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DIAL- A case study of successful Public Private
Partnership
2
India is expected to recapture its lost glory in the years to come…
• India’s GDP will exceed that of G6 in: – Italy – 2015– France/UK – 2017– Germany – 2020– Japan – 2025– US - 2045
India’s share of World economy over the
centuries
~5%
of
world
GDP
in
2001
3
… driven by the improving per capita income
2009 2010 2015 2020 2025 2030 2035 2040 2045 20500
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Russia, $78,576
USA, $91,683
China, $49,650
Brazil, $49,759
India, $20,836
•G
DP p
er
capit
a,
USD
•GDP/
Capita
1033•2X
•4X
•8X •20
X
•USA, $91,683, CAGR 1.7%
•China, $49,650, CAGR 6.6%
•India, $20,836, CAGR 7.6%
Projected GDP/Capita for India will be growing by 20xProjected GDP/Capita for India will be growing by 20x
4
1950-2000 (Avg) 2009-10 2019-200%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
38%
16%9%
18%
19%16%
44%
65% 75%
Community, Social & Personal Services
Financing, Insurance, Real Estate & Business Services
Transport, Storage & Communication
Trade, Hotels & Restaurant
Construction
Electricity, Gas & Water Supply
Manufacturing
Mining & Quarrying
Agriculture, Forestry & FishingPrimary
Industry
Services
Per capita income (USD) 100-
500500-1000
1000-3000
Contr
ibuti
on t
o G
DP
Source: GOI Statistics, CMIE
Indian economy expected to grow faster than its peers in the emerging world mainly driven by growth in the services sector
• Services to lead the growth in Indian economy• Transport and communication (25%), Trade, Hotels & Restaurants (15.9%) with
BFSI (15.8%) sectors will drive the Indian economy in the 2020s
• Services to lead the growth in Indian economy• Transport and communication (25%), Trade, Hotels & Restaurants (15.9%) with
BFSI (15.8%) sectors will drive the Indian economy in the 2020s
5
Investment in Infra is expected to continue at a robust pace ...
Power$193
Railways$98
Highways $73
Civil Avia-tion$16
Ports$16 Others
$82
## Others include telecom SEZ's, supporting infra, water & sanitation, state & rural roads, logistics, pipelines etc.
• Capacity Shortfall in Infrastructure,
2007-12
• Source: Planning Commission
• Projected Infrastructure spending
($ Billion), 2007-12
Power Telecom Airports Roads Ports0%
20%
40%
60%
80%
100%
58%73%
60%49%
59%
42%27%
40%51%
41%
Projected Gap Installed Capacity
• There is huge opportunity for investment in Infrastructure growth in India
• Even 15% of market share of the power shortfall will require an investment of USD
30 B, sufficient to meet a medium to large company’s aspiration
• There is huge opportunity for investment in Infrastructure growth in India
• Even 15% of market share of the power shortfall will require an investment of USD
30 B, sufficient to meet a medium to large company’s aspiration
Total investment over plan period:
478 Bn $
6
... with the private sector increasing its contribution to the sector
5 year plan Total Investment
Private Sector share
%
Foreign investment
%
11th plan - 2007-2012
USD 478 Bn. 33% 8%
12th plan - 2013-2018
USD 1 Tr. 50% ?
Infrastructure investment to double in the next five year plan; need to increase foreign investment in the infrastructure sector
Infrastructure investment to double in the next five year plan; need to increase foreign investment in the infrastructure sector
7
Bra
zil
Chi
na
Indi
a
Rus
sia
Indo
nesi
a
Tur
key
Sou
th K
orea
GC
C
0
200
400
600
800
1000
1200
1400
1600
1800
2008
2018
Per 1000 persons
• Air Passengers (per thousand)
Source: ADB, Bloomberg, GS Research
47 85
Aviation infrastructure will be driven by the unprecedented growth in demand (1/2)
8
Passenger traffic at Indian airports 2000-2020
• Historical: AAI Data
• Projections: CAPA
• Air passenger traffic has increased from 39Mn pax in 1999-2000 to 123 Mn pax in 2009-10
• While airlines have managed to serve additional 84Mn pax, infrastructure has struggled to
cope with the increased demand.
