Joint venture with India for MRIA to fly high
The Cabinet this week gave the go- ahead to start formal negotiations with the Government of India (GoI) to reach final agreement for operation of Mattala Rajapaksa International Airport (MRIA), including rights to supply catering and ground handling services.
A joint Cabinet memorandum titled ‘Implementation of the Proposal Submitted by Airports Authority of India for the Operation of Mattala Rajapaksa International Airport (MRIA)’ was approved on Wednesday. It was submit- ted by Prime Minister Ranil Wickremesinghe, Finance Minister Mangala Samaraweera and Transport and Civil Aviation Minister Arjuna Ranatunga.
A Cabinet-appointed negotiating committee (CANC) and a project committee had earlier evaluated the proposals of the Airports Authority of India to manage MRIA. It submitted a report along with recommendations.
This week, the Cabinet agreed to empower the CANC to start formal negotiations for and on behalf of the Government of Sri Lanka (GoSL)
with designated officials of the GoI for the preparation of a final deal to be signed by the assigned parties of both Governments based on recommendations contained in the CANC report.
It consented to include in this agreement the right to provide catering and ground handling services under the definition of ‘commercial aviation’, whilst excluding from that term the right to provide aviation fuel and lubricants to aircraft.
Cabinet also sanctioned the Government of Sri Lanka to enter into a memorandum of understanding (MoU) with the Government of India after “successful negotiations” for the establishment of the proposed joint venture with the approval the Cabinet of Ministers pending required amendment to applicable aviation legal framework.
The Indian Government’s proposal, dated May 2017, envisages the setting up of a joint venture in which the GoI or its assigned entity would hold 70 percent of equity and the GoSL or its assigned entity would hold 30 percent.
The company would perform activities mentioned under commercial aviation; aircraft maintenance repair overhaul (MRO) facility; flying training school; emergency response, including search and rescue; humanitarian assistance and disaster relief activities; meteorological services; and any other use, as mutually agreed.
The project would require land to be released to the joint venture along with all existing infrastructure. Security of the airport, including perimeter security and deployment of anti-hijacking squad, is the responsibility of the GoSL. Sri Lanka will also have to develop external infrastructure for access to the airport, including public transport facilities.
The Cabinet memorandum states that MRIA does not generate significant revenues to sustain even its dayto- day operations. There was no demand by commercial airlines to operate to that airport in the foreseeable future. But it sees the growing Indian air transport market as offering a valuable opportunity to resurrect MRIA. If negotiations are successful, Sri Lanka would have to amend its aviation laws to enable the establishment of the proposed joint venture.
Construction of MRIA started in 2009 at a total estimated cost of US$ 209 million. A loan of US$ 190 million was obtained from the Exim Bank of China for repayment within 15 years at an interest of two percent after a grace period of five years. The balance US$ 19 million was from Airport and Aviation Services Ltd of Sri Lanka (AASL).
After project completion, the GoSL had to pay the contractor a further US$ 38.7 million on account of price escalations, cost variations and interest on delayed payments. The investment on MRIA is, therefore, US$ 252 million.
The running of MRIA is now under AASL. The average operating cost, including loan interest, for a year is around US$ 20 million. The average revenue generation per year, however, is US$ 0.6 million, says the project committee report obtained by the Sunday Times.
The debt for MRIA is being paid off by AASL out of its own funds, generated mainly through the operation of Bandaranaike International Airport (BIA). Repayment is done on instalment basis of US$ 8.3 million each, twice a year.
Negotiations with GoI will now start on the basis of the project committee report which recommends that, instead of an outright 99-year lease, the facility be given out for 40 years to begin with, extendable on mutual consent up to the remaining period of 99 years. It also proposes that the joint venture absorbs all serving employees of MRIA with no change in their terms of employment. And it shall employ only Sri Lankans in all airport activities, “unless the required expertise is not available within Sri Lanka”.
The GoSL first invited expressions of interest for aviation related ventures for MRIA at the end of 2016. Eight proposals were received. However, none of them covered the operation, management and maintenance of MRIA in its entirety. They were mostly bids to use a part of the airport premises to run limited activities.
The CANC members appointed in 2018 were Power and Renewable Energy Ministry Secretary B.M.S. Batagoda, former Transport and Civil Aviation Ministry Secretary G. S. Withanage and Public Enterprise Development Ministry Secretary R. Hewawitharana. The project committee separately had 11 officials.