The Airports Authority of India was and largely is the sole air traffic service provider for the air space in the country covering an area of 2.8 million square nautical miles of land mass and the adjoining oceanic area as recognized by International Civil Aviation Organization (ICAO). There are 115 airports in the country including 22 civil enclave of Defence airfields as on 31 March 2011.
The existing airports were inadequate to contain the growth in the air traffic and cargo. This led to congestion in all airports especially the ones in metro. What the country required was the expansion and modernization of existing airports to handle the passengers, traffic and cargo. Ministry of civil aviation projected a requirement of rupees 40454 crores to modernize the existing airport structures.
BACKGROUND OF THE JOINT VENTURE:
Delhi terminal 3 was constructed as the attempt to improve the infrastructure of the Indian aviation sector as there is an unprecedented growth in the industry with the airspace being open to international operators. The airport's authority act of india,1994 was amended to enable the setting up of private airports. After 2004, the government of India gave the approval for private partners to upgrade, modernize and develop the airports especially Delhi airport and Mumbai airport. Under competitive bidding, the Airport Authority of India (AAI) formed a subsidiary company DIAL(Delhi International Airport Limited) after the selection of the bidder. GMR group, a Bangalore based global infrastructure was awarded the bid to operate, maintain, develop, design, construct and modernize the airport.
DIAL is a joint consortium by GMR group which holds the majority of the shares almost 54%. The other members of the consortium were AAI, IDF (Indian development Fund), Fraport and Malaysian Airports. DIAL entered into Operations, Management and Development Agreement(OMDA) on 2006 with AAI. The initial term of concession was 30years extended by 30years. The airport authority of india retained 26% of its shares and leaving the rest to the other consortia members. As per schedule, a new parallel runway and an international/domestic terminal design and development was to be finished within 2 years well before common wealth games that was scheduled to take place in October 2010.
PUBLIC PRIVATE PARTNERSHIP MODAL:
Public private partnerships are arrangements where private groups participate in providing public based services. Private sectors participate, support and fund the public infrastructure. Developing countries use public private partnership to fund mega projects related to expansion of infrastructure. In Indian scenario there are a few concessions
Operating concessions:
-user charges
-tolls
-user development fees
-airport development fees
Indirect financing fees
-annuities
-fuel taxes
Non operating concessions
-land in lieu of development
-transfer of development rights
-property development
Advertising rights
Government financial support
-government debt
-government equity participation
-government guarantees
-government grants
-preferential tax treatment
GMR-Fraport was selected as it had fulfilled the cut off criteria of 80%. It had management capability of 81.7, development capability of 80.1 and 43.6 % of revenue share.
DESCRIPTIONS OF THE TRANSACTION DOCUMENTS
Before physical handing over the Indira Gandhi International Airport to the Joint Venture Company GMR and consequent to the decision, a number of agreements were signed among the concerned parties. These documents determine the terms and conditions of the handing over. It is to be noted that when these agreements were signed, the Regulator, namely Airport Economic Regulatory Authority (AERA) was not in existence. Therefore they contain provisions relating to areas like tariff fixation for aeronautical services, which came under the domain of decision making of the regulator after the establishment of AERA.
Operation, Maintenance and Development Agreement (OMDA) -4 April 2006
This agreement is the most important document along with the state support agreement. They form the soul of the Public Private Partnership in Indira Gandhi International airport. Signed between Airport Authority of India and DIAL, this comprehensive agreement lays down the obligations and responsibilities of both the parties, the terms of revenue sharing and duration of the concession, conditions of assets transfers at present and in future, terms and conditions of land transfers etc. OMDA in Schedules 5 and 6 defines aeronautical services and non-aeronautical services. DIAL was free to fix tariff for non-aeronautical services and government of India and later, the regulator of AERA had the responsibility of fixation of tariff for aeronautical services. OMDA also allowed DIAL to outsource any services.
State Support Agreement (SSA) -26 April 2006
It lays down the responsibilities and obligations of the Government of India and DIAL in their respective domain and to each other. The principles of tariff fixation for aeronautical services were also laid down in schedule 1.
State Government Support Agreement (SGSA) -26 April 2006
In matters related to removal of violation, procurement of additional land for development of airport, removal of obstruction outside the airport boundary to ensure safe and efficient air traffic movement, improve the surface area access to the airport and to provide all the utilities on payment basis to DIAL, the state government should provide its full support to DIAL. The SGSA also provided for assistance in procuring various clearances which are required by applicable law for undertaking and implementing the project as mentioned in OMDA.
