Indian Institute of Management Kozhikode

A write-up on

Project Financing & PPP:

Delhi International
Airport Ltd.
Presented By: Group 9

DEBASIS SENAPATI(PGP/21/143)
MADHURA MODI(PGP/21/153)
HILAK PATEL(PGP/21/163)
PRIYA AGARWAL(PGP/21/167)
PULOKESH GHOSH(PGP/21/169)
Table of Contents
INTRODUCTION – INDIAN AVIATION INDUSTRY ..................................................................................... 3
DELHI INTERNATIONAL AIRPORT – AT A GLANCE ................................................................................... 6
PUBLIC PRIVATE PARTNERSHIP ............................................................................................................. 10
PUBLIC PRIVATE PARTNERSHIP IN INDIA .............................................................................................. 14
TRANSACTION DOCUMENTS AND THEIR IMPACT AND COMPLIANCE ................................................. 25
RISK MANAGEMENT.............................................................................................................................. 30
SOCIAL IMPACT ..................................................................................................................................... 33
ECONOMIC IMPACT .............................................................................................................................. 35
DETAILS OF FINANCING ........................................................................................................................ 37
Revisions in Estimates and Cost Overruns ....................................................................................... 38
PROJECTIONS AND VALUATIONS .......................................................................................................... 40
REFERENCES .......................................................................................................................................... 41
INTRODUCTION – INDIAN AVIATION INDUSTRY

With the opening of Indian airspace to private and international operators, the existing airport
infrastructure in the country proved to be inadequate to cope with the unprecedented growth
in traffic and cargo. The Ministry of Civil Aviation (MoCA) in 2006, projected a requirement
of an additional Rs. 40,454 crores to augment and modernize existing airports as also to
construct new Greenfield airports. The revenue surplus generated by Airports Authority of
India (AAI) was found to be grossly inadequate to meet this requirement.
The quality of airport infrastructure contributes directly to a country's international
competitiveness and economic growth by facilitating the smooth movement of people and
high value cargo, while spurring trade and tourism. Increased air connectivity also enables
manufacturing enterprises to exploit the speed and reliability of air transport to ship
components across firms that are based in different and distant locations thereby minimising
the inventory cost. Countries with better connectivity are also regarded as more successful in
attracting Foreign Direct Investment (FDI).
The traffic at Indian airports has been growing in all three segments- passenger, freight and
aircraft movement. Air passenger growth rate in India has been one of the highest in the
world. During the 12th Plan period (2012-17), the domestic passenger throughput is projected
to grow at an average annual rate of about 12% to reach 209 million by 2016-17 from about
122 million in 2011-12. Similarly, international passenger throughput is estimated to grow at
an average annual rate of 8% during the Twelfth Plan period to reach 60 million passengers
by 2016-17 from a level of 41 million in 2011-12. During the Twelfth Plan period, the
domestic and international cargo is projected to grow at a rate of 12% and 10% respectively
to reach 1.7 MMTPA and 2.7 MMTPA respectively by 2016-17.
It has been observed that air transport generally grows at a rate which is about twice the GDP
growth rate. During the last three years (2009-10 to 2011-12), the total passengers handled at
the Indian airports grew at a compound annual growth rate (CAGR) of 14.2%, comprising a
growth rate of 8.9% in international traffic and 16.3% in domestic traffic. The freight traffic
handled by Indian airports increased at a CAGR of 8% during the last five years (2007-08 to
2011-12) to reach 2.28 MMTPA by 2011-12. International cargo, which accounts for two-
thirds of the total cargo handled, is mainly concentrated at the metro airports of Mumbai,
Delhi, Chennai, Bengaluru and Hyderabad. During the 11th Plan period, these international
airports witnessed the entry of several leading domestic and global cargo operators in the
private sector.
 The factors contributing to air traffic growth in
India are entry of low cost carriers, higher
household incomes, strong economic growth,
increased FDI inflows, increasing tourist travel,
rising middle class population, increasing
competition, untapped market, increasing
business travel, increased cargo movement and
supportive government policies. This rise in air traffic growth needs to be supported with
infrastructure development at airports which require large investments. The Government had
acknowledged the infrastructure deficit and invited private sector participation to accelerate
development of airports. Four metro airports at Delhi, Mumbai, Bengaluru and Hyderabad
have been redeveloped and modernised through PPP. The investments made in these four
airports during the Eleventh Plan period (2007-12) are given in Table below:

In January 2000, the Cabinet approved the restructuring of airports through the long term
leasing route. Later, however, in September 2003, the Cabinet approved the restructuring of
Delhi and Mumbai airports through the Joint Venture mode. In pursuance of this decision,
after selection of the JV partner, AAI incorporated a subsidiary company viz. M/S Delhi
International Airport Pvt. Ltd (DIAL), and subsequently sold 74% of the shares of DIAL to
the JV Consortium. On 4 April 2006, in the capacity of the state promoter, AAI signed an
Operation Management Development Agreement (OMDA) with DIAL. The AAI handed
over IGI airport, Delhi to DIAL on 3 May 2006 on ‘as is where is' basis and granted DIAL
the exclusive right to undertake functions of operations, maintenance, development, design,
construction, modernization, finance and management of the Airport.
On 26 April 2006 Government of India signed another agreement with DIAL viz State
Support Agreement (SSA). The agreement laid down conditions and nature of support to be
provided by Government of India, along with the mutual responsibilities and obligations
between Government and DIAL.
During the course of audit, Ministry of Civil Aviation informed Audit:
“The decision to restructure and modernize Delhi Airport is a policy decision of the highest
body i.e. the Cabinet. The terms and conditions as well as the modalities of modernization/
restructuring as mentioned in the transaction documents were finalized and approved by the
EGOM. It is further clarified that there has been no change in the finalized transaction
documents. Several issues such as JV route, leasing of land /assets, Concession Period, Right
of First Refusal (ROFR) etc. are policy decisions of the Cabinet based on expert inputs in
formulation and inter- ministerial consultation. Hence these policy decisions should not be
brought into question at this stage through audit observations.”
Admittedly, the decision to adopt the joint venture route is a policy decision. Audit
acknowledges the sole prerogative of the Government to take such policy decisions. This
audit exercise, on the other hand, has been restricted to operationalization of the decision of
the Joint Venture mode. The terms and conditions as agreed to in the transaction documents
do not fall in the domain of the policies though they have been approved by the empowered
group of ministers.
It is acknowledged in this report that there have been significant improvements in services at
the airport for the travelling public. The new terminal T3 was completed within time for the
Commonwealth Games. The airport has been adjudged as the second best in the world in the
category of 25-40 million passengers per annum by Airports Council International.
As per the agreement relating to revenue share with AAI, DIAL is to pay 45.99 per cent of its
gross revenue. Accordingly, DIAL paid Rs. 271.98 crores in 2006-2007, Rs. 402.72 crores in
2007-08, Rs. 445.63 crores in 2008-09, Rs. 538.92 crores in 2009-10 and Rs. 577.26 crores in
2010-2011 to AAI.
Our observations pertain to operationalization of the JV mode and implementation of the
OMDA and SSA. In the course of audit, we have also tried to assess whether during the
conceptualization and implementation phases, the interest of Government and the revenue
accruing to it has been protected. The decision to enter into a joint venture to develop and
manage Indira Gandhi International Airport is a first of its kind. The present audit report thus
should be viewed in terms of lessons learnt for future guidance.
It is to be noted that at the time when OMDA and SSA were being considered and finalized,
no regulator was in place. The SSA in fact records the intention of the Government to
establish an independent Airport Economic Regulatory Authority (AERA). The AERA Act
establishing such an authority was passed in December 2008. The Act came into force on 1
January 2009. The powers and functions of AERA, which are contained in Chapter III of the
Act came into force on 1 September 2009.

