Annexure II cp 14-13-14.pdf

BANGALORE INTERNATIONAL AIRPORT LIMITED

Multi-Year Tariff Proposal FY2011-12 to FY2015-16

and Business Plan FY2011-12 to FY2020-21:

Financial Statements and Assumptions

Till mechanism adopted for tariff determination: Dual till

Submitted to the Airport Economic Regulatory

Authority (AERA)

September 2011

Annexure II

CP No. 14/2013-14- MYTP & ATP- BIAL-CP Annexure II Page 1 of 381

MYTP - Financial statements and assumptions

Bangalore International Airport Limited (BIAL) Page 2 of 18

Table of contents

1 Approach and consideration ....................................................................... 4

1.1 Approach .......................................................................................... 4

1.2 Consideration and applicability................................................................ 4

2 Financial statements ................................................................................ 5

2.1 Financials Aggregated ......................................................................... 5

2.2 Financials Aero ................................................................................. 8

2.3 Financials Non-Aero ........................................................................... 9

2.4 Calculated Aggregate Revenue Requirements (ARR) ...................................... 10

3 Assumptions .......................................................................................... 11

3.1 Bifurcation of Aero and Non-Aero assets and costs ........................................ 11

3.2 Capex assumptions ............................................................................. 11

3.3 WPI and CPI ...................................................................................... 11

3.4 Fair Return of Return (FRoR) .................................................................. 12

3.5 Traffic ............................................................................................ 12

3.6 Service Quality parameters ................................................................... 12

3.6.1 Objective parameters .................................................................... 12

3.6.2 Subjective parameters ................................................................... 13

3.7 Revenue .......................................................................................... 13

3.7.1 Regulated charges ......................................................................... 13

3.7.2 Other charges Aviation concession and non-aviation revenues ................... 13

3.8 Operating cost .................................................................................. 13

3.8.1 Personnel Expense ........................................................................ 13

3.8.2 O&M Costs .................................................................................. 14

3.8.3 Concession fee ............................................................................. 14

3.8.4 Lease rent .................................................................................. 14

3.8.5 Utilities ..................................................................................... 14

3.8.6 Insurance ................................................................................... 14

3.8.7 Marketing, Advertising & Others ........................................................ 14

3.8.8 OMSA fee ................................................................................... 14

3.8.9 General Administration Costs............................................................ 14

3.9 Treatment of Real estate business ........................................................... 14

Annexure II




List of Annexure

Annexure 1: Auditor's certificate for bifurcation of fixed assets and costs ....................... 15

Annexure 2: Revised Master Plan ....................................................................... 16

Annexure 3: Traffic forecasts for Aviation Activity Forecasts by L&B ............................. 17

Annexure 4: Audited Financial Statements ............................................................ 18

Annexure II




1 Approach and consideration

1.1 Approach

The Bangalore International Airport Limited (BIAL) is governed by provisions of the provisions

of the Concession Agreement (C.A.) entered into between the Ministry of Civil Aviation,

Government of India and Bangalore International Airport Limited (BIAL) on 5th July 2004.The

details of the Business Plan of BIAL, as presented here, are based on the considerations

provided for in the C.A., Detailed Project Report and the related Project Financials, which

were duly acknowledged by the Government of Karnataka at the time of entering into the

State Support Agreement with BIAL.

In the Business Plan, the regulated charges include Landing Charges, Parking Charges,

Passenger Service Fee (PSF) and Users Development Fee (UDF). The rest of the revenues items

are classified as non-regulated charges such as Aviation Concessions, retail, commercial,

among others. Further, C.A. does not provide for any cross-subsidization of non-regulated

charges for determining the tariff of regulated charges. Therefore, the financial statements

and assumptions are developed taking this approach and the details of the formats, as

required under MYTP, are presented in this document.

1.2 Consideration and applicability

The enclosed financial statements are based on 10 years Business Plan that has been approved

by the BIALs Board. The Board has deliberated and considered the results for submission to

the AERA subject to the condition that any final scenario of tariff determination requiring

fresh equity infusion from the respective state promoters of BIAL would be subject to

approval of the Board and respective state governments.

Annexure II




2 Financial statements

2.1 Financials Aggregated

Table 2-1: Profit and Loss Account (INR million)

Note:

1. Results of FY1 2009-10 and FY2010-11 represents actual results while other years represents forecasted values

2. Expenses and losses are depicted with negative and shown in brackets

1 Financial Year (FY) refers to year starting from April 1 and ending on 31st March

Particulars 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Revenue

Revenues from Regulated Services 3,669 4,198 7,942 9,531 11,263 13,331 15,701 25,541 29,879 34,892 39,730 45,105

Revenues from other than Regulated Services 977 1,197 2,438 2,720 2,982 3,295 3,645 4,034 4,700 5,249 5,834 6,363

Operation and Maintenance expenditure

Personnel (583) (671) (897) (1,083) (1,414) (1,679) (2,211) (2,381) (3,294) (3,524) (3,771) (4,037)

Operations & Maintenance (297) (322) (405) (435) (702) (729) (1,192) (1,249) (2,421) (2,501) (2,582) (2,666)

Concession Fee (204) (231) (415) (490) (570) (665) (774) (1,183) (1,383) (1,606) (1,823) (2,059)

Lease Rent (64) (64) (63) (63) (63) (63) (118) (130) (134) (138) (142) (147)

Utilities (200) (211) (239) (246) (266) (273) (280) (300) (440) (440) (440) (452)

Insurance (28) (26) (36) (45) (46) (61) (65) (103) (107) (112) (115) (119)

Marketing, Advt. and others (59) (14) (152) (177) (203) (234) (269) (380) (439) (506) (569) (639)

OMSA Fee (110) (82) (185) (221) (243) (282) (313) (502) (553) (653) (750) (856)

General Administration Costs (132) (141) (726) (308) (339) (373) (410) (431) (453) (475) (497) (521)

Earnings before depreciation, interest and taxation (EBDIT) 2,968 3,634 7,261 9,184 10,399 12,267 13,714 22,916 25,354 30,188 34,874 39,973

Depreciation and Amortisation (1,338) (1,347) (1,440) (1,863) (2,239) (2,821) (3,639) (5,465) (7,103) (6,685) (6,816) (6,988)

Earnings before interest and taxation (EBIT) 1,630 2,288 5,821 7,321 8,160 9,446 10,075 17,451 18,251 23,503 28,058 32,985

Total interest and finance charges (1,035) (1,263) (1,368) (1,379) (3,261) (2,867) (2,474) (8,680) (7,839) (11,218) (10,447) (10,919)

Profit/loss before tax 596 1,024 4,453 5,942 4,899 6,579 7,601 8,770 10,412 12,285 17,611 22,066

Other income 187 301 95 108 79 163 125 30 101 67 323 586

Provision for taxation (5) (4) (910) (1,210) (996) (1,348) (1,545) (1,760) (2,103) (2,470) (3,587) (4,530)

Profit /(loss) after taxation 777 1,321 3,638 4,840 3,983 5,393 6,181 7,040 8,411 9,881 14,348 18,122

Balance Carried to Balance Sheet 777 1,321 3,638 4,840 3,983 5,393 6,181 7,040 8,411 9,881 14,348 18,122

Actuals Forecasts

Annexure II




Table 2-2: Balance Sheet (INR million)

Particulars 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

A)Shareholders' Funds

Capital 3,846 3,846 3,846 3,846 3,846 3,846 3,846 3,846 3,846 3,846 3,846 3,846

Total Shareholders' Funds 3,846 3,846 3,846 3,846 3,846 3,846 3,846 3,846 3,846 3,846 3,846 3,846

