Dial ppp model v5

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Dial ppp model v5

  1. 1. DIAL- A case study of successful Public Private Partnership
  2. 2. India is expected to recapture its lost glory in the years to come…India’s share of World economy over the centuries • India’s GDP will exceed that of G6 in: – Italy – 2015 – France/UK – 2017 ~5% of – Germany – 2020 world – Japan – 2025 GDP in – US - 2045 2001 2
  3. 3. … driven by the improving per capita income 100,000 100,000 USA, $91,683 90,000 •USA, $91,683, CAGR 1.7% 90,000 80,000 Russia, $78,576 80,000 70,000 70,000•GDP per capita, USD 60,000 60,000 China, $49,650 50,000 50,000 •China, $49,650, CAGR 6.6% 40,000 40,000 Brazil, $49,759 30,000 •GDP/Capita 30,000 1033 •8X •20X 20,000 •4X 20,000 •2X 10,000 India, $20,836 10,000 •India, $20,836, CAGR 7.6% 0 0 2009 2010 2015 2020 2025 2030 2035 2040 2045 2050 Projected GDP/Capita for India will be growing by 20x 3
  4. 4. Indian economy expected to grow faster than its peers in the emerging world mainly driven by growth in the services sector Per capita income (USD) 100-500 500-1000 1000-3000 100% Community, Social & Personal Services 90% Financing, Insurance, Real Estate & 44%Contribution to GDP 80% Business Services 70% Services Transport, Storage & Communication 65% 75% 60% Trade, Hotels & Restaurant 50% 18% Construction 40% Electricity, Gas & Water Supply 30% 19% 20% 38% 16% Industry Manufacturing 10% 16% Mining & Quarrying 9% 0% Primary Agriculture, Forestry & Fishing 1950-2000 (Avg) 2009-10 2019-20 Source: GOI Statistics, CMIE • Services to lead the growth in Indian economy • Transport and communication (25%), Trade, Hotels & Restaurants (15.9%) with BFSI (15.8%) sectors will drive the Indian economy in the 2020s 4
  5. 5. Investment in Infra is expected to continue at a robust pace ... •Projected Infrastructure spending •Capacity Shortfall in Infrastructure, 2007-12 ($ Billion), 2007-12 100% Total investment over plan period: 478 Bn $ Ports 27% $16 Others 80% 42% 40% 41% $82 Power 51%Civil Aviation $193 60% $16 Highways $73 40% 73% 58% 60% 59% Railways 49% 20% $98 0% Power Telecom Airports Roads Ports ## Others include telecom SEZs, supporting infra, water & sanitation, state & rural roads, logistics, pipelines etc. Projected Gap Installed Capacity •Source: Planning Commission • There is huge opportunity for investment in Infrastructure growth in India • Even 15% of market share of the power shortfall will require an investment of USD 30 B, sufficient to meet a medium to large company’s aspiration 5
  6. 6. ... with the private sector increasing its contribution to the sector 5 year plan Total Private Sector Foreign Investment share % investment % 11th plan - USD 478 Bn. 33% 8% 2007-2012 12th plan - USD 1 Tr. 50% ? 2013-2018 Infrastructure investment to double in the next five year plan; need to increase foreign investment in the infrastructure sector 6
  7. 7. Aviation infrastructure will be driven by the unprecedented growth in demand (1/2) •Air Passengers (per thousand) 1800 Per 1000 persons 1600 1400 2008 1200 2018 1000 800 600 400 200 85 47 0 Turkey China GCC India Russia Indonesia Brazil South Korea Source: ADB, Bloomberg, GS Research 7
  8. 8. Aviation infrastructure will be driven by the unprecedented growth in demand (2/2) Passenger traffic at Indian airports 2000-2020 450 Mn 400 Mn 123 Mn 39 Mn•Historical: AAI Data•Projections: CAPA • Air passenger traffic has increased from 39Mn pax in 1999-2000 to 123 Mn pax in 2009-10 • While airlines have managed to serve additional 84Mn pax, infrastructure has struggled to cope with the increased demand. • Infrastructure to serve additional 300Mn pax by 2020 would be challenge 8
  9. 9. Investment in aviation infrastructure needs to keep pace with the projected growth of traffic• Clearly the aviation infrastructure needs to keep pace with the unprecedented growth of traffic• MOCA (Ministry of civil aviation) proposed 40000 INR Cr. (8.9 Bn $) investment to modernize Indian airports• Given the financing and execution capabilities of the private sector, PPP seems the major way forward • 4 Indian airports with ~ 50% share of Indian PAX traffic already privatized Source: Planning Commission, Govt. of India 9