DELHI INTERNATIONAL AIRPORT – AT A GLANCE

Delhi International Airport Private Limited (DIAL) is a joint venture consortium of GMR
Group (54%), Airports Authority of India (26%), and Fraport & Eraman Malaysia (10%
each). GMR is the lead member of the consortium; Fraport AG is the airport operator in
Frankfurt Airport, Germany, Eraman Malaysia - the retail advisors. DIAL entered in to an
Operations, Management and Development Agreement (OMDA) on April 4, 2006 with the
Airport Authority of India (AAI). The initial term of the concession was for 30 years
extendable by a further period of 30 years. On 3rd July, 2009, a new world class integrated
passenger terminal (Terminal 3) was commissioned. The first phase of the airport was
designed and capable to handle 60 million passengers per annum (MPPA). In subsequent
stages, the airport will be further developed with an ultimate design capacity of 100 million
passengers per annum. As per ACI, ASQ rating IGI ranked No.2 next to Incheon Airport
(South Korea) in its group Airports ranging up to 35 million Passenger movements.

Share Holding Pattern of DIAL

50.1%

26.0% 74.0%
10.0%
10.0%
3.9%

Public: Airport Authority of India Private: GMR Group

Private: Fraport AG Private: Malaysia Airports
Private: India Development Fund

DIAL also entered a consortium agreement with M/S Cargo Service Center (CSC) (74%) &
DIAL (26%) during 2009 and also formed a JV Company named as Delhi Cargo Service
Center (DCSC). One of the crucial contributors include, Mr. Pradeep Panicker who is
currently a Vice President and Chief Commercial Officer at Delhi International Airport (P)
Limited. He was a key person involved in the bidding process of Delhi airport right from its
initial stage and won the bid for modernization of Delhi airport in January 2006. He was also
the key relationship officer with consortium partners FRAPORT, MAHB & AAI. He had
represented DIAL JV in various domestic and international forums on the strategy and
benefits of Public–Private Partnership (PPP) model in India. He was actively involved in the
formation of Association of Private Airports Operators (APAO) in India, a forum taking up
various issues with the Govt. Agencies (MoCA & AAI).
Project Timelines
November 2005:
Two bidders GMR-Frapot and Reliance-ASA were shortlisted by bid evaluation committee.
A group of eminent technical expert led by Dr. Sreedharan was made to take the final
decision
January 2006:
GMR-Frapot was awarded the tender to operate, manage and develop the Indira Gandhi
International Airport (IGIA), Delhi
April 2006:
DIAL entered into operations, management and development agreement (OMDA) with
Airport Authority of India (AAI)

Project Brief
 Delhi International Airport (DIAL) is a joint venture consortium of GMR Group
(64%), Airports Authority of India (26%) and Fraport (10%).
 In March 2010, DIAL completed the construction of integrated passenger terminal
(Terminal 3). The first phase of the airport is designed and capable to handle 60
million passengers per annum (MPPA). This development was the first phase of the
airport expansion.
 In subsequent stages, the airport will be further developed with the increase in
passenger demand and more terminals and runways would be added in a modular
manner to form a U shaped complex with an ultimate design capacity of 100 million
passengers per annum.
 The initial term of the concession is 30 years extendable by a further 30 years. The
contract was on BOOT (Build, Own, Operate, and Transfer) basis.
IGI Project – Design Build Approach
 IGIA – Terminal 3 used the Design build approach which is most common for public
works
 Owner selects a single firm (or consortium) to perform both design and construction
under a single contract
 Benefits of Design Build approach - Reduced owner risks, accelerated schedule,
lower costs, clear accountability and responsibility, reduces conflicts and litigation,
and improves design and construction efficiency
PUBLIC PRIVATE PARTNERSHIP

• PPP is a mode of providing public infrastructure and services by Government in

partnership with private sector. It is a long term arrangement between Government
and private sector entity for provision of public utilities and services.
• Public-private partnership arrangements have existed throughout history, but have
become significantly more popular across the globe since the 1980s as governments
attempt to obtain some benefits from the private sector without having to make the
full privatization jump
• Due to limited funding and increasing constraints, many government agencies are
looking into different models of public-private partnership (P3) as a means of
maintaining updated infrastructures without having to make large investments. There
are many different types of public-private partnerships to fit various construction,
operation, ownership, and revenue-generating scenarios.
• These models operate on different conditions on the private sector regarding type of
project (for example, a road or a prison), level of investment, ownership control, risk
sharing, technical collaboration, duration of the project, financing mode, tax
treatment, management of cash flows etc.
• Some Examples: From 1990 to 2009, almost 1,400 PPP arrangements were signed
just in the European Union (EU), representing a capital value of about €260 billion.
Since 2008 – the onset of the global financial crisis – the EU estimates that PPP deals
in the trading bloc have declined by over 40%.

Different Types of PPP

1. Traditional P3s: The public component of the partnership acts as a contracting officer.
It looks for funding and has overall control of the project and its assets. Almost any
partnership between a private contractor and a government entity can be considered a
P3, but some of the most common examples are public road projects, maintenance of
parks, and construction of schools and other public buildings.

2. Operations and Maintenance P3: With an operation and maintenance P3, the private
component of the partnership operates and maintains the project, while the public
agency acts as the owner of the project. Examples of these contracts include bridges
and tollways.
3. Design Build P3: A design-build P3 is similar to a client-contractor arrangement. The
private partner designs and builds the facility, while the public partner provides the
funds for the project. The public partner retains ownership of the project and any
assets generated through its use.
4. Design-build-operate P3s: they are similar to design-build P3s but include ongoing
operation and maintenance of the property facility or project by the private party. The
public partner acts as the owner of the installation and provides the funds for
construction and operation.If the private partner operates the project only for a limited
time before the facility is transferred to the public partner, the arrangement is known
as a design-build-operate-transfer agreement.

5. Design-build-operate P3: It includes the component of general financing supplied by

the private contractor. With a design-build-finance-operate arrangement, the private
part provides financing and design, then builds, possesses, and operates the facility.
The public partner provides funding only while the project is being used or is active.

6. Build-transfer-operate P3: the private partner builds the facility and transfers it to the
public partner. The public partner then leases operation of the facility to the private
party under a long-term lease agreement.

7. Build-own-operate-transfer P3: the public partner builds, possesses, and operates the
project for a limited time, then the facility is transferred, free of charge and including
ownership, to the public agency.

8. Build-own-operate: The private contractor builds, possesses, and operates the facility
and also has control over profits and losses generated by the facility. This is similar to
a privatization process.

9. Lease P3: It involves the public owner leasing a facility to a private firm. The private
company must operate and provide maintenance for the facility per specified terms,
including additions or a remodelling process.

10. Concession P3: the private agency operates and maintains the facility for a specific
period of time. The public partner has power over the ownership, but the private
partner possesses owner rights over any addition incurred while the facility is being
operated under its domain.
PPP Advantages
 They provide better infrastructure solutions than an initiative that is wholly public or
wholly private. Each participant does what it does best.
 They result in faster project completions and reduced delays on infrastructure projects
by including time-to-completion as a measure of performance and therefore of profit.
 A public-private partnerships ROI might be greater than projects with traditional, all-
private or all-government fulfilment. Innovative design and financing approaches
become available when the two entities work together.
 Risks are fully appraised early on to determine project feasibility. In this sense, the
private partner can serve as a check against unrealistic government promises or
expectations.
 The operational and project execution risks are transferred from the government to the
private participant, which usually has more experience in cost containment.