B)Reserves & Surplus

Profit & Loss Account Brought Forward (1,511) (733) 588 4,226 9,066 13,049 18,442 24,623 31,663 40,074 49,955 64,303

Profit & Loss Account for the Period 777 1,321 3,638 4,840 3,983 5,393 6,181 7,040 8,411 9,881 14,348 18,122

Total Profit & Loss Account (733) 588 4,226 9,066 13,049 18,442 24,623 31,663 40,074 49,955 64,303 82,424

C)Loan Funds

Secured Loans (incl. ECB Restatement) 13,816 12,857 16,751 25,971 36,662 53,029 65,873 87,278 84,489 83,350 79,270 74,868

Unsecured Loan - SS 3,335 3,335 3,335 3,335 3,335 3,335 3,335 3,335 3,335 3,002 2,668 2,335

D)Working capital borrowings - - - - - - - - - 356 994 1,692

TOTAL SOURCES OF FUNDS 20,264 20,626 28,158 42,218 56,891 78,652 97,678 126,122 131,744 140,508 151,081 165,165

A) Fixed Assets

Gross Block 19,744 19,874 22,282 38,348 40,060 69,940 75,151 148,923 152,401 157,583 159,824 162,448

less: Accumulated Depreciation (2,485) (3,832) (5,271) (7,134) (9,373) (12,194) (15,834) (21,299) (28,401) (35,086) (41,902) (48,890)

Net Block 17,259 16,042 17,010 31,214 30,687 57,746 59,317 127,624 124,000 122,497 117,922 113,558

Capital Work in Progress 135 880 8,451 6,685 23,385 22,424 39,517 - - - - -

Current Assets, Loans and Advances

Inventories 121 138 79 42 75 78 138 148 296 303 313 318

Sundry Debtors 461 985 1,046 1,081 1,259 1,469 1,710 2,666 3,117 3,619 4,104 4,634

Other Current Assets , Loans and Advances and others 1,226 1,343 1,343 1,343 1,343 1,343 1,343 1,343 1,343 1,343 1,343 1,343

Total Current Assets, Loans and Advances 1,808 2,466 2,468 2,466 2,676 2,890 3,190 4,157 4,756 5,264 5,760 6,294

DSRA Reserves - - 567 562 994 962 927 2,229 2,192 2,479 2,402 2,613

Cash and Bank Balances 3,798 4,315 3,168 6,519 5,003 1,182 4,060 2,670 12,929 23,438 37,820 55,194

Less : Current Liabilities and Provisions

Current Liabilities and Provisions 2,735 3,077 3,506 5,228 5,853 6,551 9,334 10,559 12,132 13,170 12,823 12,495

Net Current Assets 2,870 3,704 2,697 4,319 2,820 (1,518) (1,157) (1,502) 7,744 18,011 33,159 51,607

TOTAL APPLICATION OF FUNDS 20,264 20,626 28,158 42,218 56,891 78,652 97,678 126,122 131,744 140,508 151,081 165,165

SOURCES OF FUNDS

APPLICATION OF FUNDS

Actuals Forecasts

Annexure II




Table 2-3: Cash Flow Statement (INR million)

Particulars 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Cashflow from operating activities

Net Profit before taxation 777 1,321 3,638 4,840 3,983 5,393 6,181 7,040 8,411 9,881 14,348 18,122

Adjustment for :

Depreciation and Amortisation 1,338 1,347 1,440 1,863 2,239 2,821 3,639 5,465 7,103 6,685 6,816 6,988

Operating Profit before working capital changes 2,115 2,668 5,078 6,703 6,222 8,214 9,820 12,505 15,514 16,566 21,164 25,110

Adjustment for :

(Increase)/ Decrease in Inventories, Debtors and Other Current Assets 324 (658) (3) 2 (210) (214) (301) (967) (599) (508) (496) (535)

Increase/ (Decrease) in Current Liabilities and Provisions 212 341 429 1,721 626 697 2,783 1,224 1,573 1,038 (347) (328)

(Increase)/Decrease in DSRA Reserves - - (567) 4 (431) 32 35 (1,302) 37 (287) 77 (211)

Increase/(Decrease) in Work ing Capital loans - - - - - - - - - 356 638 698

Net Work ing capital changes 536 (317) (140) 1,728 (16) 516 2,517 (1,044) 1,012 598 (127) (376)

Cash generated from Operation 2,651 2,351 4,938 8,431 6,206 8,730 12,338 11,461 16,525 17,164 21,037 24,733

Cash flow from investing activities

Purchase of Fixed Assets (236) (875) (9,979) (14,301) (18,412) (28,919) (22,304) (34,255) (3,478) (5,182) (2,241) (2,624)

Net Cash from/ (used in) Investing Activities (236) (875) (9,979) (14,301) (18,412) (28,919) (22,304) (34,255) (3,478) (5,182) (2,241) (2,624)

Cashflow from financing activities

Proceeds from LT Debt incl. Loss on restatement/Fin Lease (304) (959) 3,893 9,220 10,690 16,367 12,845 21,404 (2,789) (1,139) (4,080) (4,402)

Proceeds from State Financial Support 30 - - - - - - - - (334) (334) (334)

Net Cash from/ (used in) Financing Activities (274) (959) 3,893 9,220 10,690 16,367 12,845 21,404 (2,789) (1,472) (4,414) (4,735)

Net change in cash and cash equivalents 2,141 518 (1,147) 3,351 (1,515) (3,822) 2,878 (1,390) 10,258 10,510 14,382 17,374

Cash and Cash equivalents at the beginning of the period 1,657 3,798 4,315 3,168 6,519 5,003 1,182 4,060 2,670 12,929 23,438 37,820

Cash and cash equivalents at the end of the period 3,798 4,315 3,168 6,519 5,003 1,182 4,060 2,670 12,929 23,438 37,820 55,194

Actuals Forecasts

Annexure II




2.2 Financials Aero


Particulars 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Revenue

Aero revenues 3,669 4,198 7,942 9,531 11,263 13,331 15,701 25,541 29,879 34,892 39,730 45,105

Operation and maintenance expenditure

Personnel (467) (538) (720) (868) (1,134) (1,346) (1,773) (1,909) (2,642) (2,826) (3,024) (3,238)

Operations & Maintenance (252) (274) (322) (332) (551) (573) (1,031) (1,083) (2,101) (2,170) (2,240) (2,313)

Concession Fee (147) (168) (318) (381) (451) (533) (628) (1,022) (1,195) (1,396) (1,589) (1,804)

Lease Rent (49) (49) (49) (49) (49) (49) (90) (100) (103) (106) (109) (113)

Utilities (150) (158) (179) (184) (199) (205) (210) (225) (330) (330) (330) (339)

Insurance (21) (20) (27) (33) (34) (46) (49) (77) (80) (84) (86) (89)

Marketing, Advt.,and others (50) (12) (120) (141) (164) (191) (221) (327) (378) (437) (494) (556)

OMSA Fee (110) (82) (148) (178) (198) (233) (260) (442) (488) (579) (666) (763)


Earnings before depreciation, interest and taxation (EBDIT) 2,309 2,779 5,441 7,101 8,195 9,839 11,091 19,990 22,177 26,561 30,768 35,447

Depreciation and Amortisation (1,070) (1,077) (1,147) (1,512) (1,813) (2,295) (3,237) (4,871) (6,242) (5,875) (5,993) (6,142)

Earnings before interest and taxation (EBIT) 1,239 1,702 4,294 5,589 6,382 7,544 7,854 15,119 15,935 20,686 24,774 29,304

Total interest and finance charges (828) (1,011) (1,152) (1,083) (2,780) (2,282) (1,843) (7,988) (6,234) (9,521) (8,795) (9,351)

