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1
Project Structuring, Development and Financing of
Delhi International Airport
Sidharath Kapur
CFO Airports,
GMR Group, India
The views expressed in these presentations are the views of the author and do not necessarily reflect the views or policies of
the Asian Development Bank (ADB), or its Board of Directors or the governments they represent. ADB does not guarantee the
source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice,opinion, or view presented, nor does it make any representation concerning the same.
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Models of Privatization
22
Design and
Build (D&B)
D & B +
Finance (D, B
&F)
DB&F +
Maintain
(DBF&M)
DBF&M +
Operate
(DBFO&M)
D&B+Own
and Operate
(DBOO)
DBOO +
Transfer
(DBOOT)
Privatization
Ownership Govt Govt Govt Govt Private Private Private
Investment Govt Govt Govt Govt Private Private Private
Management Govt Govt Private Private Private Private Private
Private
SectorInvolvement
Subcontract
D&B
Subcontract
D & B
DBF & Asset
Maintenance
DBFM +
Operations
Own and
Operate
Own and
Operate
Own
Common Concession
Formats
Govt may retain partial
equity in SPV
Public Float,
Private Sale,
Joint Venture
Delhi International Airport a specimen of DBOOT Model
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3
Privatization Objectives - Government
Infrastructure
Required Airport Infrastructure
Milestones for Capacity Expansion
Time lines for construction
Operations
Financial and
Economic
Performance Standards
Smooth and Uninterrupted operations
Safety
Concession Fees/Equity Valuation
Government Guarantees and SupportTermination Payments
Strong Sponsors
Change of Control Restrictions
Financial Viability
Project Stability
Control and
Oversight
Regulation Framework
Change in Law
Public Interest
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4
Privatization Objectives - Concessionaire
Financial
Fair compensation to Investors for RisksCommercial Case
Reliable Business Case
Competitive Debt Financing
Transparent and Predictable Regulation that
covers Risk Based Cost of Equity and Debt Servicing
Stability
Operations
Concession Period
Long term Commitment of Government
Legal and Political Stability
Competing Airports
Government Support for Security, ATC, Services
Media and Public Perception
Cost of Operation
Independent Regulator or Concession Based Regulation
Transparent and Predictable
Commercial Expectations to be honored
Non-Utility Based Risk coverage of Cost of Equity
Ability to Service Debt
Regulation
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5
Privatization Objectives - Lenders
Bankable
Propositions
Clear Regulatory Framework
Sound and Viable Concession
Predictable Revenue Streams
Debt Servicing Ability
Compensation and Termination
Sponsors
Other Issues
Experience and Ability
Stable Shareholding structure
Financial Strength
State of Airline Industry
Direct AgreementsAbility to manage capital cost and timelines
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Delhi Transaction Agreement
66
30-year concessions agreement with a further 30 year option
A mandatory Capital Expenditure program (key projects) to be completed byMarch 2010
Massive liquidated damages for non-compliance
Objective and subjective service standards
Aeronautical charges currently as per AAI rates. In future, an independentregulator (AERA) to decide
Limiting the use of land for non-Aero purposes to 5%.
Retention of all staff initially and then of a significant number even after 3-years.
ATC would still be under the control of AAI/DGCA.
First right of refusal, if within 10% of best bid for a second airport within 150 km.
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Government Support (SSA, SGSA)
77
Passenger Service Fees Entitlement of Facilitation Component (35% of Fees)
Tariff Increase as per SSA Schedule 1 Hybrid Till
Clearances Assistance to take early clearances. Single window clearance
mechanism.
GOI Services Customs, Immigration, Security, Meteorological etc.
ROFR Right of first refusal in case of new airport within 150 km radius.
State Government Support Land availability for development, surface access
to Airport, supply of Utilities, Clearances
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Lifeline of Delhi Airport Project
8
Baseline AAI approvesmodernizationproposal
June 2003
Issue of RFPApril 2005
Start of New Dom.