PPP Disadvantages
 Every public-private partnership involves risks for the private participant, who
reasonably expects to be compensated for accepting those risks. This can increase
government costs.
 When there are only a limited number of private entities that have the capability to
complete a project, such as with the development of a jet fighter, the limited number
of private participants that are big enough to take these tasks on might limit the
competitiveness required for cost-effective partnering.
 Profits of the projects can vary depending on the assumed risk, the level of
competition, and the complexity and scope of the project.
 If the expertise in the partnership lies heavily on the private side, the government is at
an inherent disadvantage. For example, it might be unable to accurately assess the
proposed costs.
PUBLIC PRIVATE PARTNERSHIP IN INDIA

Development of infrastructure is a precondition for the economic growth of a country.

Increasing demand for quality infrastructure can only be met with robust investment,
proficient project management and technological advancement. To meet these requirements,
governments are utilizing the capabilities of the private sector in a big way. Public–private
partnerships (PPP) have become the preferred mode for the construction and operation of
infrastructure projects, both in developed and in developing countries. As most governments
in emerging economies are facing fiscal and capacity constraints, PPP provides a way for
them to bridge the gap in infrastructure investment.
PPP not only brings in additional capital but also enables both public and private sectors to
bring to the table their own experiences and strengths, resulting in efficient development of
infrastructure and service delivery.
The PPP mode, however, comes with its own set of challenges since attracting private
investment is not easy. The private sector not only requires an investor-friendly regulatory
environment, but also returns on investment. The Government of India (GoI), therefore, has
been focusing on the development of enabling tools and activities to encourage private sector
investments in the country through the PPP format.

Current status of PPPs in India

India has had 881 PPP projects worth more than INR5.4 trillion in awarded/underway status
(i.e., in operational, construction or in stages where at least construction/implementation is
imminent) as per data available till August 2012.
• Roads dominate the PPP scenario in India, accounting for 52% of all PPP projects.
• There is a need for mainstream PPPs in several areas, such as power transmission and
distribution, water supply and sewerage, and railways. These are sectors where there are
significant resource shortfalls, and a need for efficient delivery of services.
• There is also a need to focus on social sectors, especially health and education, which
currently accounts for only 3.7% of PPP projects in India.

Private sector to push infrastructure growth in the Twelfth Five Year Plan (FYP) 2012–2017
The GoI realizes the importance of accelerating infrastructure development through increased
private sector participation in order to boost the country’s slowing economy.
• The Planning Commission has projected that investment in infrastructure will almost
double to reach INR55.7 trillion during the Twelfth FYP (2012–2017), as compared to
INR24.2 trillion in the Eleventh FYP (2007–2012).
• Out of this total investment, 48% is expected to come from the private sector, which
accounted for 36% of investments in the Eleventh FYP.
Common forms of PPP model in India
While the preferred forms of PPP model are the ones where the ownership of underlying
assets remains with the public entity during the contract period and the project gets
transferred back to public entity on contract termination, the final decision on the form of
PPP is determined using the Value for Money Analysis. Some of the commonly adopted
forms of PPP include management contracts, build-operate-transfer (BOT) and its variants —
design-build-finance-operate-transfer (DBFOT) and operate-maintain-transfer (OMT).
• Performance-based management/operations and maintenance (O&M) contracts: In
such contracts, most or all of the operations and maintenance of a public facility or service is
given to the private sector. The sectors meant for such form of PPP models include water
supply, sanitation, solid waste management, road maintenance, etc.
• Modified design-build (turnkey) contracts: In traditional design-build (DB) contract,
the private contractor is paid a fixed fee after the completion of the designing and building
phase. These contracts yield benefits in the form of time and cost savings, efficient risk-
sharing and improved quality. The turnkey approach with milestone- linked payments and
penalties or incentives can be linked to these kinds of contracts.
• BOT models: Under BOT contracts, the responsibility for construction and operations
rests with the private partner, while ownership is retained by the public sector. The BOT
model and its variants are the most common form of PPP models used in India, accounting
for almost two-thirds of PPP projects in the country. The two major forms of BOT models
are:
• User-fee-based BOT model: commonly used in medium to large-scale PPPs for the
energy and transport sub- sectors (road, ports and airports)
• Annuity-based BOT model: commonly used in sectors/projects not meant for cost
recovery through user charges, such as rural, urban, health and education sectors
• Lease contracts: Under leasing agreements, assets are leased, either by the public
entity to the private partner or vice-versa. Build Lease Transfer (BLT) or Build-Own-Lease-
Transfer (BOLT) or Build-Transfer-Lease (BTL) contracts have been used in India for
Greenfield projects, which last for 10 to 15 years.
• Concessions: Under concession agreements, the responsibility for construction and
operations rests with the private partner, while ownership is retained by the public sector.
Concession contracts are generally for 20 to 30 years, and the private operator is responsible
for all capital investment.
• Build own-operate-transfer (BOOT) contracts: Under BOOT, the private partner has
the responsibility of construction and operations. Ownership is with the private partner for the
duration of the concession — generally 20 to 30 years — after which it is transferred to the
public sector.
While there do exist build-own-operate (BOO) models, they are not supported by the GoI due
to their finite resources and the complexities in imposing penalties in case of non-
Performance and estimation of the value of underlying assets in case of early termination.

PPP Policy Framework

Significant growth in the number of PPPs in the past 15 years has made India one of the
leading PPP markets in the world. As a result, a PPP eco-system has developed, and currently
it comprises institutions, developers, financiers, equity providers, policies and procedures.
National PPP policy (2011) and Draft PPP Rules (2012)
In the light of growing PPP trends and policy/institutional intervention, the GoI had felt the
need to have a broad policy framework in place. The Ministry of Finance drafted a National
PPP policy for soliciting suggestions in 2011. Subsequently, it came out with a
comprehensive set of draft PPP rules in 2012. The draft policy proposes to focus on assisting
Central and State Government agencies and private investors by:
• Undertaking PPP projects through streamlined processes and principles
• Ensuring the adoption of value-for-money approach through optimization of risk-
return allocation in project structuring
• Attaining adequate public oversight and monitoring of PPP projects
• Developing governance structures to facilitate competitiveness, fairness and
transparency
Prominent features of the policy
• The GoI plans to formalize PPPs as preferred implementation models. It has laid
down strong procedures to procure a PPP project. In order to instill transparency in the PPP
process, it will publish separate mandatory disclosures and fair practices, set up a dedicated
dispute resolution mechanism, develop new market-based products (e.g., pre-bid rating) and
explore possibilities of setting up a web-based PPP market place.
• The PPP process should comprise four phases:

• Management information system (MIS) for continuous monitoring of the performance