Profit/loss before tax 411 691 3,143 4,506 3,602 5,262 6,010 7,131 9,700 11,165 15,979 19,953

Other income - - 76 86 63 130 100 24 81 53 259 469

Provision for taxation (5) (4) (644) (919) (733) (1,078) (1,222) (1,431) (1,956) (2,244) (3,248) (4,084)

Profit /(loss) after taxation 406 687 2,575 3,674 2,932 4,314 4,888 5,724 7,825 8,975 12,990 16,338

Balance Carried to Balance Sheet 406 687 2,575 3,674 2,932 4,314 4,888 5,724 7,825 8,975 12,990 16,338

Actuals Forecast

Annexure II




2.3 Financials Non-Aero


Particulars 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Revenue

Non Aero revenues 977 1,197 2,438 2,720 2,982 3,295 3,645 4,034 4,700 5,249 5,834 6,363

Operation and Maintenance expenditure

Personnel (115) (133) (178) (214) (280) (333) (438) (472) (653) (698) (747) (800)

Operations & Maintenance (45) (48) (82) (103) (151) (156) (161) (166) (320) (331) (342) (353)

Concession Fee (58) (64) (98) (109) (119) (132) (146) (161) (188) (210) (233) (255)

Lease Rent (15) (15) (15) (15) (15) (15) (27) (30) (31) (32) (33) (34)

Utilities (50) (53) (60) (61) (66) (68) (70) (75) (110) (110) (110) (113)

Insurance (7) (7) (9) (11) (11) (15) (16) (26) (27) (28) (29) (30)

Marketing, Advt.,and others (9) (2) (32) (35) (39) (43) (48) (53) (61) (68) (75) (82)

OMSA Fee - - (37) (42) (45) (50) (54) (60) (65) (74) (84) (92)


Earnings before depreciation, interest and taxation (EBDIT) 659 855 1,819 2,082 2,204 2,428 2,624 2,926 3,177 3,627 4,107 4,527

Depreciation and Amortisation (268) (269) (293) (350) (426) (526) (402) (594) (861) (810) (823) (846)

Earnings before interest and taxation (EBIT) 392 586 1,527 1,732 1,778 1,902 2,222 2,332 2,317 2,817 3,284 3,681

Total interest and finance charges (207) (253) (216) (296) (481) (585) (630) (693) (1,605) (1,697) (1,652) (1,568)

Profit/loss before tax 185 333 1,310 1,436 1,297 1,317 1,591 1,639 712 1,120 1,632 2,113

Other income 187 301 19 22 16 33 25 6 20 13 65 117

Provision for taxation - - (266) (291) (263) (270) (323) (329) (146) (227) (339) (446)

Profit /(loss) after taxation 371 634 1,063 1,166 1,050 1,079 1,293 1,316 586 906 1,357 1,784

Balance Carried to Balance Sheet 371 634 1,063 1,166 1,050 1,079 1,293 1,316 586 906 1,357 1,784

ForecastActuals

Annexure II




2.4 Calculated Aggregate Revenue Requirements (ARR)

The ARR for the first Control Period is calculated as under:

Table 2-6: Calculation of ARR (INR million)

Aggregate Revenue Requirement Tariff Year 1 Tariff Year 2 Tariff Year 3 Tariff year 4 Tariff year 5

2011-12 2012-13 2013-14 2014-15 2015-16

Aggregate Revenue Requirement 11,196 7,509 9,045 12,506 16,989

Annexure II




3 Assumptions

3.1 Bifurcation of Aero and Non-Aero assets and costs

The bifurcation of historical values of fixed assets and costs in Aero and Non-Aero is based on

the Auditors certificate issued after conducting agreed upon procedures. A copy of the

certificate is attached in Annexure 1. On the same basis, the projected fixed assets and costs

are bifurcated to estimate the future Aero and Non-Aero Assets.

The Aeronautical Assets, Non-Aeronautical Assets, Aeronautical Services and Non-Aeronautical

Services are as defined under Clause 1.1 and Clause 1.2 of the Annexure 1.

3.2 Capex assumptions

Historical fixed assets have been taken as per the books of accounts and records.

The RAB is based on capital expenditure estimates as per the Revised Master Plan.

Further details are provided under Annexure 2.

Depreciation has been considered as per the rates prescribed in the Companies Act,

1956. The financial statements have been prepared following Straight Line Method

(SLM) of depreciation.

The capital expenditure has been indexed based on Whole Price Index (WPI) of 2.7% on

year on year basis.

3.3 WPI and CPI

The WPI figures are derived based on the forecasted Producer Price Index (PPI) values

as provided by analysts projections.

The forecasted Consumer Price Index (CPI) values for the Control Period are

considered on the basis of analysts projections.

The forecasted values for the first Control Period are shown in table below:

Year WPI PPI CPI

2011-12 7.7% 7.2% 6.8%

2012-13 7.6% 7.1% 6.5%

2013-14 6.2% 5.6% 6.0%

2014-15 6.0% 5.4% 5.7%

2015-16 5.8% 5.2% 5.5%

Annexure II




3.4 Fair Rate of Return (FRoR)

The post-tax Cost of Equity (Ke) is calculated using the Capital Assets Pricing Model (CAPM)

method. Based on the internal estimates, the value of Ke is 24.4% for the first Control Period.

This is based on an average Debt/Equity (D/E) of 1.5 over the period FY2011-12 to FY 2015-

16. To arrive at this figure, risk free rate is assumed as 7.91% and the equity risk premium is

10.36%. The value of asset beta is taken as 0.8.

The Cost of Debt has been considered on the basis of expected borrowing cost for each of the

projected years of the first Control Period. The respective Cost of Debt values for each year

of the Control Period ranges from 12.5% to 13.5%.

The weighted average gearing for the first Control Period is calculated based on the projected

values of debt and equity.

3.5 Traffic

The traffic forecasts used in the financial statements are based on the report submitted by

M/s Landrum and Brown (L&B) in August 2010. The report provides annual forecasts of

passenger traffic, air cargo tonnage, and aircraft movements for the twenty year period of

2009-10 to 2029-30. The report presented growth under various scenarios; Master Planning

Traffic Forecast is taken as most likely scenario and included in the financial forecasts. The

report is attached as Annexure 3 for reference purpose.

The report was prepared considering base year of 2009-10. For projecting the aviation activity

at the airport, the estimated traffic figures of the 2009-10 and 2010-11 have been replaced by

the actual traffic figures of 2009-10 and 2010-11 respectively. Thereafter, the base traffic

numbers are increased at the rates estimated in the L&B report taking base of 2010-11.

Other key assumptions for traffic estimates are as under:

Traffic band percentage is assumed to be 5%.

Domestic arrival to departure ratio is assumed at 50:50 for the first Control Period. In

case of international passengers, the arrival to departure ratio is 52:48 for the first

Control Period.

3.6 Service Quality parameters

3.6.1 Objective parameters

The key points regarding this parameter are mentioned in the Form 14 (a) of MYTP.

Annexure II




3.6.2 Subjective parameters

Subjective quality parameters shall be attained as per C.A. Detailed are presented in Form 14 (b) of MYTP.

3.7 Revenue 3.7.1 Regulated charges

The regulated revenues are increasing at a Compounded Annual Growth Rate (CAGR) of 18.58% over the first Control Period.

Landing charges: The landing charges for domestic and international aircrafts are

assumed at the rates prevailing in FY 2010-11 growing as per the growth rate of WPI

starting FY 2011-12 over the balance period of the first Control Period. The rise in the

landing revenues over the first Control Period is represented by a CAGR of 18.57%.

PSF (FC): Overall, the passenger service fee is assumed to grow at a CAGR of 18.57% in

the first Control Period.