  10. 10. Globally, PPP model for infrastructure development is catching up• Developing economies exploring PPP model to fund capital intensive infrastructure development - Countries in Eastern Europe and Russia are seeking investment in developing/expanding their airports through this model - African and South American nations are expected to deploy similar model for development of infrastructure• Even developed economies are exploring this option to finance their infrastructure expansion / replacement / maintenance requirements •PPP model is gaining popularity in international market, competition may become more intensive 10
  11. 11. Concessions: Indian contextOperating Concessions Indirect Financing Concessions • User Charges • Annuities • Tolls • Fuel Taxes • User Development Fees • Airport Development Fees Concessions in Indian PPP (Infrastructure)Non-Operating Concessions Context Government Financial Support • Land in lieu of development • Government Grants • Transfer of Development Rights • Government Guarantees • Property Development • Government Equity • Could be transit related Participation developments • Government Debt • Advertising Rights • Preferential Tax Treatment 11
  12. 12. DIAL is a glowing example of success of the PPP model in the Indian context •A USD 2.8 Bn project developed as a JV between GMR Group(54%), Fraport (10%), MAHB (10%) and AAI (26%) 12
  13. 13. DIAL is a glowing example of success of the PPP model in the Indian context • Terminal building with a size of 5.02 mn Sq ft which is 8th largest terminal in the world. 34 million passenger capacity. • 78 Aerobridges with 3 numbers A380 compatible which is highest in the world in a single terminal • 92 Automatic walkways (Travelators). One of the longest Automatic walkways in Asia with 118 meters at Domestic pier. • 71 elevators & 34 escalators • 5 level in-line baggage screening system with the capacity to handle 12,800 bags/hour • 28 meter high glass roof ceiling for natural lighting in to the terminal • Energy efficient and environment friendly terminal. Applied for LEED certification (Green building) in Gold category 13
  14. 14. DIAL PPP structuring - Identifying the project Traffic growth at Delhi airport 70 60 50•DIAL catered to ~21% 40 Mn PAXof Indian air traffic and was seeing 30 unprecedented growth 20 10 0 2001-02 2002-03 2003-04 2004-05 All India 40 43.7 48.7 59.5 Delhi Airport 8.2 8.8 10.2 12.8 14
  15. 15. DIAL PPP structuring - Timelines June 2003 Bidding Timelines AAI boardapproved the 2006modernization Apr 2005 Award of proposal RFP Issued contract Feb 2004 Sep 2005 Invitation for Submission of EOI for project Bids issued 15
  16. 16. DIAL PPP structuring - Defining the scopeTransaction• 30 year concession agreement with further 30 year option• Retention of all staff initially and significant numbers after 3 years • ~2400 AAI employees in 2006Infrastructure• Mandatory capital expenditure program with key projects to be completed by March 2010• PAX: 46 Mn. by 2025; Cargo: 1.5 Mn Tonnes by 2025Services• ATC would be still under the control of AAI/DGCA• First right of refusal if within 10% of best bid for any airport within 150 km 16
  17. 17. DIAL PPP structuring - transaction structure MOCA ShareholdersAgreement (SHA) JV partners AAI Operation Management and Development 74% 26% Agreement (OMDA) JVC Company Central Government State Government State Government Support Agreement (SSA) 17
  18. 18. DIAL PPP structuring - transaction structure • The AAI (Airport Authority of India) Act was amended in the year 2003 to MOCA incorporate a new section wherein the private airport operators were Shareholders granted the same right as that of AAIAgreement (SHA) JV partners AAI under the AAI Act. • Specifically section 12 A (4) grants all Operation 74% 26% Management and the function of AAI to private JVC Company Development operators. Reproduced below: "The Agreement (OMDA) lessee, who has been assigned any function of the Authority under sub- section (1), shall have all the powers Central Government State Government of the Authority necessary for the performance of such functions in State Support State Government terms of the lease” Agreement (SSA) Support Agreement (SSA) 18