of PPP projects is to be put in place.
• Development of a strong and well-defined institutional structure for a sustainable PPP
program:
• Creation of nodal agencies, such as PPP cells, at the state or sector level
• Laying down of appraisal mechanism for PPP projects by the PPP Appraisal
Committee (PPPAC)
• Audit mechanisms for transparency and fairness in projects
• Independent regulatory mechanism (wherever there is no sector-specific regulator) to
ensure protection of interests
The Draft Public Procurement Bill (2011)
The Draft Public Procurement Bill 2011 is also expected to impact the regulatory landscape
of PPPs by introducing competitive dialogue and negotiations in government contracts. The
Bill provides a framework for procurement of goods and services through PPPs.
Prominent features of the bill for PPP
• A grievance resolution mechanism for private bidder facing issues related to
procurement
• Audit of the concessionaire’s books of accounts by the Comptroller and Auditor
General of India, upon the request of the procuring entity
• Proposal to set up a Central Public Procurement Portal, which is accessible to the
public, for posting notices regarding public procurement
Regulatory initiatives
• The GoI has a progressive financial support system for PPP projects. Some of the key
initiatives include India Infrastructure Project Development Fund (IIPDF), Viability Gap
Funding (VGF), resources for annuities/ availability-based payments, long-tenor lending, re-
financing facility, infrastructure debt funds, etc. The GoI will provide legislative and policy
support to develop equity, debt, hybrid structures and appropriate credit enhancement
structures.
• The GoI is expected to undertake capacity building interventions to develop
organizational and individual capacities for the purpose of identification, procurement and
managing of PPPs.
• The PPP Cell in the Department of Economic Affairs will have professionals who
provide technical support to the ministries and other authorities developing PPPs.
Financial initiatives
• Bank loans to earning-based PPP infrastructure projects under concession agreements
are to be treated as secured advances. This is expected to boost infrastructure financing,
particularly for BOT roads projects and power sector projects.3
• ECB norms have been relaxed to help infrastructure companies raise more funds from
overseas markets4
• Infrastructure companies are allowed to raise bridge finance from overseas market
under the automatic route. Earlier, the companies were required to seek permission from the
RBI in order to raise bridge finance.
• Infrastructure companies are allowed to raise external commercial borrowings (ECB)
for a maximum period of 5 years for importing capital goods. Earlier, the companies could
raise ECBs for a period ranging from one year to three years only.
• ECB limit has been increased for NBFC-IFCs (non-banking finance companies
classified as infrastructure finance companies) under the automatic route from 50% to 75% of
their owned funds, and hedging requirement for currency risk has been reduced from 100%
of their exposure to 75%.

Key Sectors in PPP in India

Roads, railways, ports and airports are the key infrastructure sectors for PPP in India. As on
August 2012, these four sectors constituted 60 (534 projects) of the total PPP projects in
India. Among the four sectors, roads top the list with a share of approximately 85%, followed
by ports (12%), railways (2%) and airports (1%).
Over the last few years, private sector participation, especially in transport infrastructure
sectors, has slowed down due to various regulatory and financial hurdles. Private investment
in railways, roads, airports and ports lagged behind and did not meet their investment targets
during the Eleventh FYP. Railways was the least successful in attracting private investment,
achieving only 23% of its planned target investment.
The strategy for the Twelfth FYP encourages private sector participation directly as well as
through various forms of PPPs, wherever desirable and feasible. In the Twelfth FYP, the GoI
will focus on increasing private participation, especially in the railways sector. Private sector
participation in railways is expected to increase from 5% in the Eleventh FYP to 33% in the
Twelfth
FYP. Private investment is expected to not only expand capacity, but also improve the quality
of service, besides minimizing cost and time overruns in the implementation of transport
infrastructure projects.
Roads
India’s 4.7 million km of road network transports more than 60% of total goods and 85% of
total passenger traffic. The majority of the roads are district, urban and rural roads, which
account for 95% of the total road network. National highways (0.08 million km) and state
highways (0.15 million km) account for only 5% of the total road network. The GoI has
stated that the development of highways is a strategic priority for the country, and the private
sector is expected to play a key role in its development.
Several Government initiatives have been taken to enhance private sector participation
(including PPP) in the road sector:
• Granted the right to collect and retain toll — the tolls are indexed to a formula linked
with the wholesale price index
• Allowed ECB for capital expenditure under the automatic route for maintenance and
operations of toll systems
• Allowed duty-free import of certain identified high-quality construction plants and
equipment
• Permitted long concession period of up to 30 years
• Allowed 100% tax exemption in any consecutive 10 years out of 20 years
• Implemented Viability Gap Funding in the form of capital grants subsidy of up to
40% of the project cost
Private sector investment in roads to increase by 3.3 times in the Twelfth FYP.
In the Twelfth FYP, the planned investment for development of roads and bridges has
increased by more than 50% from the Eleventh FYP. Cumulatively, the private sector is
expected to contribute 33% of the sector’s planned investment, up from 20 in the previous
plan.
Approximately 8,270 km of the National Highways are expected to be upgraded in FY14.
Construction/ rehabilitation of 100 bridges and 4 bypasses as standalone projects are also
expected to be completed in that year, at an estimated cost of INR233 billion.

Estimated private sector investment in roads and bridges in the Twelfth FYP

1,200 60
Private sector investment — INR3 trillion
20
39
35
800 32 40
30
27

400 863 20
700
925 584
407 487

0 0
Overall XIth Plan FY13 FY14 FY15 FY16 FY17

Railways
Indian Railways (IR) runs the fourth-largest railway network in the world. The number of
passenger trains has increased from 8,897 in FY02 to 12,335 in FY1215. IR has carried
1009.73 million tons of revenue earning freight traffic during the financial year 2012-13. The
freight carried shows an increase of 39.95 million tons over the freight traffic of 969.78
million tons actually carried during the corresponding period last year, registering an increase
of 4.12 per cent.

PPP experience has been a mixed bag

During the last 10 years, IR has experimented with various PPP schemes to set up railway
lines, connect ports, privatize container trains, deploy dedicated parcel trains and introduce
the Wagon Investment scheme — luxury trains as well as tourist lodges. The IR has also
participated in some PPP projects directly and some through its agencies, such as Rail Vikas
Nigam Limited (RVNL) and Indian Railway Catering and Tourism Corporation (IRCTC).
For IR, the PPP experience has borne mixed results with success in projects with clear-cut
demarcation of responsibilities, such as last mile port connectivity and delay in projects
related to rolling stock and locomotives.
Private sector investment in railways to increase by nearly 11 times in Twelfth FYP.
The Twelfth FYP focuses on accelerated capacity creation, induction of technology to
enhance asset efficiency, upgrades of freight and passenger terminals, and policy initiatives
for last mile connectivity, infusion of private capital and improvement of passenger safety.
To enhance last mile connectivity, the IR expects PPP investment of up to INR90 billion16
— INR38 billion for port connectivity, INR40 billion for coal mine connectivity and INR8
billion for iron ore mines connectivity.
 Estimated private sector investment in railways in Twelfth FYP

800 40
Private sector investment — INR1 trillion 29

21

400 15 20
11
5 7 460
261
148
91 47 84
0 0
Overall XIth Plan FY13 FY14 FY15 FY16 FY17

Ports
India’s 12 major ports and 200 minor ports handle 90 of the country’s external trade by
volume and 70 by value25. During the period between FY08 and FY12, traffic at Indian
ports increased to 912 million ton (mt) from 726 mt, recording a CAGR of approximately,
which has led to capacity constraint at most major ports. Therefore, the share of non-major
ports in handling maritime traffic has gradually increased from 28% in FY08 to 39% in
FY12.
In the ports sector, PPP has been primarily observed in segments, such as operation and
management of ports, construction of deep water ports, container terminals, shipping yards
and bulk ports.
In FY13, the Ministry of Shipping has managed to achieve only 18% of the investment target
set for ports. Only 14 PPP projects were awarded in FY13, which is expected to generate an
additional capacity of 80 million ton per annum (mtpa), as compared to the target of 244
mtpa.
• Out of the total 86 PPP port projects, Tamil Nadu (21) and Gujarat (16) are leading in
terms of number of projects awarded to states.
• Jawaharlal Nehru Port Trust (INR9.1 billion) and Cochin port (INR8.4 billion) have
attracted the maximum PPP investment among all major ports in India.
• Fourteen PPP projects were awarded in FY13, which will bring in an additional
capacity of 80 mtpa at an investment of INR56 billion27.
Private sector investment in ports to increase by 4.7 times in the Twelfth FYP.
• The Planning Commission estimates the cargo traffic to reach 1.8 billion ton by 2017
— an increase of almost 50% during the Twelfth FYP. India needs increased private sector
investment to augment the total capacity to 2.3 billion ton by 2017 in order to adequately
manage the growth in cargo traffic. Private-sector participation will also increase efficiencies
in ports by introducing latest technology and better management practices.
 Estimated private sector investment in ports in Twelfth FYP