Terminal Ops
April 2009
Terminal 3Commissioning
July 2010
Award of
Contract
Jan 2006
3rd Runway
Ops begin
Nov 2008
Court Case on the Bid
Decision
Feb 2006
Takeover of
Operations
May 2006
Delhi Overtakes Mumbai as thebusiest airport in India FY 2011
Supreme Court
Clearance
Sep 2006
Foundationstone &
Financial
closure for T3
Feb 2007
Intl. Terminalrenovation causing
passenger
inconvenience
2008
Upgrade of Intl. TerminalComplete
Jun 2008
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Delhi Airport Project - Highlights
9
Phase 1A Completed in mid 2008 Phase 1B Completed in Mar 2010
Phase I Phase V
Completion date 2010 2035
Pax capacity (mm) 60 100
Cargo cap. (mm tons) 0.5 3.6
Runways 3 4
PTB area (mm sqft) 5.5 17.2
Key contracts awarded
Design engineers: Mott McDonald, UK
Project management consultants:
Parsons Brinckerhoff, USA
3rd runway and Terminal 3: L&T
Terminal 3
Terminal 1D
Third Runway (4,430m)
Taxiways, fire stations, associated infrastructure
Upgrading of international terminal
New interim domestic terminal, T1D already commissioned
Terminal building (built-up area ~5mm sq fleet)
78 aerobridges
High speed rail link
Multi-level car parking (4,300 lots)
General aviation facilities expansion/upgrade of utilities
A
B
D
E
C
Existing international terminal building
New integrated terminal building (T3)
New runway
Existing domestic terminal
Land bank (250 acres)
A
B
C
D
E
Development plan overview over five phases Master development plan
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Airport Capacity, mppa Floor Area, sq m
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
Timeline Challenges
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Minimum Connect Time
Domestic/International 60 Minutes International/International 45 Minutes
90% of all Passengers served by fixed bridges
95% of Passengers wait less than 10 minutes at each ofImmigrations, Security and Customs facility
Maximum queuing time at check in less than 20 minutesand 5 minutes for Economy & Business Class respectively
95% of passengers take less than 45 minutes for arrivals
OMDA Standard Challenges
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Seating for 80% of Gate Lounge Population
Domestic First Bag 10 minutes, Last bag 30 minutes,International First bag 15 minutes, Last bag 40 minutes
Car Parking
Average time taken to find parking space 95% of drivers takeless than 5 minutes
Average time depart airport from parking space 95% of driverstake less than 5 minutes
Taxis Maximum waiting time 95% of passengers wait less than 3
minutes
OMDA Standard Challenges
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The Initial estimate was based on certain scope which has undergone many
changes thereafter because of growth in traffic and change in specifications.
For Project cost to be finalized, first we need to have all drawings in place. These
drawings would have needed anything from 9 months to a year to be finalized.
Thereafter they would have gone for bidding which could have taken anywhere up to
6 months to finalize the construction contract and the Project cost.
Since there was no time available in view of ensuing commonwealth games a
parallel build and design philosophy was adopted.
As such all the numbers shown as project cost are costs visualized at that
stage.
The initial project cost was based on limited number of drawings and was
preliminary in nature. In this scenario, unless major packages were awarded, DIAL
was not in a position to realistically estimate the project cost revisions.
Project Cost Variation
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DescriptionInitialEstimate
FirmedUp Cost
Variance
T1, T2 & initial CWIP 762 754 (8)
Runway/taxiway/apron/ lighting 1,765 2,634 869
Terminal 3 and Associated Buildings 4,669 6836 2,167
Airport Services Building & Airport ConnectionBuilding
160 160
Preliminary, Preoperative & IDC 1,279 1,320 41
Metro 350 350 -
Upfront payment to AAI 150 150 -
Rehabilitation of Runway 10-28 110 110
Delhi Jal Board infrastructure funding 54 54
New ATC Tower with Equipment 350 350
Security Capex 139 139
Total 8,975 12,857 3,882
Figures in Rs. Crores
Project Cost Variation
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Sl.No