UDF: The total revenue from UDF is expected to grow at a CAGR of 19.08% during the

first Control Period.

Parking charges: The parking revenue grows at a CAGR of 16.68% in the first Control

Period.

ATR2: INR 4,000 per landing per ATM has been considered.

3.7.2 Other charges Aviation concession and non-aviation revenues

The aviation concession revenues and non-aviation revenues are increasing at a CAGR of

10.56% and 10.58% respectively during the first Control Period.

The revenues for the aviation concessions and non-aviation revenues-other charges are as per the existing agreements with the concessionaires. The revenues from aerobridge charges, cargo, fuel farm, flight catering and ground handling activities are classified under Aviation Concessions. Non-Aero revenues include retail, food and beverages, taxi etc.

3.8 Operating cost The total operating expenses are increasing at a CAGR of 15.91% over the first Control Period. 3.8.1 Personnel Expense

The personnel cost is increasing by a CAGR of 25.29% in the first Control period. During this

period, the headcount is expected to rise by a CAGR of 11.76%. This increase is primarily on

account of existing and future expansion.

2 Aircrafts with seating capacity of less than 80 seats

Annexure II




3.8.2 O&M Costs

During the first control period, the total O&M costs increase by CAGR of 31.01%. Maximum

increase is expected in the FY 2013-14 due to the existing and future expansion requirements

as captured in the Revised Master Plan.

3.8.3 Concession fee

The concession fee has been estimated at 4% of gross revenues. The Concession fee rises by a

CAGR of 16.84% over the first Control Period.

As per the Concession Agreement of BIAL, the concession fee for first 10 financial years from

the date of airport opening date (AOD) shall be payable in twenty equal half yearly

installments. The first such payment is due and payable in the 11th financial year from AOD.

3.8.4 Lease rent

Based on the Land Lease Deed with Karnataka State Industrial and Investment Development

Corporation (KSIIDC - Lessor), the total annual lease rent payable has been considered. The

CAGR for first Control Period is 16.71%.

3.8.5 Utilities

The utilities cost is increasing at a CAGR of 4.01%. The cost mainly comprises of power and

water.

3.8.6 Insurance

The total insurance premium cost is growing by CAGR of 15.77% for the first Control Period.

3.8.7 Marketing, Advertising & Others

The marketing and advertising costs are increasing by a CAGR of 11.82% during the first

Control Period.

3.8.8 OMSA fee

The component increases by a 14.03% in the first Control Period.

3.8.9 General Administration Costs

This cost head includes consultancy& legal, travel, office and others.

3.9 Treatment of Real estate business

The business plan for real estate has not yet been finalized and no investment has been made

as on date. Hence, the real estate business scenario has not been considered.

Annexure II




Annexure 1: Auditor's certificate for bifurcation of fixed assets and costs

Annexure II




Annexure 2: Revised Master Plan

Annexure II




Annexure 3: Traffic forecasts for Aviation Activity Forecasts by L&B

Annexure II




Annexure 4: Audited Financial Statements

Annexure II


Revised Multi-Year Tariff Proposal FY 2011-12 to FY

2015-16

and

Business Plan FY 2011-12 to FY 2020 -21: Financial

Statements and Assumptions

Till type adopted for tariff determination: Dual till

Submitted to the Airport Economic Regulatory

Authority (AERA)

November 2012

Annexure II




Table of contents

1 Background and Introduction to Bangalore International Airport Limited ................ 6

2 Our Approach to MYTP re-submission ............................................................ 8

3 Assumptions and drivers used for various Regulatory Building Blocks ..................... 9

3.1 Project Cost, Regulatory Asset Base and Means of Financing ............................. 9

3.2 Means of Financing ............................................................................. 17

3.3 Cost of Debt ..................................................................................... 18

3.4 Cost of Equity ................................................................................... 20

3.5 Fair Rate of Return ............................................................................. 20

3.6 Depreciation ..................................................................................... 21

3.7 Traffic ............................................................................................ 23

3.8 Non-Aero Revenues ............................................................................. 23

3.9 Operating Costs ................................................................................. 23

3.9.1 Personnel Costs ............................................................................ 23

3.9.2 Operations and Maintenance Costs ..................................................... 25

3.9.3 Utility Costs ................................................................................ 35

3.9.4 Operation Maintenance and Support Fee .............................................. 36

3.9.5 Concession Fee ............................................................................ 37

3.9.6 Lease Rent ................................................................................. 37

3.9.7 General Administration Costs............................................................ 38

3.9.8 Insurance ................................................................................... 39

3.9.9 Marketing, advertising and others ...................................................... 39

3.10 Taxation .......................................................................................... 39

3.11 Pre-Control Period Shortfall for reimbursement ........................................... 40

3.12 WPI and CPI ...................................................................................... 42

3.13 Audit of Financial Model ....................................................................... 43

4 Financial statements ............................................................................... 44

4.1 Financials - Aggregated ........................................................................ 44

4.2 Calculated Aggregate Revenue Requirements (ARR) ...................................... 48

Annexure II




List of Annexures

Annexure 1: Cost of Equity report by KPMG

Annexure 2: Audited Financial Statements 2011-12

Annexure 3 Financial Model audit report

Annexure II




Glossary of Terms used:

AAI Airport Authority of India

AERA Airport Economic Regulatory Authority

AFL Air Field Lighting

AMC Annual Maintenance Contract

AOD Airport Opening Date

AOCC Airport Operation Control Centre

ARFF Airfield Rescue Fire Fighting

ATC Air Traffic Control

BIAL Bangalore International Airport Limited

BOT Build Operate Transfer

BHS Baggage Handling System

BRS Baggage Reconciliation System

CA Concession Agreement

CCTV Closed Circuit Television

CUTE Common User Terminal Equipment

CPI Consumer Price Index

CUSS Common User Self Service

CPS Central Parking Services

DG Diesel Generator

DSCR Debt Service Coverage Ration

DSRA Debt Service Reserve Account

E&E Elevators & Escalators

EPC Engineering Procurement and Construction

ECB External Commercial Borrowing

FF Fire Fighting

FOD Foreign Object Debris

FAS Fire Alarm System

FROR Fair Rate of Return

GOK Government of Karnataka

HVAC Heating Ventilation and Air Conditioning

IATA International Air Transport Association

ICT Information Communication Technology

IT Information Technology

ITES Information Technology Enabled Services

KSIIDC Karnataka State Industrial and Infrastructure Development Corporation

KSPCB Karnataka State Pollution Control Board

Annexure II




LT Light Tension

MCR Microprocessor Constant Current Regulator

MOCA Ministry of Civil Aviation

MoEF Ministry of Environment and Forest

MOU Memorandum of Understanding

MTBF Mean Time between Failure

MYTP Multi Year Tariff Proposal

NAR Non Aero Revenue

NSPR New South Parallel Runway

OFC Optical Fibre Cable

OMSA Operation Management Service Agreement

PAPI Precision Approach Path Indicator

PBB Passenger Boarding Bridge

PIDS Perimeter Intrusion detection system

PLC Programme Logic Controllers

PPI Producer Price Index

PPP Public Private Partnership

PSF Passenger Service Fee

RAB Regulatory Asset Base

RBB Regulatory Building Block

RET Rapid Exit Taxiways

SCADA Supervisory Control and Data Acquisition

SITA Socit Internationale de Tlcommunications Aronautiques

SSA State Support Agreement

STP Sewage Treatment Plant

TRA Trust & Retention Account

T1 Terminal 1

T2 Terminal 2

TMRS Trunk Mobile Radio System

UDF User Development Fee

UPS Uninterrupted Power Supply

WPI Wholesale Price Index

Annexure II




1 Background and Introduction to Bangalore International Airport

Limited

The Airport Authority of India Act, 1994 was amended by the amendment Act 43 of 2003

with an object to encourage private participation and investment in Greenfield Airports by

providing managerial and financial independence and by lifting various restrictions. The

Government of India recognized the need to improve the standard of service and facilities

at the airports, and realized that the most effective way of improving services would be

to develop and/or build new airports in association with private investors.