• Infrastructure to serve additional 300Mn pax by 2020 would be challenge
• Air passenger traffic has increased from 39Mn pax in 1999-2000 to 123 Mn pax in 2009-10
• While airlines have managed to serve additional 84Mn pax, infrastructure has struggled to
cope with the increased demand.
• Infrastructure to serve additional 300Mn pax by 2020 would be challenge
Aviation infrastructure will be driven by the unprecedented growth in demand (2/2)
123 Mn
400 Mn
450 Mn
39 Mn
9
Investment in aviation infrastructure needs to keep pace with the projected growth of traffic
• Clearly the aviation infrastructure needs to keep pace with the unprecedented growth of traffic
• MOCA (Ministry of civil aviation) proposed 40000 INR Cr. (8.9 Bn $) investment to modernize Indian airports
• Given the financing and execution capabilities of the private sector, PPP seems the major way forward
• 4 Indian airports with ~ 50% share of Indian PAX traffic already privatized
Source: Planning Commission, Govt. of India
10
Globally, PPP model for infrastructure development is catching up
• Developing economies exploring PPP model to fund capital intensive infrastructure development
- Countries in Eastern Europe and Russia are seeking investment in developing/expanding their airports through this model
- African and South American nations are expected to deploy similar model for development of infrastructure
• Even developed economies are exploring this option to finance their infrastructure expansion / replacement / maintenance requirements
• PPP model is gaining popularity in international market, competition may become more intensive
• PPP model is gaining popularity in international market, competition may become more intensive
11
Concessions: Indian context
Concessions in Indian PPP
(Infrastructure) Context
Operating Concessions • User Charges
• Tolls• User Development Fees• Airport Development Fees
Non-Operating Concessions • Land in lieu of development• Transfer of Development Rights• Property Development
• Could be transit related developments
• Advertising Rights
Government Financial Support• Government Grants• Government Guarantees• Government Equity
Participation• Government Debt• Preferential Tax Treatment
Indirect Financing Concessions• Annuities• Fuel Taxes
12
DIAL is a glowing example of success of the PPP model in the Indian context
• A USD 2.8 Bn project developed as a JV between GMR Group(54%), Fraport (10%), MAHB (10%) and AAI (26%)
• A USD 2.8 Bn project developed as a JV between GMR Group(54%), Fraport (10%), MAHB (10%) and AAI (26%)
13
DIAL is a glowing example of success of the PPP model in the Indian context
• Terminal building with a size of 5.02 mn Sq ft which is 8th
largest terminal in the world. 34 million passenger capacity.
• 78 Aerobridges with 3 numbers A380 compatible which is highest in the world in a single terminal
• 92 Automatic walkways (Travelators). One of the longest Automatic walkways in Asia with 118 meters at Domestic pier.
• 71 elevators & 34 escalators
• 5 level in-line baggage screening system with the capacity to handle 12,800 bags/hour
• 28 meter high glass roof ceiling for natural lighting in to the terminal
• Energy efficient and environment friendly terminal. Applied for LEED certification (Green building) in Gold category
14
DIAL PPP structuring - Identifying the project
• DIAL catered to ~21% of Indian air traffic and
was seeing unprecedented growth
• DIAL catered to ~21% of Indian air traffic and
was seeing unprecedented growth 2001-02 2002-03 2003-04 2004-05
All India 40 43.7 48.7 59.5
Delhi Air-port
8.2 8.8 10.2 12.8
5
25
45
65
Traffic growth at Delhi airport
Mn P
AX
15
DIAL PPP structuring - Timelines
• June 2003• AAI board
approved the
modernization
proposal
• Feb 2004• Invitation
for EOI for project issued
• Apr 2005• RFP Issued
• Sep 2005• Submission
of Bids
• 2006• Award of
contract
Bidding Timelines
16
DIAL PPP structuring - Defining the scope
• 30 year concession agreement with further 30 year option• Retention of all staff initially and significant numbers after 3 years
• ~2400 AAI employees in 2006
• Transaction
• Mandatory capital expenditure program with key projects to be completed by March 2010
• PAX: 46 Mn. by 2025; Cargo: 1.5 Mn Tonnes by 2025
• Infrastructure
• ATC would be still under the control of AAI/DGCA• First right of refusal if within 10% of best bid for any
airport within 150 km
• Services
17
DIAL PPP structuring - transaction structure
JVC Company
AAIJV partners
MOCA
26%74%
Operation Management and Development
Agreement (OMDA)
Shareholders Agreement (SHA)
State Government Support Agreement (SSA)
Central Government State Government
18
DIAL PPP structuring - transaction structure
• The AAI (Airport Authority of
India) Act was amended in the
year 2003 to incorporate a new
section wherein the private
airport operators were granted
the same right as that of AAI
under the AAI Act.