800 Private sector investment — INR1.7 trillion 100

88 90
86
82 83
80

400 363 622 80

431
301
150 212

0 60
Overall XIth Plan FY13 FY14 FY15 FY16 FY17

Airports
The Airports Authority of India (AAI) manages and operates 123 out of a total of 134 airports
in India. This includes 12 international airports, 99 domestic airports and 12 customs airport.
The remaining eleven airports (5 international airports and 6 domestic airports) are managed
by PPP concessionaires, State Governments and the private sector.
The domestic air traffic improved at a CAGR of 11.3% — from 71 million in FY07 to 121.3
million in FY12. It is expected to touch 209 million by FY17. During the same period,
international air traffic grew at a CAGR of 9.4 to reach 40.7 million, and is estimated to
reach 60 million by FY17.
Private sector investment in aviation to increase by three times in the Twelfth FYP.
In the Twelfth FYP, the Planning Commission has projected an investment of INR877 billion
for the airports, which is approximately 142% more than what was projected in the Eleventh
FYP. Out of the total investment, around 80% is expected to be raised through private
players.
Challenges of PPP in India
Project Structuring
Project development activities, such as detailed feasibility study, risk allocation and
concession agreements are not given adequate importance by concessioning authorities in
India. Risk allocation among the sponsoring agency and the developer is not appropriate,
which makes it difficult to attract developers for bidding. The absence of adequate project
development leads to reduced interest by the private sector, mispricing and, many a times,
delays at the time of execution.
Lack of information
The PPP program in India lacks a comprehensive database of the projects/ studies to be
awarded under PPP. An online database, comprising all the project documents, including
feasibility reports, concession agreements, and status of various clearances and land
acquisitions will be helpful to all bidders.
Land acquisition
Land acquisition is a major roadblock in development of infrastructure projects under PPP.
Several projects have been stalled or delayed due to land acquisition issues, primarily due to
resistance from local communities. There is generally a considerable difference between the
registered value offered and the actual market value, which results in disputes and litigation.
Amendments to the Land Acquisition and Rehabilitation & Resettlement Bill (LARR) are
under discussion to ease the process of land acquisition and reduce the number of litigations.
Environmental Clearances
Several highways and ports projects have been delayed in recent years due to lack of
environmental and forest clearances. While the concerned Ministry states that the delays are
primarily due to non-compliance with the environmental procedures and circulars issued,
private developers feel that terms of compliance are complex and time consuming. Delays in
conducting environment appraisal meetings and in constituting State-level Expert Appraisal
Committees (SEACs) slows down the project approval process.
Financing constraints
The private sector depends on commercial banks and equity markets to raise financing for
PPP projects. These projects are capital-intensive in nature and have a long gestation period.
With commercial banks reaching sectoral exposure limits, and large Indian infrastructure
companies being highly leveraged, funding the PPP projects is becoming difficult. Equity
markets are also not favorable for financing projects because of uncertainties in the global
economy and due to long regulatory requirements that limit exit options.
TRANSACTION DOCUMENTS AND THEIR IMPACT AND COMPLIANCE

Descriptions of the Transaction Documents

Consequent on the decision to hand over the Indira Gandhi International Airport to the Joint
Venture Company and before physically handing over the airport to the latter, a number of
agreements were signed among the concerned parties. These documents individually and
collectively determine the terms and conditions of the handing over including economic
benefits accruing to the parties. It is to be noted that when these agreements were signed, the
Regulator, namely Airport Economic Regulatory Authority (AERA) was not in existence.
Some of these documents contain provisions relating to areas like tariff fixation for
aeronautical services, which later, with the establishment of AERA came under the
Regulator’s domain of decision making.
Operation, Maintenance and Development Agreement (OMDA)
Together with the State Support Agreement, this agreement is the most important document
and forms the soul of the Public Private Partnership in Indira Gandhi International airport.
Signed between Airport Authority of India and DIAL, this comprehensive agreement lays
down the obligations and responsibilities of both the parties, the terms of revenue sharing and
duration of the concession, conditions of assets transfers at present and in future, terms and
conditions of land transfers etc. The agreement was signed on 4 April 2006.
OMDA in Schedules 5 and 6 defines aeronautical services and non-aeronautical services.
While DIAL was free to fix tariff for non-aeronautical services, responsibilities of fixation of
tariff for aeronautical services was with the Government of India and later with its
establishment, the Regulator, AERA. OMDA also allowed DIAL to outsource any services.
State Support Agreement (SSA)
Complementary to the OMDA, the State Support Agreement was signed between
Government of India and DIAL on 26 April 2006. It lays down the responsibilities and
obligations of the Government of India and DIAL in their respective domain and to each
other. It lays down in Schedule 1, the principles of tariff fixation for aeronautical services.
State Government Support Agreement
State Government Support Agreement (SGSA) was signed on 26 April 2006 between the
Government of National Capital Territory of Delhi and DIAL to provide support services to
the project. The agreement provided that the State Government will provide support to DIAL
in matters relating to removal of encroachment, procurement of additional land for
development of airport, removal of obstruction outside the airport boundary to ensure safe
and efficient air traffic movement, improve the surface area access to the airport and to
provide all the utilities on payment basis to DIAL. The SGSA also provided for assistance in
procuring various clearances which are required by applicable law for undertaking and
implementing the project as mentioned in OMDA.
Lease Deed Agreement
The Lease Deed agreement was signed on 25 April 2006 between AAI and DIAL to lease the
demised premises on “as is where is basis” on an annual lease rent of 100/- (One hundred
only) initially for a period of 30 years extendable for another 30 years by virtue of extension
of concession period. The demised premises include all the buildings, construction or
immovable assets, if any on the premises as described in the agreement with the liberty to
construct, erect, renovate, alter or otherwise deal with the leased Premises.
Communication, Navigation and Surveillance (CNS)/Air Traffic Management (ATM)
Agreement
The agreement was signed on 25 April 2006 between AAI and DIAL to provide air traffic
services support at the airport since only AAI is authorized to provide necessary air traffic
services within Indian air space and at all civil airports in India.
Shareholders Agreement
Signed on 4 April 2006 by and between AAI and DIAL and other participants, Shareholders
Agreement recorded the terms and conditions to govern the relationships in their mutual
capacity as the shareholders of the JVC.
Airport Operator Agreement
As per Schedule 8 of OMDA, DIAL is required to enter into an Airport Operator Agreement
with the Airport Operator (AO) who is a member of the consortium (nominated if more than
one AO are in the consortium). The agreement contractually set out the role, responsibilities,
accountabilities and financial arrangements between the AO and DIAL. Accordingly, an
agreement was signed on 1 May 2006 between DIAL and Fraport AG Frankfurt Services
Worldwide to provide airport services.