Particulars Total Terminal 3Airside/Landside
Others
a) Area/ Volume/ Specification Variance 1,446 1015 431
b) Material Price Variation 973 705 268
c) Other Items 617 447 170
d)Addl. buildings (Airport ServicesBuilding +Airport Connection)
160 160
e) New ATC Tower with Equipment 350 350
f) Runway-10/28 Rehabilitation 110 110
g) Delhi Jal Board 54 54
h) Preliminary Preoperative & IDC 41 41
i) T1, T2 & other CWIP (8) (8)j) Security Related 139 139
Total 3,882 2,167 869 846
Figures in Rs. Crores
Project Cost Variation
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Overall Cost Parameters BKK KUL PEK LHR MAD DEL Median Result
BangkokKuala
LumpurBeijing London Madrid Delhi
Terminal Size (MPPA)
Actual Cost
Total Actual Cost (in millionUS$ and documented)
2,800.00 1,600.00 3,800.00 4,100.00 2,948.20 1,659.90 2,874.10 Second
Actual cost per mppa (inmillion US$) 62.20 64.00 88.40 146.40 $70.20 $48.80 67.10 Lowest
Actual Cost / m2 of GFA(in US$)
4,973.40 3,337.5 4,222.20 11,614.1 3,894.60 3,306.50 4,058.40 Lowest
Adjusted Cost
Adjusted Total Costs (in2008 million US$)
3,354.90 3,079.50 4,213.10 4,151.20 3,353.90 2,496.30 3,354.40 Lowest
Total Cost / mppa (in2008 million US$)
74.60 123.20 98.00 148.30 79.90 73.40 88.90 Lowest
Total Cost / m2 of GFA (in2008 US$)
5,959.00 6,423.60 4,681.30 11,759.0 4,430.60 4,972.60 5,465.80 Third
Terminal 3 is the most capital efficient and economical amongstTerminal 3 is the most capital efficient and economical amongstTerminal 3 is the most capital efficient and economical amongstTerminal 3 is the most capital efficient and economical amongst comparable Terminalscomparable Terminalscomparable Terminalscomparable Terminals
Benchmarking by Jacobs
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Particulars Financial Closure Final Amount
Equity-Shares Allotted 1,200 1,200
Equity-Share Application Money - 1,250
Internal Accruals 50 50
Lease Deposits / Trade Deposits 2,739 1,471
Rupee Term loan 3,650 3,650
External Commercial Borrowing (ECB) 1,336 1,616
Development Fee (Incl additional) - 3,620
Total 8,975 12,857
Figures in Rs. Crores
Means of Finance
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Delhi Airport: Maximizing Value Through Suitable Joint Ventures
18
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Joint Venture & Demerger
Partner with third party to off-load assets/asset creation obligation and
consequential financing burden.
JVC obligated to arrange and manage financing.
Upfront security deposit from JV.
Collected c.USD 115 mn of security deposits Vs c.USD 45 mn of investmentoutlay.
Revenue Sharing as % of Gross Sales.
USD 440 million of assets/asset creation obligation off books.
Long term valuation creation through equity holding.
19
Joint Ventures
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Funding Long & Short terms
Rupee Financing INR 36,500 million commitments
Consortium of 10 Rupee banks. Limited exposure for each bank
Moratorium of 5 years with door to door commitment of 17 years
Ease of disbursement
USD Financing USD 350 mn commitment
7 international banks in consortium of 8 banks
5 year moratorium with door to door commitment of 13 years
No disbursement for 1.5 years due to global financial meltdown
Decision to replace international banks with domestic banks for USD borrowings
Cost of borrowing increased from Libor + 175 bps to 475 bps
Short term bridge loans Gap funding to meet the ECB delay Lower financing cost @7% to 9.5%
Bullet repayment in 6 months from date of disbursement
20
Funding Challenges Putting the debt together
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Comfort to Lenders
2121
Share Pledge Agreement 30% Pledge over shares
Non Disposal of Shares and Safety
Net Arrangement Agreement
21% NDU over shares
Deed of Hypothecation First charge on all the revenues / receivables
Airport Operator Direct AgreementAssignment of Insurance Policies
First charge/assignment of all the rights;titles, permits, etc. of the Project Document
Substitution Agreement In the event of default lenders can
substitute operator with some other entity.
GOI Guarantee as per SSA GoI guarantying transfer payment shortfall
in the event AAI doesnt pay.