• Specifically section 12 A (4)
grants all the function of AAI to
private operators. Reproduced
below: "The lessee, who has
been assigned any function of
the Authority under sub-section
(1), shall have all the powers of
the Authority necessary for the
performance of such functions in
terms of the lease”
JVC Company
AAIJV partners
MOCA
26%74%
Operation Management and
Development Agreement
(OMDA)
Shareholders Agreement (SHA)
State Support Agreement (SSA)
State Government Support Agreement
(SSA)
Central GovernmentState Government
19
DIAL PPP structuring - Qualify to bid
Technical
Criteria
Criteria Weightage
Management capability, commitment and value add
100%
Experience of the nominated airport operator
25%
Experience of the other prime members
12.5%
Commitment of airport operator
12.5%
Commitment of other prime members
12.5%
HR approach 12.5%
Transition Plan 12.5%
Stakeholder and environment management
12.5%
Development capability, commitment and value add
100%
20
DIAL PPP structuring - Qualify to bid
Name of bidder Management capability
Development Capability
Reliance-ASA 74.8 81
GMR-Fraport 81.7 80.1
DS Construction-Munich
73.3 70.5
Sterlite-Macquarie-ADP
53.5 61.9
Essel-TAV 40.4 41.4
• Only GMR met the cut off criteria of 80% ; it was given the opportunity to match the highest bidder
• Only GMR met the cut off criteria of 80% ; it was given the opportunity to match the highest bidder
• All the consortiums had an Indian partner with foreign operator who brought valuable technical experience
• All the consortiums had an Indian partner with foreign operator who brought valuable technical experience
21
DIAL PPP structuring - Bid Accurately
• Aeronautical
• Landing and Parking
Charges
• Passenger Services
Fees
• Fuel Farm charges
• Aero-Related
• Cargo Handling
• Ground Handling
• Flight Kitchen
• Land and Space
Rentals
• Non-Aeronautical
(Terminal)
• Advertising Charges
• Retail and F&B
• Car Parking
• Other concessions
• Commercial Property
Development
• Hybrid Till Model with revenue requirements from Aeronautical sources subsidized by 30% of
revenues from Aero-related and non-aeronautical revenues
• Hybrid Till Model with revenue requirements from Aeronautical sources subsidized by 30% of
revenues from Aero-related and non-aeronautical revenues
22
DIAL PPP structuring - Bid Accurately
Name of bidder
Management capability
Development Capability
% Revenue Share
Reliance-ASA 74.8 81 45.99
GMR-Fraport 81.7 80.1 43.64
DS Construction-Munich
73.3 70.5 40.15
Sterlite-Macquarie-ADP
53.5 61.9 37.04
Essel-TAV 40.4 41.4 Bid not opened
GMR given the opportunity to match the highest bidder and won the bid for Delhi airport
GMR given the opportunity to match the highest bidder and won the bid for Delhi airport
23
DIAL PPP structuring - Bid Accurately
Key considerations while bidding
Key considerations while bidding
• Hybrid till Model: 30% of Non aeronautical revenues (terminal) used to subsidize return expectations
• Aeronautical charges as per current rates; escalation as per building block approach
• No pass through of revenue share to AAI
• Land use for commercial property development limited to 5% of total area (~250 acres)
• 30+30 year concession period
24
DIAL PPP structuring - Financing the bid
Additional funding to be met
Tranche 2 is yet to be
approved by the regulator
Particulars US Bn. $
+ Project Cost 2.83
- Funding Means
Equity/internal accruals 0.55
CPD (commercial property development) deposits (Refundable)
0.33CPD Infra deposits
Commercial (concessions) Deposits
Rupee term Loan 0.81
ECB 0.36
Total 2.05
GAP 0.77
ADF (Tranche 1) 0.41
ADF (Tranche 2) 0.36
Additional funding requirement after subsidizing costs through deposits
from CPD and concessions
Additional funding requirement after subsidizing costs through deposits
from CPD and concessions
25
DIAL PPP structuring - Financing the bid
• DIAL is currently charging INR 200 per domestic PAX and INR 1300 per international
PAX, total collections not to exceed ceiling of USD 0.41 Bn
• The receivables have been securitized to bridge the funding gap of USD 0.41 Bn
Particulars
+ Project Cost- Funding Means
Equity/internal accrualsCPD (commercial property development) deposits (Refundable)CPD Infra deposits Rupee term LoanECBCommercial (concessions) Deposits Total
GAP
ADF is a levied under the provision of AAI Act on the departing passengers of the respective airport. ADF is levied to fund/finance the cost of new airports development.