Operation, Management and Development Agreement and State Support

Agreement
Government of India adopted Joint Venture mode to facilitate involvement of private sector
to participate aggressively in infrastructure projects being taken up for modernization. Two
most important agreements- OMDA and SSA- determined the terms and conditions of
transfer of Indira Gandhi International Airport to DIAL.
Conflicts between OMDA and AERA Act in defining aeronautical and non-
aeronautical services
Clause 3.1 of the State Support Agreement(SSA) recognized Government of India’s intention
to establish an independent Airport Economic Regulatory Authority (AERA) which would be
responsible for certain aspects of regulations (including regulation of aeronautical charges).
Despite the above intention, provisions of OMDA or SSA were not subjected to review by
the Regulator. The AERA Act establishing such an Authority, was passed in December 2008.
The Act came into force on 1 January 2009. The powers and functions of AERA which are
contained in Chapter III of the Act came into force on 1 September 2009.
Audit noted conflicts between provisions in OMDA and SSA on one hand and the AERA Act
on the other, which will have long term repercussions on the Regulator’s role on tariff
fixation in Indira Gandhi International Airport. Section 13(1)(a) of the AERA Act states that
one of the functions of the Authority is to determine the tariff for the aeronautical services.
However, definitions of aeronautical and non- aeronautical services differ substantially
between OMDA and the AERA Act, thus affecting the calculation of targeted revenue for the
purpose of tariff fixation for aeronautical services at the airport. Schedule 5 and 6 of OMDA
define aeronautical and non-aeronautical services. Cargo Handling Service, for example is a
non- aeronautical service in accordance with OMDA but it is aeronautical service in terms of
AERA Act. Similarly, Ground Handling services which have been included as non-
aeronautical services in OMDA are aeronautical services in AERA Act.
Treating these as non-aeronautical services in OMDA also provides undue financial
advantage as in terms of SSA, the Targeted Revenue for the purpose of Tariff fixation takes
into account only 30 per cent of the revenue generated from non-aeronautical services.
AERA follows single till3 system in all other major airports. In the case of Delhi and
Mumbai airports, however, AERA is constrained to follow the dual till system due to
provisions contained in SSA, where, tariff fixation for aeronautical services is to be done as
per dual till formula given in SSA which takes into account only 30 per cent of the gross
revenue generated by DIAL from the revenue share assets. In fact the tariff fixed by the
AERA according to the formula provided in the SSA did not take into account full amount of
revenue generated by profitable services4 like cargo handling and car parking. Since OMDA
and SSA are static documents without any trigger for review either by Government or by
AERA at any point of time, fixation of tariff for aeronautical services for IGIA remain
outside the effective jurisdiction of the Regulator.
Apart from Dual Till method, as per SSA, the target revenue does not include revenue
generated from non-transfer assets- in case of IGIA- the rights of commercial exploitation of
239.95 acres of land. Thus revenue so generated does not even form part of 30 per cent of the
gross revenue as mentioned in the preceding paragraph. This is now confirmed by AERA
order dated 20 April 2012 wherein it is mentioned that “the Authority decided to exclude the
gross revenue from non-transfer assets towards cross subsidization of aeronautical cost while
determining the target revenue.”

Concession Period
Important condition in Note to Cabinet absent in the agreement
While seeking approval of Cabinet to adopt Joint Venture route for restructuring of Delhi and
Mumbai airports by formation of separate companies between AAI and selected JV Partner,
the Note to the Cabinet dated 1 September 2003 envisaged concession initially for 30 years
which could be extended by another 30 years subject to mutual agreement and negotiation of
terms. However, as per the final bid documents, the “subject to mutual agreement and
negotiation of terms” was left out. The OMDA which was signed in April 2006 did not contain
any provision of mutual agreement and fresh negotiations before extension of the concession
period and thus was a violation of what was proposed in the Cabinet Note. It gives DIAL the
right to extend the term for another 30 years.

This is not only a violation of the commitment in the initial Cabinet Note but also unilateral
and unfair advantage given to DIAL which is detrimental to Government interest as it does not
provide the Government any scope for review of any of the conditions in OMDA and SSA.

The four critical elements that determine such types of concession agreements in a public
private partnership are traffic volumes, tariffs, concession period and capital costs. In case of
OMDA, the concession period had no trigger indicating any linkage to any of the above four
elements.

The initial concession period fixed as per the agreement is 30 years from the effective date.
Article 18.1 (b) Chapter XVIII of OMDA provides that:
“Prior to the expiry of 30 years from the Effective Date, JVC shall have the right to extend
the Term hereof by a written notice for an additional term of 30 years on the same terms
and conditions5 provided no JVC Event of Default had taken place during the preceding
five years of the 25th year from the Effective date. Such right of extension shall be
exercised prior to the 25th anniversary from the Effective date but not earlier than six
months from the 25th anniversary from the Effective date."
Thus DIAL enjoys the unilateral right to extend the concession period for another 30 years,
unless they default during 20th to 25th year. OMDA and resultantly all other agreements
including SSA gain validity of 30 plus 30 years without any trigger or scope for review
except an event of default by DIAL in the small window of five years between 20th and 25th
year. Effectively, DIAL as a result has been granted rights to operate the airport for a period
of sixty years with the terms and conditions frozen in the OMDA.
In case of any infrastructure project, financial prudence entails systematic evaluation of
benchmarks with reference to internal rate of return, return on investments, expected break
even period, traffic trends which would include passenger and cargo movements before
fixing the duration of concession period. In this case, neither MoCA nor AAI provided to
Audit any evidence which would indicate that these inputs were considered while fixing
concession period of 30 plus 30 years. No trigger of any kind has been included either in
OMDA or in the SSA. The basis for fixation of 30 plus 30 years as concession period though
called for but was not provided to Audit(December 2011).
The MoCA stated (March 2012) that a financial consultant was appointed and as per the
advice, a period of 30 years was reasonable for the investors to recoup their investment.
Claiming that concession period of 30 years is similar to other infrastructure projects in India,
MoCA further stated that in case of the Delhi and Mumbai airports, the concession period and
the traffic projections were not the bidding criteria. In fact, the sole bidding criterion was the
revenue share. Leasing out the airports and provision for extension of the lease period was a
policy decision taken by the Union Cabinet and this was known to all the bidders as it was
finalized before issuing the Request for Proposal to the Pre-Qualified Bidders (PQBs).
The reply of the Ministry that the concession period of 30 years is similar to other
infrastructure projects in India i.e. Ports, Highways etc. is factually incorrect. According to
the model concession agreement issued by the Committee on Infrastructure of Planning
Commission, the concession period typically granted by Port Trusts is 30 years. Similarly, in
the case of highways, the period is usually 20 years. In the case of Male airport and Istanbul
airport, where GMR is a stakeholder, the concession period is 25 and 20 years, respectively.
Audit could not find any infrastructure project except in case of Delhi and Mumbai Airports
wherein the concession period is initially for 30 years which can be further extended for
another 30 years at the option of the concessionaire on the same terms and conditions.

Right of First Refusal

In addition to the unilateral right of DIAL to manage the IGIA for sixty years, the State
Support Agreement (SSA) for 30 years allows the Right of First Refusal (ROFR) to DIAL
with regard to any second airport if planned within 150 km radius of the IGIA. State Support
Agreement (SSA) provides that the Right of First Refusal with regard to any second airport
being planned within a 150 km radius of Indira Gandhi International
Airport will be given to DIAL by following a competitive bidding process, in which DIAL
could participate. In the event of DIAL being unsuccessful in the bidding, it would be
allowed to match the most competitive bid, if its bid is within the range of 10 per cent of most
competitive bid. This condition will be applicable for the first 30 years.
Allowing such right of first refusal in relation to second airport without triggers like
saturation point of existing airport, traffic census, rate of return on capital and expected
break-even period amounts to an undue favour to DIAL. This provision also thwarts
competition and provides DIAL with a natural advantage on the second airport.
The MoCA replied (March 2012) that ROFR was considered imperative and it was a policy
decision taken by the EGoM before issuing the RFP in order to protect the JVC against risks
in investments if the traffic were to be diverted to a competitive airport in the vicinity after
heavy investments had been made.
RISK MANAGEMENT

All heavy budget projects come with different varieties of systematic and unsystematic risks
which needs to be taken care of before the start of the project by the various stakeholders
involved. In the case of DIAL, to mitigate such risks, they were identified into majorly five
main categories and then risk reduction measures were taken as required.
These five risk categories are identified as under:
1) Project Risk: All risks that are associated with the overall project start and
operational planning comes under project risk
2) Political Risk: These are the risks associated with the intricacies and involvement of
govt. and political actions in present and future
3) Cost Overrun Risk: Risk associated with increase in costs due to some unforeseen
circumstances and how to avoid them
4) Construction Risk: All the risks associated during the construction phase such as
land acquisition etc.
5) Operational Risk: Operational factors related to financing, future agreements,
sharing of revenue etc.