Lease Deed Agreement-25 April 2006
The agreement was signed between AAI and DIAL to preterm the conditions of the lease. Lease of the demised premises on "as is where is basis" was on an annual lease rent of 100/- initially for a period of 60 years in which 30 years are extension of the concession period. The demised premises include all the buildings, construction or immovable assets, if any on the premises as described in the agreement with the liberty to construct, erect, renovate, alter or otherwise deal with the leased Premises.
Communication, Navigation and Surveillance (CNS)/Air Traffic Management (ATM) Agreement-25 April 2006
This agreement was between AAI and DIAL to provide air traffic services support at the airport as AAI is authorized to provide necessary air traffic services within Indian air space and at all civil airports in India.
Shareholders Agreement-4 April 2006
This agreement was between AAI and DIAL and other participants where Shareholders Agreement recorded the terms and conditions to govern the relationships with the shareholders of the JVC.
Airport Operator Agreement-1 May 2006
This agreement was signed between DIAL and Fraport AG Frankfurt Services Worldwide to provide airport services. This agreement was necessary as DIAL is required to enter into an Airport Operator Agreement with the Airport Operator (AO) who is a member of the consortium (nominated if more than one AO are in the consortium) according to schedule 8 of OMDA. The agreement contractually set out the role, responsibilities, accountabilities and financial arrangements between the AO and DIAL..
THE OVERALL DEVELOPMENT OF DIAL:
The delhi airport is being developed in the following contractual structure
http://4.bp.blogspot.com/-BmJ54ntJmb8/TdFfmyeiv0I/AAAAAAAAADk/5OCU270dBoQ/s640/dial.jpg
The joint venture companies represent and warrants to the AAI that on the date hereof and as on the Effective Date:
(a) the JVC is a private company limited by shares which are incorporated under the laws of India . They have been properly constituted and are in continuous existence since incorporation;
(b) the JVC has the corporate power and authority. It has taken all corporate actions necessary to execute and deliver validly and to exercise its rights and perform its obligations validly under this Agreement;
(c) the obligations of the JVC under this Agreement will be legally valid, binding and enforceable obligations against the JVC in accordance with the terms.
(d) no proceedings against the JVC are pending or threatened. There should not be no fact or circumstance exists which will give rise to such proceedings that would adversely affect the performance of its obligations under this Agreement;
(e) the JVC is a special purpose company incorporated only for the purpose of operating, maintaining, developing, designing, constructing, upgrading, modernising, financing and managing the Airport;
FINANCIAL STRUCTURE:
The financial split of DIAl was in the following manner
Shareholder
Percentage of shareholding
GMR infrastructure
30%
GMR energy Ltd
10%
Fraport AG Franfurt Airport Services worldwide
10%
Malaysian Airports
10%
GVL Investment Pvt Ltd
9%
AAI
26%
Indian development fund
3.9%
KEY FEATURES OF FINANCIAL STRUCTURE:
Total expenditure of the project is rupees 12857 crores of which rupees 12507 crores were admitted by AERA by levy of DF.
The promoter's equity is 19%(rupees 2450 crores) of which 26% (rupees 637 crores) was contributed by AAI and 74% (rupees 1813 crore) was contributed by other partners.
5266 crore (42 per cent) have come from loans and 1471 crore (12 per cent) has come from Security Deposits.
While, only 50 Crore has come from internal accruals, 3415.35 crore (27 per cent) have come from Airport Development Fees charged on the passengers.
In Indira Gandhi International Airport, the contribution of internal accruals has been the barest minimum. It was only 50 crore.
