow at an average annual rate of 10-11%. This implies that in a few years, the traffic at the other 16 airports will increase to over 35 lakh and they will again fall under the purview of AERA. This may lead to constant changes in the regulatory regime at these airports. The table below provides the current list of major airports:
Table 1: List of major airports in India (as on March 2019)
| Airports with annual traffic above 35 lakh | Airports with annual traffic between 15 and 35 lakh | ||||
|
Ahmedabad |
Goa |
Mumbai |
Amritsar |
Madurai* |
Srinagar |
|
Bengaluru |
Guwahati |
Patna |
Bagdogra |
Mangalore |
Trichy* |
|
Bhubaneswar |
Hyderabad |
Pune |
Calicut |
Nagpur |
Varanasi |
|
Chennai |
Jaipur |
Thiruvananthapuram |
Chandigarh |
Port Blair* |
Vishakhapatnam |
|
Cochin |
Kolkata |
Coimbatore |
Raipur* |
||
|
Delhi |
Lucknow |
Indore |
Ranchi* |
||
* - AERA does not regulate tariffs at these airports currently.
Sources: AAI Traffic News; AERA website; PRS.
Several Rajya Sabha seats go to elections this year. The President and the Vice-President are also due to be elected by August. We analyse the impact of the recent State Assembly elections on the composition of the Rajya Sabha and the outcome of the Presidential polls. Rajya Sabha - How will its composition change? Since Rajya Sabha members are elected by the elected members of State Legislative Assemblies, a change in the composition of State Assemblies can affect the composition of Rajya Sabha. A total of 61 Rajya Sabha seats are up for election in April and July. This includes 10 seats from Uttar Pradesh and 1 seat from Uttarakhand. In light of the recent Assembly elections, we work out two scenarios to estimate the composition of Rajya Sabha in 2012. Members of Rajya Sabha are elected through the system of proportional representation by means of the Single Transferable Vote (STV). In an STV election, a candidate is required to achieve a certain minimum number of votes (called the 'quota') to be elected. (For more details on the STV system, click here) For instance, in the case of Uttar Pradesh (UP) 10 Rajya Sabha seats go to election this year. Candidates will be elected to these 10 seats by the 403 elected MLAs of the Uttar Pradesh State Assembly. Each MLA will rank the candidates based on his/ her preference. After successive rounds of elimination, candidates who are able to secure at least 37 {or 403/(10+1) } votes will be declared elected. In the new UP Assembly, Samajwadi Party (SP) has a total strength of 224 members. As a result, SP can elect at least 6 (or 224/37) Rajya Sabha MPs of its choice. BSP's strength of 80 will allow it to elect 2 (or 80/37) MPs to Rajya Sabha. Similarily, the BJP with a strength of 47 MLAs can have one candidate of its choice elected to the Rajya Sabha. This leaves 1 seat. The fate of this seat depends on the alliances that may be formed since no other party in UP has 37 or more seats in the Assembly. If the Congress (28 seats) and RLD (9 seats) join hands, they may be able to elect a candidate of their choice. We build two scenarios which give the likely range of seats for the major coalitions and parties. The actual result will likely fall between these scenarios, depending on alliances for each election. Of the two scenarios, Scenario II is better for the UPA. It is based on the assumption that the UPA is able to put together the necessary support/ alliances to get its candidates elected to seats with indeterminate status. Scenario I is based on the assumption that the UPA is not able to put together the required support. As a result, the seats in question get allocated to candidates from other parties/ coalitions. (See Notes for the composition of the coalitions) Composition of Rajya Sabha
| Party/ Coalition | Current composition | Scenario I | Scenario II |
| Total seats |
245 |
245 |
245 |
| UPA |
93 |
95 |
98 |
| NDA |