We will now discuss in detail about each of these risk in relation to the Delhi International
Airport project and steps taken to mitigate them:

Project Risk
 It has been stated that as per EIL’s final audit report, the estimated area at the time of
Financial Closure was 470179 m2, whereas actual area constructed by DIAL is
553887 m2
 The difference in area is 83708 m2. AAI, has observed that EIL has accepted 98% of
the area constructed and had not accepted 10566 m2 which is 2% of the total area
constructed by DIAL, meant for the following purposes:
o 8652 m2 is for the food court and retail area at CIP, Office and Hotel level
o 1914 m2 in the mezzanine level is meant for plant rooms, DIAL BHIS control
room, Transfer area for passengers and stores
 AAI have submitted the area to be considered for the following reason:
o Food Court will increase the commercial activities in the passenger Terminal
Building (PTB), which will enhance passenger facilitation and also fetch
additional revenue
o Even though the plant and control rooms may not have commercial potential,
they would increase the operational efficiency and convenience of passengers
 Also due to this expansion, all other items estimated in the initial cost increase
proportionately
Political Risk
 There was no political risk as such, however conflict of interest between the centre
and the state govt
 Risk of change in govt and modification in contract or PPP laws at later date

Construction Risk
This type of risk includes matters related to land encroachment, procurement of additional
land if required, removal of obstruction to ensure safety and efficiency and providing
utilities
 An agreement was signed between state govt. and DIAL for such services, known as
State Govt. Support Agreement (SGSA)
 SGSA also provided help in procuring various clearances required to implement the
project as mentioned in OMDA

Cost Overrun Risk

DIAL had taken the following cost overrun mitigation risk measures for the project:
 Benchmarking: Engaging Jacobs to carry out the benchmarking exercise in
compliance with the Schedule 21 of OMDA (Operations, Management and
Development Agreement)
o The report was however submitted in Feb 2009, when selection of many
contracts had already been accomplished
 Incentivization: To control costs, the contractors usually sign “sharing of pain-gain”
agreement, where penalties are built into contracts by adjusting contractor’s fee
depending upon target and actual costs. However, no such relevant clause was
mentioned in the agreement
 Dis-incentivization: This is another method where contractors are disincentivized to
increase costs by capping their fees at a fixed absolute level rather than a percentage
of base out; in DIAL case it was the latter
 Engaging external Project Management Consultant (PMC): Parsons Brinckerhoff
International Inc was engaged by DIAL as the PMC.
o The scope included giving cost control advice, warning for variance and
assessment of implication on cost for design changes
o KPMG when reviewed three cost monitoring reports provided by the PMC
didn’t find any comparison between a package’s original and final cost
 estimate or the analysis for cost escalation or corrective action that would be
taken in the future

Implications:
 The original project cost approved by DIAL and communicated to AAI was 8975
crore
 Final project cost adopted by Airports Economic Regulatory Authority (AERA) was
12502.86 crore (43.25% higher)
 The financial gap was met by levy of Development Fees which was 27.32 per cent of
the total capital outlay
OMDA didn’t predict earlier about charging this DF from passengers since the entire
funding was supposed to be done through debt and equity only

Operational Risk
 Right of First Refusal: State Support Agreement (SSA) provided the ROFA to DIAL
with regard to any other airport being planned within the distance of 150 km radius.
o DIAL can win the bid through a competitive bidding process. If unsuccessful,
if its bid is within 10% of most competitive bid, it would be allowed to match
it and win
o Validity given: 30 years
 Clarity in definition of Aeronautical and non-aeronautical services: It differed
between AERA Act and OMDA, thus affecting the calculation of targeted revenue for
tariff fixation
 Maintaining Debt to Equity Ratio: DIAL submitted a proposal to maintain a D/E
ratio of at least 2:1. Further they were restricted to raise fresh equity as this will result
in dilution of the shareholding of AAI/AAI nominees
High Risk Premium: EIL commented that the risk premium considered by the principal
contractor was high due to high risk of the project, and it was totally borne by JVC leading to
further increased costs.
SOCIAL IMPACT
 Following Analysis were done by the National Council of Applied Economic Research
and published in March 2017 report
o Direct economic impacts are the financial and employment changes for all
the existing establishments whose activities are linked to the airport such as
airport employees, freight companies, retailers, facilitators of movement of
passengers and cargo etc.
o Input-output (I-O) framework has been considered as an appropriate
approach to provide an assessment of the multiplier effects

Profile of passengers travelling in terms of gender and their occupation in IGI Airport
through a survey conducted among 3500 travellers
ECONOMIC IMPACT

Contribution to Indian and regional GDP

Delhi airport’s operations contributed in (2009–10) Rs 294.7 billion (0.45 per cent) to the
national GDP and its contribution relative to Delhi’s GSDP is 13.53 per cent. The total
comprises of:
 Rs 42.9 billion directly contributed through value added (air transport and airport
services)
 Rs 77.2 billion indirectly contributed through supply chain (multipliers impact).
 Rs 174.6 billion in induced impact through tourism and investment.
By 2020, the overall economic impact of Delhi Airport is expected to be approx Rs 909.5
billion, which will be 0.7 per cent of the National GDP and relative to Delhi’s GSDP would
be 22.2 per cent.
Delhi airport’s construction sector contributed INR 68.23 billion (0.104 per cent) to the
national GDP (in 2009–10) and its contribution relative to Delhi’s GSDP is 3.13 per cent.
This is a one-time impact which includes one-third of the total project cost. The total impact
of the construction phase would, therefore, be three times this estimate but spread over three
years. This total impact of construction phase in a year comprises of:
 INR 25.7 billion directly contributed through value added.
 INR 42.6 billion indirectly contributed through supply chain (multipliers impact).
Contribution to Employment
Delhi airport’s operation sector contributes 1578 thousand jobs (0.34 per cent of national
employment) and this represents as a ratio to Delhi’s employment a significant 25.9 per cent.
The total comprises of:
 64 thousand directly contributed jobs.
 452 thousand indirectly contributed jobs through supply chain (multiplier impact).
 1062 thousand jobs in induced impact through tourism and investment.
Delhi airport’s construction activities contributed total 614 thousand jobs in each of the three
years of construction phase. This total comprises of:
 35 thousand directly contributed jobs.
 579 thousand indirectly contributed jobs through multiplier effects.
Operations Phase
Gross Value Added
Output (INR Bn) Employment % GDP %Employment

Operations

Total Impact 491.2 294.7 1577.7 0.45 0.34

Induced Impact 291 174.6 1061.6 0.27 0.23

Direct and Indirect 200.2 120.1 516.1 0.18 0.11

Direct Impact 71.5 42.9 64.974 0.07 0.01

Airport Transport 49.28 29.57 33.956

Airport Services 22.22 13.33 30.118

Indirect 128.7 77.2 451.126 0.12 0.10

I-O table multiples 2.8 0.722

Employment Value Added

Direct Impact
Direct Impact Indirect Impact Indirect Impact
Induced Impact Induced Impact