The company had entered into interest rate swap agreements from floating rate of interest rate of interest against its foreign loan. The purpose of this was to hedge the variable interest outflow on external commercial borrowing. The swap to pay fixed rate of interest are mentioned below:
ECB AMOUNT(US$)
INTEREST RATE
100 MILLION
4.99%
75 MILLION
2.76%
25 MILLION
1.98%
150 MILLION
1.96%
SOURCES OF FUNDS:
Share holder's funds:
Share capital-
authorised 3,000,000,000 equity shares of Rs 10 each
issued, subscribed and paid up-2450000000 equity shares of Rs 10 each fully paid up
out of which 1,323,000,000 equity shares, fully paid up are held by GMR Infrastructure Ltd, the holding company, along with its subsidiaries
reserve and surplus
profit and loss account
secured loans
Term loans from
Banks
External commercial borrowings
Financial institutions
Unsecured loans
Short term loans from banks
Deferred tax liability
Application of funds:
Fixed assets
Intangible assets
Investments
Current assets, loans and advances
LIST OF SOURCES OF SECURED LOANS:
Axis liquid fund-institutional-growth
Birla sunlife cash plus-institutional-growth
HDFC cash management fund-treasury-advantage growth
HDFC liquid fund premium plan-growth
IDFC cash fund-super institutional plan
ICICI prudential flexible-income growth
ICICI prudential liquid fund-growth
SBI insta cash fund
UTI Asset management-liquid cash-fund
IDFC money manager fund-treasury plus growth
Kotak liquid institutional plan growth
Reliance liquidity fund growth plan
Franklin templeton india treasury management account- institutional plan-growth
SBI MICF cash plan growth
SBI premium liquid fund growth
Tata liquid super high Institutional Plan
Axis Treasury Advantage fund institutional-growth
Birla sunlife short term fund-institutional plan growth
DSP blackrock liquidity fund-institutional plan growth
Allahabad bank
Andhra bank
Bank of baroda
Bank of india
Canara bank
Central bank of india
Corporation bank
IDBI bank
Punjab National bank
State bank of india
United bank of india
Oriental bank of commerce
KEY FEATURES OF THE PROJECT:
Dispute of the land:
Of the equity contribution of Rs 2,450 crore, the private consortium's share was Rs 1,813 crore. Delhi International Airport Ltd got a brownfield airport with commercial rights of land valued at Rs 24,000 crore in addition to a potential earning capacity according to its own estimates of Rs 1,63,557 crore. 4,608.9 acres of land was leased to DIAL on a highly concessional annual lease rent of Rs 100. An additional 190.19 acres of land was leased to DIAL, thus bringing the total demised premises at 4799.09 acres. Even the demised premises were leased out at ` one hundred annually to DIAL. For 190.19 acres a onetime fee of ` 6.19 crore was also levied on DIAL.
Air development fee:
The estimated cost for building of the terminal 3 increased from Rs 8,975 crore to Rs 12,700 crore during the 37 months. In March 2009, the civil aviation ministry allowed the operator to collect an Air Development Fee for 36 months, to recover an estimated Rs 1,827 crore. This was termed as a viability gap funding. It was decided that Delhi International Airport Ltd (DIAL) should be able to impose an airport development fee (ADF) for another three and a half years or till the end of 2015. Based on an earlier estimation of the investment required for the airport, the government of India had given permission to impose ADF up to March 2012 (or three years). Each domestic passenger flying out of Delhi is being charged Rs 200 and international passengers Rs1, 300. Of the 70,000 passengers Delhi airport caters to in a day, around half are departures.
FINANCIAL CHALLENGES IN PPP:
Though Governments have always been motivated to enter into PPP arrangements as they reduce debt they constantly are under pressure to improve and expand public facilities. However, the impression that PPPs are the only feasible way of delivering the public infrastructure and the services is exaggerated, as PPPs still draw on public funds when user charges do not cover the cost of services with the only difference being the public payments are made over a very different time frame. The government enters into a contract to purchase infrastructure and related ancillary services over time from the private sector instead of owning it when infrastructure is provided under PPP. These operating payments must cover operating costs as well as giving the service providers a return on risk capital, therefore a project delivered under a partnerships approach will have a similar (although not identical) effect on the government's annual operating surplus to that if the asset was publicly funded. In PPPs the public sector require a larger operating expenditure over time to purchase the services but little or no upfront capital expenditure. Contrastingly, the public asset approach requires a large Upfront capital funding commitment and relatively lower operating expenditure over time. Thus the PPP route may on these grounds hold some attractions to a government with a backlog of infrastructure projects and facing an uncertain fiscal climate. But the major merit is in terms of the predictability of costs and funding. A PPP provides budgetary predictability over the life of the infrastructure and reduces the risks of funds being diverted (for example, away from scheduled refurbishment) during the life of the project, impacting on residual value risk to the asset.b)
Financial Risks of PPP:
The financial parameters may change prior to the private party fully committing to the project, adversely affecting price.
The financiers (debt and equity) may not continue to provide funding to the project.
The structure of the financing may not be sufficiently strong to provide fair returns to debt and equity over the life of the project, which questions its continuing viability.
Financial risks faced by DIAL project:
DIAL came under the controversy of being named as "over engineered". During the construction more floor space was constructed deferring from the master plan due to which there was a major difference in the total expenditure. Almost rupees 750 crores was the estimated increase in the cost which raised mainly due to the expansion of the floor space than originally approved apart from other additions like construction of ATC new tower, rehabilitation of runway, payment to Delhi Jal board etc . This shows that the project plan was not taken seriously which increased the finance. The passengers were charged airport development fee which was described below for the additional expense.
Though the airport was a world class airport the project cost was not supervised and approved by any government agencies. Therefore DF was levied the extra cost charge.
