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.
Tribunals function as a parallel mechanism to the traditional court system. Tribunals were established for two main reasons - allowing for specialised subject knowledge in disputes on technical matters and reducing the burden on the court system. In India, some tribunals are at the level of subordinate courts with appeals lying with the High Court, while some others are at the level of High Courts with appeals lying with the Supreme Court. In 1986, the Supreme Court ruled that Parliament may create an alternative to High Courts provided that they have the same efficacy as the High Courts. For an overview of the tribunal system in India, see our note here.
In April 2021, the central government promulgated an Ordinance, which specified provisions related to the composition of the search-cum-selection committees for the selection of members of 15 Tribunals, and the term of office for members. Further, it empowered the central government to notify qualifications and other terms and conditions of service (such as salaries) for the Chairperson and members of these tribunals. In July 2021, the Supreme Court struck down certain provisions of the Ordinance (such as the provision specifying a four-year term for members) stating that these impinged on the independence of the judiciary from the government. In several earlier judgements, the Supreme Court has laid out guidelines for the composition of Tribunals and service conditions to ensure that these Tribunals have the same level of independence from the Executive as the High Courts they replace.
However, Parliament passed the Tribunals Reforms Bill, 2021 in August 2021, which is almost identical to the April Ordinance and includes the provisions which had been struck down. This Act has been challenged in the Supreme Court. For a PRS analysis of the Bill, please see here.
On 16th September 2021, the central government notified The Tribunal (Conditions of Service) Rules, 2021 under the Tribunals Reforms Act, 2021. A couple of the provisions under these Rules may contravene principles laid out by the Supreme Court:
Appointment of the Administrative Member of the Central Administrative Tribunal as the Chairman
In case of the Central Administrative Tribunal (CAT), the Rules specify that a person with at least three years of experience as the Judicial Member or Administrative Member may be appointed as the Chairman. This may violate the principles laid down by the past Supreme Court judgements.
The CAT supplants High Courts. In 1986, the Supreme Court stated that if an administrative tribunal supplants the High Courts, the office of the Chairman of the tribunal should be equated with that of the Chief Justice of the High Court. Therefore, the Chairman of the tribunal must be a current or former High Court Judge. Further, in 2019, the Supreme Court stated – “the knowledge, training, and experience of members or presiding officers of a tribunal must mirror, as far as possible, that of the Court it seeks to substitute”.
The Administrative Member of the CAT may be a person who has been an Additional Secretary to the central government or a central government officer with pay at least that of the Additional Secretary. Hence, the Administrative Member may not have the required judicial experience for appointment as the Chairman of CAT.
Leave Sanctioning Authority
The Rules specify that the central government will be the leave sanctioning authority for the Chairperson of tribunals, and Members (in case of absence of the Chairperson). In 2014, the Supreme Court specified that the central government (Executive) should not have any administrative involvement with the members of the tribunal as it may influence the independence and fairness of the tribunal members. In addition, it had observed that the Executive may be a litigant party and its involvement in administrative matters of tribunals may influence the fairness of the adjudication process. In judgements in 1997 and 2014, the Supreme Court recommended that the administration of all Tribunals should be under a nodal ministry such as the Law Ministry, and not the respective administrative ministry. In 2020, it recommended setting up of a National Tribunals Commission to supervise appointments and administration of Tribunals. The Rules are not in consonance with these recommendations.