This means of funding is unique to the Indian context.
ADF is a levied under the provision of AAI Act on the departing passengers of the respective airport. ADF is levied to fund/finance the cost of new airports development.
This means of funding is unique to the Indian context.
26
• Rework of masterplan within six months
• Critical timelines – to complete terminal by Mar 2010
• Complex engagement with large number of stakeholders
• Project management
Key challenges faced in developing Terminal 3
27
DIAL Masterplan was revised within six months of takeover.
Terminal T1D
Terminal T3
Runway 11/29
• As per the masterplan, DIAL has developed new facilities, T1D, T3 and Runway 11/29 by 2010
• As per the masterplan, DIAL has developed new facilities, T1D, T3 and Runway 11/29 by 2010
• Master Plan had to resubmitted within 6 months of signing concession agreement as per
• Actual site conditions (encroachments, city sewage, operational complex, etc)
• Increase in Passenger Traffic & deadline
• Master Plan was made with 20 year horizon and at Ultimate Capacity
28
Key challenges during takeover by GMR from AAI
Key challenges during takeover
• Existing AAI Employees to be taken over• Huge Cultural differences, Insecurity and hindrance to new
initiatives & any Change• Modernization had to take place simultaneously by taking over
existing airport operations in the domestic side as well as international side• Deficiencies in IT backup process and Disaster
Recovery/Business Continuity Planning
• There were multiple number of more than 100 court cases that had to handled with lot of co-ordination from AAI, MoCA, DDA, Railways Ministry which were handled in a time bound plan
True PPP Model
29
Unique development strategy & mitigation of risks to meet timelines
• Key principles were kept in mind:• Modular expansion to meet the incremental traffic
growth• To meet the OMDA requirements• To meet the Traffic Forecast• To optimize land use• To meet the ICAO and IATA recommendations• To meet requirements of Statutory Agencies
Development strategy
Risk management
• Key risks were identified: 95, of which critical were: 35• High End software (Pertmaster Risk Analyst V8) for Risk
Analysis• Detailed Risk Mitigation strategy (incl. EPC contractor)
prepared for critical risks and monitored very closely for mitigation
• Mitigation plans & strategies reviewed twice in a month
• Comprehensive risk management measures in place
30
In the end, T3 was completed on schedule.
Airport Capacity, mppa Floor Area, sqm Construction Period, months
London Heathrow 28 353,000 72
Madrid 42 757,000 70
Bangkok 45 563,000 60
Kuala Lumpur 25 479,000 54
Beijing 43 900,000 52
Delhi T3 34 502,000 37
• Source: Jacobs Benchmarking study, 2009
31
Stakeholder support was key in delivering T3 on schedule
• Proactive participation among all stakeholders during design,
construction and in seamless transfer of operations to T3:
• The Government of India (GoI) supported DIAL at all levels:
– Ministry of Civil Aviation provided guidance and facilitated
clearances
– Cabinet Secretary chaired National Facilitation Committee meetings
to expedite issues
• Regulatory agencies viz. Customs, Immigration, Central Industrial
Security Force
• Fuel farm joint venture partners (Indian Oil & Bharat Petroleum)
• Airlines & ground handling agencies which participated in trials and gave
valuable feedback to streamline processes in the new terminal
32
• 101th position in 2007 worldwide out of 101 participating airports
• 12th position in 2010 worldwide out of 154 participating airports
• 4th position in the category of 25-40 Million Passengers per annum
out of 19 airports in 2010
• 9th position in Asia Pacific Region out of 35 airports in 2010
DIAL quality ratings have moved up by leaps and bounds
ASQ (Airport service quality) Trend
Today, T3 is helping IGIA to emerge as an international hub for the region
35
Thank You