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Delhi Airport 2008 Credit Crunch
Early 2008
T1 & T2 under operations
Modernization and new integrated terminal T3
Under construction
World record time lines-37 months
Contracts awarded at peak in 2007
Design & Build process Cost plus
Financing tied up Dec 07 Indian &
Foreign Lenders
46% Committed revenue share
Traffic increasing at steady pace
Int Pax @9% , ATM @5.62%
No regulator in place
Land Bank of 250 acres-partly to be used for
financing modernization and expansion Airlines flourishing - New flights, destination
added
22
2008 End
Challenges on both top & bottom line Traffic declined
Real estate market crashed leading to fund
gap of $ 400 mn
ECB draw down held up $350 mn
Inflation causing project cost over runs Committed revenue share payment to AAI
Maintenance of highest service standards
irrespective of cost
Delay in DF approval
Funding Challenges 2008 Credit Crunch
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Land Monetization
Pure land monetization instead of self-development
Upfront deposit 3 times Avg. Annual Rentals vs 6 years AAI requirement
Mid 08, bid open for 45 acres land monetization
Un favorable response from market - deferred for 15 acres
Realized better rates higher by ~30%
23
Asset Areas
Area in
acres
Advance Lease Deposit
USD Mn
First Round 30 186
Second Round 15 134
Total 45 320
Land Monetization
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DF approval by Government to fill funding gap from funding from Land monetization
Separate revenue stream securitized to bridge financing gap without impacting long
term debt/equity or DSCR.
Consortium of 7 Indian banks
Repayment of securitized loan from DF collections
24
Passenger type Tickets purchased in INR
(including taxes & levies)
Domestic Sectors INR 200 per departing pax
International Sectors INR 1,300 per departing pax
Period 36 months effective 01 Mar 09
Aggregate Amount ~ USD 400 mn first tranche
(NPV basis)*
Delhi-Securitization of Development Fee (DF)
*Second tranche of DF is pending regulator approval
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Delhi Airport: Creating world-class capacity forIndias busiest airport
25
Land side facilities
168 check in counters
Multilevel Car Park Facility for 4,300
cars & Surface Parking 2300 cars
Retail area of 30,000 sq. m
Air side facilities
75 Aerobridges
48 contact stands
9 remote parking stands
Brief project overview Financing (USD bn)
Key recent developments
Concession period of 30 years + option for
another 30 years at the option of DIAL
45.99% revenue share with AAI
5,100 acres of total land available for
operations and development
ROFR till 2036 for a second airport within 150
kms of the existing airport
ROFR with the existing consortium partners in
case of exit by an existing partner
54.0%26.0%
10.0%
10.0%
T3 key project features
Completion of Phase IA ahead of the planned schedule
Construction of Terminal 1D, and up gradation of 1C, 1D & T2
completed
Longest runway in the country
New runway (CAT 3B lighting for landing at 50m visibility, can
accommodate A380s) and taxiways completed 6 months ahead of
schedule
Phase-IB: Development of New Integrated Terminal (T3) complete
Installation of aerobridges, travelators, baggage handling and
cooling systems completed
Contracts for duty-free/retail awarded for T3; other major non-
aero contracts awarded
Consortium partners
Airport Capacity Time
Changi Airport Singapore
(T3)
22 Million 76 months
Heathrow T5 L ondon, UK 25 Million 60 months
Beijing Airport New terminal
for Olympics T3, China
45 Million 60 months
IGI Airport T3, New Delhi,
India
34 Million 37 months
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Operational Challenges
2626
Challenges Mitigation
Loss of Job for govt. employees Retention of all staff initially and then of a significant
number even after 3-years
To get in sync over 50 agencies MoCA, AAI, BCAS, DGCA, Airlines, Electricity, Water,Environment, Health, CISF, DDA, NHAI, HUDA, Cargo,
Customs, Cargo, Agriculture, Oil Cos., Metrological etc.
SLAs with govt. operated
activities like ATC, Customs,
Security
Educating and accounting various organization.
Winning the trust
Negative perception of Joint
Ventures
Educating of OMDA rights
Educating of global practices
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Operational Challenges:Constant endeavor to improve passengers experience
27
Commercialoperations from
T1D begun in
April, 2009
Commercial operations
from T3 Internationaloperations from Jul10 &
domestic operations from
Nov10
DIAL received accolades from GoI & travelers for efficient airport operations
during evacuation of Indian nationals, many without valid travel / citizenship
documents, from Egypt & Libya
ASQ Score
Ranked 101st
(out of 101) in 2007ranked 12th
(out of 154) in 2010airports worldwide
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