Bangalore International Airport is Indias first privatized Greenfield airport. Bangalore

International Airport Limited (BIAL) is a Limited Company incorporated under the

provisions of the Companies Act, 1956. The main objects are to operate, maintain,

develop, design, construct, upgrade, modernize and manage airport at Bangalore.

The project is based on the Public Private Partnership (PPP) model and is structured on a

Build, Operate and Transfer (BOT) basis. The airport was commissioned on 24th May 2008

with initial capacity of 11.4 million passengers per annum (MPPA) and 3,50,000 tons of

cargo handling capacity per annum.

A Memorandum of Understanding (MoU) was signed during May 1999 between Government

of Karnataka (through KSIIDC) and Union of India (through AAI) and in principle approval

granted to Bangalore International Airport by MoCA. During June 1999, KSIIDC published

Invitation for Expression of Interest (EoI) through international competitive bidding for

Joint Venture Partners wherein 26% would be held by KSIIDC and AAI and the remaining

74% by JVPs and a steering committee was constituted for evaluation of EoI.

Subsequent to the above, various Project Agreements, as detailed below were executed:

Shareholders Agreement was signed between Bangalore International Airport Limited,

KSIIDC, AAI, Siemens Project Ventures GmbH, Larsen & Toubro and Flughafen Zrich

AG on 23rd January 2002.

Concession Agreement between Ministry of Civil Aviation and BIAL was signed on 5th

July 2004.

State Support Agreement between Government of Karnataka and BIAL was signed on

20th January 2005.

Land Lease Deed between KSIIDC and BIAL was executed on 30th April 2005

Financial closure was achieved during June 2005.

Operations & Management Services Agreement (OMSA) between Flughafen Zurich AG

(Unique) and BIAL was executed on 08th April 2005.

Annexure II




Initial Shareholding pattern at the time of commencement of Airport and the present

shareholding pattern, is detailed as under:

Shareholder Initial share-

holding (%)

Present share-

holding (%)

Private Promoters:

1. Siemens Project Ventures GmbH 40% 26%

2. Flughafen Zurich AG Ltd.

17% 5%

3. L&T IDPL 17% Nil

4. GVK Group Nil 43%

Sub-Total 74% 74%

State Promoters:

1. Airport Authority of India (GoI) 13% 13%

2. Karnataka State Industrial Investment &

Development Corporation Limited (GoK)

13%

13%

Sub-Total 26% 26%

TOTAL 100% 100%

Extracts from Concession Agreement:

A Concession Agreement for development, construction, operation and maintenance of

the Bangalore International Airport was entered into between Ministry of Civil Aviation,

Government of India and Bangalore International Airport Limited (BIAL) on 5th July 2004.

Schedule 6 (Regulated Charges) of the Concession Agreement detailed the charges that

can be levied as below:

(i) Landing, Housing and Parking charges (Domestic and International):

The charges to be adopted by BIAL at the time of airport opening will be higher of:

(a) The AAI tariff effective 2001 duly increased with WPI inflation index as set out

up to the airport opening date, or

(b) The then prevailing tariff at the other AAI airports.

(ii) Passenger Service Fee (Domestic and International):

The charges to be adopted by BIAL at the time of airport opening will be higher of:

(a) The AAI tariff effective 2001 duly increased with WPI inflation index as set out

up to the airport opening date, or

(b) The then prevailing Passenger Service Fee at the other AAI airports.

(iii) User Development Fee(UDF) (Domestic and International):

BIAL will be allowed to levy UDF, w.e.f. Airport Opening Date, duly increased in the

subsequent years with inflation index as set out hereunder, from embarking

Annexure II




domestic and international passengers, for the provision of passenger amenities,

services and facilities and the UDF will be used for the development, management,

maintenance, operation and expansion of the facilities at the Airport.

Based on the provisions in the Concession Agreement, BIAL had made various submissions

to MoCA in connection with approval of levy of UDF with valid justification for charging

Rs. 675/- for domestic departing passengers and Rs. 955/- for international departing

passengers (excluding applicable taxes) from Airport opening Date (AoD). Based on the

discussions with Ministry of Civil Aviation (MoCA), the proposal for charging of UDF @

Rs.1070/- (incl. of applicable taxes) per international departing passengers w.e.f. AoD

(i.e., 24th May 2008) was approved by MoCA on ad-hoc basis (ref:

F.No.AV.20015/003/2003-AAI dated 3rd April 2008).

Further, BIAL had made several submissions to MoCA in connection with the levy of UDF on

domestic passengers. Based on the submissions, MoCA permitted to levy a UDF of Rs.

260/-(incl. of applicable taxes) per departing domestic passenger, with effect from 16th

Jan 2009 on ad-hoc basis (ref: F. No. AV.20036/007/2008-AD dated 9th January 2009).

2 Our Approach to MYTP re-submission

This document presents Multi-Year Tariff Proposal (MYTP) for first Control Period starting

from FY1 2011-12 to FY 2015-16 for tariff determination and key results from Business Plan

from FY 2011-12 to FY 2020-21.

As detailed above, the operations and business of BIAL is governed by the terms and

conditions of the Concession Agreement (C.A.) entered into between the Ministry of Civil

Aviation (Government of India) and Bangalore International Airport Limited (BIAL) on 5th July

2004 and related project agreements. In accordance with the C.A., the regulated charges

include landing charges, parking charges, housing charges, passenger service fee (PSF) and

user development fee (UDF). The rest of the revenue items such as Aviation Concessions,

retail, commercial are classified as non-regulated charges, among others.

Further, C.A. does not provide for any cross-subsidization of non-regulated charges for

determining the tariff of regulated charges. Therefore, the financial statements and

assumptions are developed taking this approach and the details of the formats, as required

under MYTP, are presented in this document.

Considering the provisions of C.A. and the requirements of Direction 5, the financial

statements are prepared and enclosed herewith.

BIAL submitted the Multi Year Tariff Proposal in September 2011. Consequent to the

submission, traffic scenarios and projections have undergone a significant change, with the

actual traffic for 2011-12 and Projections for 2012-13 reflecting a de-growth in traffic. In view

of this, projections required review and revision with respect to the Capital Expenditure

1 Financial Year (FY) refers to year starting from 1st April and ending on 31st March

Annexure II




Plans, Means of Financing the Capital Expenditure and consequent changes in other

Regulatory Building Blocks (RBB). BIAL has carried out an assessment of these and the revised

MYTP is submitted herewith.

3 Assumptions and drivers used for various Regulatory Building Blocks

3.1 Project Cost, Regulatory Asset Base and Means of Financing

Initial Project Cost

BIAL commenced operations in May 2008. An initial Project cost of Rs. 1938 Crores relating to

the airport commissioned was capitalized on this date. Assets subsequently bought/

commissioned have been capitalized in the respective dates in the books. As at the start of

control period (1st April 2011) the Net book value of Fixed Assets was Rs.1595.7 crores. Work

in Progress carried in books as of 1st April 2011 of Rs. 97.3 Crores consists of costs incurred

towards various Maintenance Capex activities and Apron Extension which was planned as a

part of Phase 1 Project.

Of the above the WDV of assets relating to Aero business was Rs. 1300.7 Crores which has

been considered as opening Regulatory Asset Base (RAB) as prescribed in Direction 5.