66 |
67 |
65 |
| Left |
19 |
14 |
14 |
| BSP |
18 |
15 |
15 |
| SP |
5 |
9 |
9 |
| BJD |
6 |
8 |
7 |
| AIADMK |
5 |
5 |
5 |
| Nominated |
7 |
12 |
12 |
| Others |
21 |
20 |
20 |
| Vacant |
5 |
0 |
0 |
It appears that there would not be a major change in the composition of the Rajya Sabha. Which party's candidate is likely to become the next President? The next Presidential election will be held in June or July. The electoral college for the Presidential election consists of the elected members of Lok Sabha, Rajya Sabha and all Legislative Assemblies. Each MP/ MLA’s vote has a pre-determined value based on the population they represent. For instance, an MP's vote has a value of 708, an MLA from UP has a vote value of 208 and an MLA from Sikkim has a vote value of 7. (Note that all MPs, irrespective of the constituency or State they represent, have equal vote value) As is evident, changes in the composition of Assemblies in larger States such as UP can have a major impact on the outcome of the Presidential election. The elections to the office of the President are held through the system of proportional representation by means of STV (same as in the case of Rajya Sabha). The winning candidate must secure at least 50% of the total value of votes polled. (For details, refer to this Election Commission document). By this calculation, a candidate will need at least 5,48,507 votes to be elected as the President. If the UPA were to vote as a consolidated block, its vote tally would reach 4,50,555 votes under Scenario II (the one that is favourable for the UPA). Therefore, the UPA will have to seek alliances if it wants a candidate of its choice to be elected to the office of the President. Scenarios for Presidential elections (figures represent the value of votes available with each party/ coalition)
| Party/ Coalition | Scenario I | Scenario II |
| UPA |
4,48,431 |
4,50,555 |
| NDA |
3,05,328 |
3,03,912 |
| Left |
51,574 |
51,574 |
| BSP |
43,723 |
43,723 |
| SP |
69,651 |
69,651 |
| BJD |
30,923 |
30,215 |
| AIADMK |
36,216 |
36,216 |
| Others |
1,11,166 |
1,11,166 |
| Total |
10,97,012 |
10,97,012 |
| Minimum required to be elected |
5,48,507 |
5,48,507 |
What about the Vice-President? Elections to the office of the Vice-President (VP) will be held in July or August. The electoral college will consist of all members of Lok Sabha and Rajya Sabha (i.e. both elected and nominated). Unlike the Presidential elections, all votes will have an equal value of one. Like the President, the VP is also elected through the system of proportional representation by means of STV. The winning candidate must secure at least 50% of the total value of votes polled. Presently, two seats are vacant in the Lok Sabha. If we exclude these from our analysis, we find that a candidate will need at least 395 votes to be elected as the VP. Under our best case scenario, the UPA holds 363 votes in the forthcoming VP elections. As is the case with Presidential elections, the UPA will have to seek alliances to get a candidate of its choice elected to the office of the Vice-President. Scenarios for VP elections (figures represent the value of votes available with each party/ coalition)
| Party/ Coalition |
Scenario I |
Scenario II |
| UPA |
360 |
363 |
| NDA |
216 |
214 |
| Left |
38 |
38 |
| BSP |
36 |
36 |
| SP |
31 |
31 |
| BJD |
22 |
21 |
| AIADMK |
14 |
14 |
| Nominated |
14 |
14 |
| Others |
57 |
57 |
| Total |
788 |
788 |
| Minimum required to be elected |
395 |
395 |
Notes: [1] UPA: Congress, Trinamool, DMK, NCP,Rashtriya Lok Dal, J&K National Conference, Muslim League Kerala State Committee, Kerala Congress (M), All India Majlis-e-Ittehadul Muslimeen, Sikkim Democratic Front, Praja Rajyam Party, Viduthalai Chiruthaigal Katchi [2] NDA: BJP, JD(U), Shiv Sena, Shiromani Akali Dal [3] Left: CPI(M), CPI, Revolutionary Socialist Party,All India Forward Bloc