Construction Phase
Value
Gross Added(INR
Output Bn) Employment % GDP %Employment

Total (Direct and Indirect) 113.8 68.3 614.1 0.10 0.13

Direct Impact 42.86 25.71 35 0.04 0.01

Indirect 70.94 42.59 579.1 0.07 0.12

I-O table
multiples 2.655 1.433

Value Added Employment

Direct Impact Direct Impact

Indirect Impact Indirect Impact
DETAILS OF FINANCING

 All Out of the total capital expenditure of Rs. 12857 crores (AERA has admitted Rs.
12502.86 crore for levy of DF), the promoter’s equity has been Rs. 2450 crore out of
which 26 per cent (i.e. Rs. 637 crore) was contributed by AAI and 74 per cent (i.e. Rs.
1813 crore) was contributed by the other JV partners.
 Out of the capital expenditure of Rs. 12502 crores as accepted by AERA, only 19 per
cent has been promoters’ contribution. Rs. 5266 crores (42 per cent) have come from
loans and Rs. 1471 crore (12 per cent) has come from Security Deposits.
 While, only Rs. 50 Crore has come from internal accruals, Rs. 3415.35 crore (27 per
cent) have come from Airport Development Fees charged on the passengers.
 DIAL submitted a proposal for the funding source that they are required to maintain a
Debt to Equity ratio of atleast 2:1 and they cannot raise further equity if this ratio is
breached below this level. Further, without support of AAI, they are unable to raise
fresh equity as this will result in dilution of the shareholding of AAI/AAI nominees.
 Out of the total capital expenditure of Rs. 12857 crores claimed by DIAL, AERA had
admitted Rs. 12502.86 crores as the total project cost. The funding gap to the tune of
Rs. 3415.35 crores was permitted by AERA to be collected from the passengers
through levy of DF which was not envisaged in OMDA and SSA

Amount (Rs in Crores)

Funding Source

1,200
Equity Capital

1,250
Share Application Money

2,450
Equity Share Capital

3,650
Rupee Term Loan

1,616
Foreign Currency Loan

5,266
Total Debt
 The DIAL's funding source furnished, vide their letter dated 14.01.2011

Revisions in Estimates and Cost Overruns

 The overall cost of the project was estimated as Rs. 9800 crores. However, a cost
over-run of Rs. 1000cr has been incurred including ATC tower. Additional
increase around Rs. 750 crores were due to the construction of more floor space than
originally approved.
 The external consultants, KPMG, an auditor, and public sector company, Engineers
India (EIL), found that spending of around Rs. 1,000 crores appeared to be excessive.
 The major cost increase is due to increase in area/volume of the facilities and increase
in prices of the material during the course of Project execution.
 EIL also commented that due to high risk involved in the project, the percentage of
risk premium considered by the principal contractor and subcontractor were high
which are totally borne by JVC resulting into further increase in Project Cost
 So, with an equity contribution of Rs. 2450 crores, out of which private consortium’s
share Rs. 1813 crores, DIAL got a brownfield airport for 60 years and commercial
rights of land valued at Rs. 24000 crores with a potential earning capacity, according
to estimates, of Rs. 163557 crores.
 The Security related Capex of Rs.139 crore has been considered against cost of
Baggage handling system up to screening stage and Capital cost incurred on
Boundary wall and Chain linking fencing.
PROJECTIONS AND VALUATIONS

 Aeronautical and Cargo revenue are major sources of income

 Total Revenue CAGR of 12.53%
(in crores)
 WACC is coming out as 7.07 %
Equity 2450
 Debt to Equity Ratio of 4.25 Debt 10407
 Time period of 12 years
 An NPV of INR 4224.5 million
 Expected increase in passenger movement of 6.26 % Cost of Equity 11.60%
on yearly basis Cost of Debt 6.00%
 Cargo movement to increase at 7.18% on yearly basis WACC 7.07%
 The project has an IRR of 23.8%
 Cost of equity is 11.6% and cost of debt 6% respectively

Time Period 12 yrs

All costs in INR millions

Revenue Projections 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Total Aeronautical Revenue 508.9 545.7 633 761.5 887.6 1057.6 1247.2 1477.4 1433.3 1385.2 1330.2 1271.5
Cargo Revenue 300.9 328.5 347.4 374.1 410.4 462 519.1 584.1 657.4 739.8 831.7 930.9
Total Trading Concession Revenue 193.9 252.2 317 360.4 505.9 632.2 783.7 923.7 1018.7 1136.5 1354.3 1494.1
Total Rent and Service Revenue 97.2 101.1 111.1 118.5 137.2 191.7 199.3 280.9 300.2 306.3 317.2 338.7
Total Other Income 48 52.2 30.2 126.3 211.5 252.2 370 440.2 476.5 611.7 684.8 701.5
Total Revenue 1148.9 1279.7 1438.7 1740.8 2152.6 2595.7 3119.3 3706.3 3886.1 4179.5 4518.2 4736.7

Cost Projections 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Staff Costs Variable 310 355.2 405.4 412.6 439.8 468.7 499.8 532.8 568 605.9 646.1 689.2
Voluntary Retirement Scheme Costs Fixed 0 0 0 0 0 0 0 0 0 0 0 0
Repairs and Maintenance Variable 46.7 57.8 63.9 67.6 106.1 95 97.6 97.6 97.6 97.8 171.1 173.2
Consumption of Stores and Spares Variable 5 5.2 5.4 5.7 5.9 6.1 6.5 6.7 7 7.2 7.6 7.8
Net Electricity and Water Charges Variable 57.8 61.5 65.2 87.4 134.3 142.4 151.1 160.2 170 180.4 191.3 202.6
Rent Rate and Taxes Fixed 13.5 13.5 13.5 26.1 26.1 26.1 30.4 30.4 30.4 37.6 37.6 37.6
Insurance Premium Fixed 25.9 29.1 33.5 39.6 47.8 82.2 92.6 104.3 107.8 113.7 120.7 139.3
Rehabilitation Expenses Fixed 0 0 0 0 0 0 0 0 0 0 0 0
Other Operating Expenses Variable 212 233.5 257.6 298.5 351.1 393.5 459.1 530.9 563.9 610.4 662.2 703.5
Depreciation and Amortization 10.9 324 92.6 82.2 168.9 288.9 295.4 302 302 304.1 364.6 592.8
Total Operating Expenses 681.8 1079.8 937.1 1019.7 1280 1502.9 1632.5 1764.9 1846.7 1957.1 2201.2 2546
NOPAT 467.1 199.9 501.6 721.1 872.6 1092.8 1486.8 1941.4 2039.4 2222.4 2317 2190.7
Capital Expenditure 622 2443 1513.5 1611.7 0 247.4 0 823.7 253.7 1508 173.9 173.9

FCFF -144 -1919.1 -919.3 -808.4 1041.5 1134.3 1782.2 1419.7 2087.7 1018.5 2507.7 2609.6

NPV (Discounting at WACC) ₹ 4,224.49

IRR 23.80%
REFERENCES

1. Report of the Comptroller and Auditor General of India on Implementation of Public

Private Partnership in Indira Gandhi International Airport, Delhi
2. Economic Impact Study of Delhi Airport, National Council of Applied Economic
Research
3. Airport Authority of India, Traffic Reports, 2009-10
4. Airport Financial Economic Performance of Delhi Airport, DIAL, 2009-10
5. Bunting, D., Mark Wagner and D. Patrick Jones (2006), Spokane International
Airport: The Economic Impact Study. In Institute for Public Policy and Economics
Analysis, Eastern Washington University
6. DIAL, Economic planning and research department, Market Forecast: Airlines
Operating at Delhi International Airport, 2010
7. National Account Statistics (2009-10), Central Statistical Office (CSO), Government
of India
8. Position Paper on ‘The Airports Sector in India’ (2009), Department of Economic
Affairs Ministry of Finance, Government of India
9. A Study on Public-Private Partnerships with Reference to Indian Infrastructural
Projects, Tharun Shastry L, IFIM B School, Bengaluru
10. Assessment of the Airport PPP experience in India, a Working Paper by International
Civil Aviation Organization