Apron extension - This involves construction of parking stands for aircrafts on the

western side of the airfield, in addition to the 42 Code E stands constructed earlier. These

additional stands are being built to meet the increase in demand for night parking stands at

BIA.

The demand for overnight parking is expected to grow to 38 stands for 42 aircraft by end of

2012 as the economic situation improves. This translates to a total demand for 65 apron

stands including overnight parking, operations, diversions and contingency, as given below.

Particulars Total Stands

Current demand from Indian Carriers for overnight parking 32

Medium term demand for overnight parking 10

Current demand for international operation 13

Future demand for international operation 6

Requirement of non-scheduled, VIP, delay/diversion, technical grounding

etc. 2

Requirement of emergency operation 2

Total estimated demand 65

Annexure II




In May 2010, BIAL had entered into a contract for construction of the additional stands. The

total investment estimated for the apron extension and related works is Rs.120 Crores. The

construction is proposed to be completed in phases by Q4 2012-13.

Out of the additional 24 Code C/10 Code E stands in the West Apron, 05 temporary stands

were operationalized on 30th Sept 2011 and 4 stands operationalized on 31st March 2012. The

remaining stands are likely to be handed over by Q4 2012-13.

Projects proposed to be executed

Basis

The company has also estimated the various Capital Expenditure Projects that need to be

executed to keep pace with the growth in Passenger, Cargo and ATM estimates, during the

first control period and has projected the costs to be incurred in line with the timing of the

Capital Expenditure. Airport development activities are projected based on the Jacobs

Consultancys Master Plan Update report dated August 2011, submitted earlier, which sets out

the vision for BIAL for the next 20 years and the strategy to translate the vision into facilities

development, necessitated based on the changes in demand, Economy and the aviation

Industry.

Methodology

The capital expenditure has been indexed based on Whole Price Index (WPI) of 2.7% on a year

on year basis. Financing Allowance as prescribed in Direction 5, at the cost of debt for the

year, has been estimated and considered for capitalization.

Depreciation has been computed on assets based on the defined depreciation rates. Average

RAB has been computed in line with the guidelines, for computing return on the same at Fair

Rate of Return (FRoR)

Overview of various Projects proposed

A brief overview of different Projects proposed to be executed during the first control period

is detailed below:

1. Terminal 1 (T1) expansion - Bangalore has experienced rapid growth in passenger volumes,

and will continue to realize significant growth over the 20-year planning period. In

2011/12, 12.7 million passengers (mppa) traveled through Bangalore, versus 1.8 million

annual passengers in 1995/96. The year-on-year growth for 2010 to 2011 represents an

annual growth rate of 9%, and CAGR of 14% per year for the past 15 years. International

traffic has been the fastest growing segment, increasing from a reported 1.2 percent of

total passengers in 1995/96 to nearly 20 percent currently. Growth has been particularly

robust since 2002/03, coinciding with ongoing deregulation of civil aviation in India, as

illustrated in Figure 1.1 below.

FIGURE 1.1

Annexure II




The expansion of the existing Terminal 1 has been designed to enhance the operational

performance in order to handle, inter-alia, the increase of passenger traffic from the

current 12.7 million passengers in 2011-12 upto approximately 17 20 million passengers

per annum, until the second terminal (T2) is planned to be operational.

BIAL commenced the next phase of development, which is the substantial expansion of

the existing T1. This expansion will cater to the expected growth of passengers, until the

second Terminal (T2) is planned to be operational, as illustrated in Figure 1.2. This is

based on the current projected forecast demand for the next 4 to 5 year period, which is

the estimated time period for planning, design and construction of the new T2.

FIGURE 1.2 Source: Landrum & Brown Traffic Report dated August 2010

-

2

4

6

8

10

12

14

19

95/9

6

19

96/9

7

19

97/9

8

19

98/9

9

19

99/0

0

20

00/0

1

20

01/0

2

20

02/0

3

20

03/0

4

20

04/0

5

20

05/0

6

20

06/0

7

20

07/0

8

20

08/0

9

20

09/1

0

20

10/1

1

20

11/1

2

International

Domestic

Pas

sen

gers

in m

io

Fiscal year

Annexure II




The terminal expansion program includes an extension by three grids (72m x 24m) on the east

and west sides of T1, East pier concourse, modifications to the existing T1, airside apron

expansion, ancillary facilities, and T1 kerb side and forecourt modifications.

The area of T1 is 73,627 sqm including the basement area, and is designed for IATA Level of

Service C. The existing layout provides a more or less balanced capacity for the domestic and

international processors of the different flows throughout the terminal building.

The design standards proposed would reflect the best industry practices and operating

standards. The facilities provided would also meet all relevant IATA standards. The total floor

area is planned to increase to approximately 150,556 sqm. Additional 7 Code C / 3 Code E and

1 Code F contact positions will be added improving the efficiency and level of service by

adding an East Pier to T1.

The Terminal 1 expansion Program includes minor improvements to the existing terminal

building, utility buildings and other related improvements to add capacity to meet the

forecasted demand. As there is a desire to expand the capacity of the overall operation

including airside, landside and terminal facilities, the improvements are divided to provide

further detail. The following are the proposed improvements:-

1) Passenger Terminal Building Expansion and Modifications

2) Airside Apron Expansion

3) West New VVIP block

4) New energy centre

5) Expansion of chiller plant and utilities

6) Kerbside improvements on airside and landside

7) Terminal forecourt improvements

BIAL conducted consultation processes on the following with the stakeholders including

airlines:

a. Master Plan aviation activity forecast for BIAL on 06th May 2010

b. T-1 expansion project on 06th August 2010

c. T-1 expansion airline sign-off on 15th July 2011 and

d. Smile Bengaluru Consumer campaign from Sept 27th 2010

The project started on 01st August 2011 and is expected to be completed in phases by

March/June 2013.

2. Runway 2 including Taxiway and Apron Phase 1 and Phase 2

Bangalore has experienced rapid growth in passenger volumes, and will continue to realize

significant growth over the 20-year planning period. In 2011/12, 12.7 million passengers

(mppa) traveled through Bangalore, versus 1.8 million annual passengers in 1995/96. The

Annexure II




year-on-year growth for 2010 to 2011 represents an annual growth rate of 9%, and CAGR of

14% per year for the past 15 years. International traffic has been the fastest growing segment,

increasing from a reported 1.2 percent of total passengers in 1995/96 to nearly 20 percent

currently.

The continued robust growth in the local Bangalore and broader Indian economy are expected

to be the primary drivers of domestic air travel at Bangalore. Bangalore has a large

population base, a diverse and a high value-added economy from which to stimulate air

travel. It is assumed that the Bangalore economy will at a minimum mirror and potentially

exceed the economic growth of India as a whole, over the forecast period.

In order to predict the impact these drivers will have on aviation activity and for the Master

Plan update, a forecast update was developed by Landrum and Brown, Inc. for Bangalore in

2010. The Forecast provides the basis for establishing a long-term master plan and as such,

supports decisions related to the planning and implementation of capital and operational

improvements necessary to efficiently serve air transportation demand throughout the

planning period. The Forecast was developed through an evaluation and analysis of several

key areas such as:

Airline schedules

Indian aviation industry trends

GDP growth and econometric analysis

Comparable airport trends

Airport maturation considerations

Growth in low-fare market vs. network carriers

Master Plan

In order to meet the projected demand, a master plan has been developed to accommodate

55 mppa over the planning horizon and has been phased accordingly in line with demand. A

new runway, new terminal and associated airfield and apron works are proposed to cater to

the passenger demand. The Land Use Plan was presented to the airlines on 28 March 2011 to

keep them informed of the Plan which materialized following their input on the airports

forecast. The stakeholder briefing included discussion on the capacity challenges and

development strategy, new runway and associated airfield development, passenger terminals,

roadways and external connectivity and the airports overall land use plan.

Existing Runway and Capacity Constraints

The existing airfield consists of Runway 9-27, which is 4,000 meters long and 45 meters wide,

Taxiway A, which runs parallel to the full length of Runway 9-27, three rapid-exit taxiways

G F E B A1 A6 A

0

9

2

7

K H D

Figure : Existing Runway Configuration

Annexure II




(RETs), and one taxiway perpendicular to the runway. The existing airfield handles

approximately 26-28 aircraft movements per hour on typical busy weekdays and

approximately 32 movements per hour on special occasions. Taxiway A runs south of and

parallel to the existing runway along its entire length and provides the only means of

circulating between runway thresholds and the aircraft parking apron. An overview of the

existing layout of the Airport is provided in Figure below.

Existing Runway 09-27 Capacity

Physical and operational scenario Hourly

Capacity*

Annual capacity (ATMs)

Existing configuration under existing air

traffic control procedures

36 136,000

Existing configuration with improved air

traffic control procedures (reduced in-trail

separations and reduced departure-departure

separations)

45 170,000

Improved configuration with additional RETs

and improved air traffic control procedures

46 172,000

Source: Jacobs Consultancy analysis, January 2011

*Hourly Capacity assumes 50% Arrivals

Need for Second Runway

Aircraft operations were projected to grow from 119,033 in 2012 to approximately 550,000

operations at the 2029-30 demand level, the planning horizon considered in the Master Plan

Update. Considering the current traffic trend, a second runway, the New South Parallel

Runway (NSPR), will be required by 2017/18. The need for the NSPR was also established in

prior planning studies and confirmed again in the Master Plan Update.

3. Second Terminal (T2) Phase 1 and 2

Bangalore International Airport Limited (BIAL) became operational in 2008. The initial phase

of development included a passenger terminal building (T1), a runway, entrance/ exit

taxiways, an isolation bay, airside road system, access roads, along with other ancillary

developments. BIAL is moving into the next phase of development, under which T1 is already

being expanded to cater to the growing demand, until the second Terminal (T2) is in

operation.

As part of next phase, further development at airport is being planned, based on the updated

forecast and Master Plan, which includes a new Terminal, second Runway and associated

development. BIAL intends to develop new terminal facilities to meet the passenger demand

and has initiated the process to appoint a lead consultant for the design of the Terminal 2 and

related projects. It is anticipated that the first phase of the new Terminal 2 for 20 mppa and

Annexure II




related facilities (with provisions for future expansion to 35 mppa in Phase 2), will be

required to be operational by 2017-18.

BIAL had invited Expression of Interest from experienced, internationally reputable

Architectural consultancy firms to provide Architectural and Engineering Design Consultancy

Services for Terminal 2 (T2) and associated works at the Airport.

Maintenance Capex Projects

Maintenance Capex Projects are required to be undertaken to ensure that the existing

facilities are maintained and are geared to be able to perform till the intended useful life.

Following are the key maintenance Capex costs projected:

The major maintenance capex investments in Control Period 1 are:-

a. Disabled aircraft removal equipment - Disabled aircraft removal is a specialized activity

for which specific resources are required to ensure safety and business continuity. As BIAL

has only one runway it is critical to have the capability to remove the disabled aircraft

from the movement area. There is only one basic kit available in Mumbai for the entire

south Asia, which again is not compatible for Code F category aircraft. The procured kit

can be made available for other airports in the region on cost sharing basis. Use of this

equipment by concerned airline at BIAL will also be on rent basis.

b. Integrated crisis center cum Haj terminal To improve and provide adequate facility to

take complete command-control, coordination- communication of disaster scenarios,

resulting in efficient management of contingency.

c. Airside infrastructure mainly airfield pavement, strengthening of perimeter wall,

replacement of the runway, taxiway, approach, threshold, PAPI lamps at a time once in

three years with the past trend, replacement of polycarbonate facias of all the 70

signages after a period of 8 years, considering the upgradation from CAT I to CAT III in the

year 2017-18.It is planned for this upgradation after the NSPR comes into existence and a

stabilisation period of one year after installation of NSPR

d. Electrical and electronic system at the terminal mainly replacement of UPS batteries,

light fixtures, LT control panels, automatic doors etc

e. Software licenses and implementation mainly SAP and HR related

f. Extension of Kerbside of Terminal 1 for Passenger Services, Retail and F&B.

Following is the summary of key costs to be incurred for different projects in the First Control

period

S # Activity Name Cost proposed to be

incurred in First Control

Period Rs. Crore

1 Disabled aircraft removal equipment 8.00

2 Integrated crisis center cum Haj terminal 6.00

Annexure II




3 Airside infrastructure development 5.84

4 Terminal area infrastructure development 6.72

5 Extension of Kerbside of Terminal 1 35.00

The bifurcation of historical values of fixed assets and costs in Aero and Non-Aero is based on

the Auditors certificate issued after conducting agreed upon procedures. A copy of the

certificate has been submitted earlier. On the same basis, the projected fixed assets and

costs are bifurcated to estimate the future Aero and Non-Aero Assets.

The Aeronautical Assets, Non-Aeronautical Assets, Aeronautical Services and Non-Aeronautical

Services are as defined under Clause 1.1 and Clause 1.2 of the certificate submitted earlier.

Real Estate Development

1. Airport Business Hotel Project

The Bangalore International Airport at Devanahalli which opened on 24th May 2008 has

improved Bangalores transportation links with other Indian and international cities, and also

is becoming a major catalyst for regional economic development in Karnataka and poised to

be the Gateway to South India. A business hotel of international standards is an important

facility at each international airport.

Pursuant to the Land Lease Deed, BIAL has been granted exclusive lease hold rights to the

Project Site for aeronautical and non- aeronautical activities with the development of hotels

as one of the non-aeronautical activities expressly permitted therein.

In view of the aforesaid, BIAL intends the establishment of a premium business hotel and

conference facility at the Project site at standards compliant with international best

practices.

Pursuant to the above, various consortiums submitted their proposals against the tender

document and the consortium of EIH Limited and Larsen & Toubro Limited were awarded the

rights for design, construction, financing, commissioning, maintenance, management and

operation of the facility. A Framework Agreement for design, construction and operation of

Business Hotel facility at the New Bangalore International Airport limited was entered to by

BIAL with EIH Ltd and L&T Ltd on 16th November 2006. The Consortium incorporated a Joint

venture company, Bangalore Airport Hotels Limited under the Companies Act, 1956.

L&T had submitted an income statement in response to the tender for airport hotel which is

also part of the agreement. The original bid was for airport hotel with a height of 45 m, 321

keys and a total area of 273,404 sq.ft. Since then there has been changes in the specifications

due to reduction in building height and hence other options like reduction in rooms and also

additional land were explored.

BIAL has consented for commencement of construction by its letter dated 18th September,

2007. BIAL has issued in principle approval for lay-out and plan by its letter dated 16th

Annexure II




October, 2007. Subsequent to the execution of Framework Agreement, on 14th November

2008, the Airports Authority of India has issued a no objection certificate with a height

clearance for only 30.36 metres above ground level.

In light of these restrictions, the Consortium has expressed to BIAL its inability to continue to

develop and operate the facility in accordance with the terms of the Framework Agreement

and sought certain additional concessions from BIAL or for a settlement of the cost incurred.

After a series of discussions, since the dispute was not resolved, it was agreed to go in for

arbitration to settle the disputes and hence currently the project is on hold and is undergoing

an arbitration procedure.

BAHL has paid a security deposit of Rs. 76.5 Cr in 2006 which was reflected as a part of

liability in the Financial Statements. In view of the pending disputes, this amount is proposed

to be repaid in 2012-13.

2. Future Real Estate development

Neither real estate activity nor investment is envisaged as the business plan for real estate

has not yet been firmed up and also no investment has been made as on date.

Hence, real estate business scenario has not been considered in the MYTP and the Business

plan submitted now.

3.2 Means of Financing

Business Plan submitted proposes that Debt will be drawn down to the extent of availability

subject to meeting the defined Debt Service Coverage Ratio of 1.4 as specified in loan

agreement and Gearing Mix of 70:30 (Debt:Equity) to be maintained between Debt and

Equity, both of which are defined across the various years. Pursuant to this, the pattern of

funding of Capex Projects in the first Control period is detailed below:

Rs. Crores

Particulars Year 1 Year 2 Year 3 Year 4 Year 5

Capex cost including Interest During Construction

510.7 866.7 391.8 583.7 1585.0

Means of Financing

Debt - 862.4 51.4 - 697.3

Internal Accruals 510.7 4.3 340.4 583.7 888.7

Funding Gap - - - - -

The shareholders have indicated, vide Board Minutes dated 6th Sept 2011 that no further

Equity Infusion will be possible into the Airport and any scenario indicating Equity Infusion

requires the matter to be brought back to the BIAL Board.

Annexure II




3.3 Cost of Debt

Following are certain key components and assumptions on existing facilities, new facilities

and existing & forecast cost of debt over the proposed five year regulatory period.

Existing Facility:

Initial phase of debt funding for the base airport project was substantially through rupee

loan. Amount remaining was funded through External Commercial Borrowing (ECB) loan.

Rupee loan funding arrangement was made for Rs. 1154.3 Crores and ECB loan from ICICI

Hong Kong for $ 50 mio.

The details split of existing loan funding is provided below:

Name of the Bank Loan Availed (Rs. Crores)

Rupee Term Loan

State Bank of Mysore 221.8

Vijaya Bank 301.8

Canara Bank 280.7

Central Bank of India 250.0

Punjab National Bank 100.0

Sub-Total 1154.3

ECB Loan

ICICI Hong Kong * 207.6

Sub-Total 207.6

ICICI Hong Loan converted and presented at Exchange rate of $=Rs. 41.50

Certain key terms and conditions of existing rupee loan facilities & ECB loan are as

detailed below:

a. Existing rupee loan facilities

1. Repayment period: 10 years with a moratorium of 2.5 years

2. Repayment terms: Repayable in 30 quarterly installments commencing from 31st Oct

2010 and ending on 31st Jan 2018.

3. Interest pricing: Interest rate is driven by prevailing market conditions from time to time.

BIAL intends to arrive at a common interest rate for all lenders. However, few banks may

reset interest at different rates, and the highest interest charged by any lender at a given

point of time would be applicable to all other lenders, irrespective of their sanction rate.

4. Interest payment: Interest being serviced monthly.

5. Debt Service Reserve Account (DSRA): As per Loan Agreement, we are bound to maintain a

reserve of one quarter loan repayment amount & one month interest amount at all times

till final settlement of loans.

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6. Debt Service Coverage Ratio (DSCR) As per loan agreement, we are bound to maintain a

minimum DSCR of 1.4 till the expiry of the loan. The same will be reviewed by lenders on

a half yearly basis.

b. ECB loan:

1. Repayment period: 10 years with a moratorium of 2.5 years

2. Repayment terms: Repayable in 30 quarterly installments commencing from 31st Oct

2010 and ending on 31st Jan 2018.

3. Interest pricing: Six months libor + 150 basis points

4. Interest payment: Interest on ECB being serviced half-yearly, on 31st Jan and 31st July

every year.

5. Debt Service Coverage Ratio (DSCR) As per loan agreement, we are bound to maintain a

minimum DSCR of 1.4 till the expiry of the loan. The same will be reviewed by lenders on

a half yearly basis.

6. Debt Service Reserve Account (DSRA): As per Trust & Retention Account (TRA) agreement,

we are bound to maintain a reserve of one quarter loan repayment amount & one month

interest amount at all times till final settlement of loans.

II. Cost of debt for existing rupee loan facilities & ECB loan:

The existing cost of debt for rupee term loan & ECB loan till FY 2011-12 has been considered

as per actual borrowing rate for the respective years.

Future Expansion New Facility Requirements:

The details relevant to debt for funding future expansion (First control period- FY 2011-12 to

FY 2015-16) is covered under New facility.

Debt facility Amount

(Rs. Crore)

Proposed Rupee term loan 1611.1

Forecast Cost of Debt For existing and Future facilities:

a. Existing rupee loan facilities

The forecast cost of debt for rupee term loan has been considered on the basis of expected

borrowing cost for each of the projected years of the first Control Period. The respective Cost

of Debt values for each year of the Control Period ranges from 11.5% to 13.5% as given below:

2012 2013 2014 2015 2016

Cost of Debt (rupee loan) 11.50% 12.50% 13.50% 13.50% 13.50%

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The weighted average cost of debt for rupee term loan upto FY 2010-11 was approx. 10 %.

This is rate has been recently reset upwards by rupee lenders at 11.5%.

Observing, the increasing trend in banks base rates, change in SBI PLR by 250 basis points

(from 12.25% to 14.75%) during August 2010 to Aug 2011, a nominal increase is assumed to

forecast the cost of debt for rupee loans.

b. ECB loan

The forecast cost of debt for ECB loan for the period from 2012-13 is assumed at 10.15%. This

is assumed based on indicative cost of complete hedge as conveyed by banks.

3.4 Cost of Equity

Cost of Equity has been computed based on the Capital Asset Pricing Model (CAPM) as

prescribed in Direction 5. As per the report received from KPMG, which is detailed as

Annexure 1 herewith, the estimated Cost of Equity for the first control period under Dual till

is 28.3%.

However, in line with the earlier submission the cost of Equity has been retained at 24.4% in

this revised submission also.

3.5 Fair Rate of Return

Based on the Projected cost of Debt as detailed above, a combined weighted average cost of

debt is computed based on weighted average cost of debt of the External commercial

borrowing and rupee term loans, which forms part of overall cost of debt. Borrowing received

from Government of Karnataka, as a State Support Loan has been considered as part of Debt.

The weighted average gearing for the first Control Period is calculated based on the projected

values of debt and equity, including accruals, at the end of each year.

FRoR is computed as mentioned below:

FRoR = (WG * Kd) + ((1-WG)*Ke)

Where:

WG Weighted average gearing of debt to total debt + equity

Kd Weighted average pre-tax cost of debt

Ke Post tax cost of equity computed using Capital Assets Pricing Model (CAPM) approach

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The FRoR calculation is mentioned in the table below:

Particulars

2012 2013 2014 2015 2016

Debt (in Rs. Crore) D 1461.7 2155.0 1983.2 1726.1 2148.7

Equity, including Reserves (in

Crore) E 849.8 1197.8 1600.5 2023.8 2595.6

D+E (in Crore) C 2311.6 3352.8 3583.7 3749.9 4744.3

Kd Kd 10.71% 10.71% 10.71% 10.71% 10.71%

Ke Ke 24.40% 24.40% 24.40% 24.40% 24.40%

Individual yr gearing (G) G 63.23% 64.27% 55.34% 46.03% 45.29%

Weighted average gearing (WG) = (C*G)/(C) 53.42%

Weighted average Kd Rd 10.71%

FRoR

Effective

value 17.09%

State Support Loan has been considered as a Viability Gap funding by Government of

Karnataka. While this has been considered as Interest Free Debt in the above computation,

we request that a return may be considered on the same by the Regulator.

3.6 Depreciation

Depreciation measures the decline in the usefu

Annexure II cp 14-13-14.pdf

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