  19. 19. DIAL PPP structuring - Qualify to bid Criteria Weightage Management capability, 100% commitment and value add Experience of the nominated 25% airport operator Experience of the other prime 12.5%Technical members Criteria Commitment of airport 12.5% operator Commitment of other prime 12.5% members HR approach 12.5% Transition Plan 12.5% Stakeholder and environment 12.5% management Development capability, 100% commitment and value add 19
  20. 20. DIAL PPP structuring - Qualify to bid Name of bidder Management capability Development Capability Reliance-ASA 74.8 81 GMR-Fraport 81.7 80.1 DS Construction-Munich 73.3 70.5 Sterlite-Macquarie-ADP 53.5 61.9 Essel-TAV 40.4 41.4 •All the consortiums had an Indian partner with foreign operator who brought valuable technical experience•Only GMR met the cut off criteria of 80% ; it was given the opportunity to match the highest bidder 20
  21. 21. DIAL PPP structuring - Bid Accurately Commercial Non-AeronauticalAeronautical Aero-Related Property (Terminal) Development Landing and Advertising Cargo HandlingParking Charges Charges Passenger Ground Retail and F&B Services Fees Handling •Hybrid Till Model with revenue Fuel Farm requirements from Aeronautical Flight Kitchen Car Parking charges sources subsidized by 30% of revenues from Aero-related and non-aeronautical revenues Land and Space Other Rentals concessions 21
  22. 22. DIAL PPP structuring - Bid AccuratelyName of bidder Management Development % Revenue Share capability CapabilityReliance-ASA 74.8 81 45.99GMR-Fraport 81.7 80.1 43.64DS Construction- 73.3 70.5 40.15MunichSterlite- 53.5 61.9 37.04Macquarie-ADPEssel-TAV 40.4 41.4 Bid not openedGMR given the opportunity to match the highest bidder and won the bid for Delhi airport 22
  23. 23. DIAL PPP structuring - Bid Accurately • Hybrid till Model: 30% of Non aeronautical revenues (terminal) used to subsidize return expectations • Aeronautical charges as per current rates; escalation as per building block approachKey considerations • No pass through of revenue share to AAI while bidding • Land use for commercial property development limited to 5% of total area (~250 acres) • 30+30 year concession period 23
  24. 24. DIAL PPP structuring - Financing the bidParticulars US Bn. $+ Project Cost 2.83- Funding Means Equity/internal accruals 0.55 CPD (commercial property Additional funding development) deposits requirement after (Refundable) subsidizing costs 0.33 through deposits CPD Infra deposits from CPD and Commercial (concessions) Deposits concessions Rupee term Loan 0.81 ECB 0.36 Total 2.05GAP 0.77 Additional funding to be met ADF (Tranche 1) 0.41 ADF (Tranche 2) 0.36 Tranche 2 is yet to be approved by the regulator 24
  25. 25. DIAL PPP structuring - Financing the bid Particulars+ Project Cost- Funding Means Equity/internal accruals CPD (commercial property development) deposits (Refundable) CPD Infra deposits Rupee term Loan ECB Commercial (concessions) Deposits TotalGAP • DIAL is currently charging INR 200 per domestic PAX and INR 1300 per international PAX, total collections not to exceed ceiling of USD 0.41 Bn • The receivables have been securitized to bridge the funding gap of USD 0.41 Bn ADF is a levied under the provision of AAI Act on the departing passengers of the respective airport. ADF is levied to fund/finance the cost of new airports development. This means of funding is unique to the Indian context. 25
  26. 26. Key challenges faced in developing Terminal 3Rework of masterplan within six monthsCritical timelines – to complete terminal by Mar 2010Complex engagement with large number of stakeholdersProject management 26
  27. 27. DIAL Masterplan was revised within six months of takeover. • Master Plan had to resubmitted within 6 months of signing concession agreement as per • Actual site conditions (encroachments, city sewage, operational complex, etc) • Increase in Passenger Traffic & deadline • Master Plan was made with 20 year horizon and at Ultimate Capacity Terminal T1D Terminal T3Runway 11/29 •As per the masterplan, DIAL has developed new facilities, T1D, T3 and Runway 11/29 by 27 2010
  28. 28. Key challenges during takeover by GMR from AAI • Existing AAI Employees to be taken over • Huge Cultural differences, Insecurity and hindrance to new initiatives & any ChangeKey challenges • Modernization had to take place simultaneously by taking over existingduring takeover airport operations in the domestic side as well as international side • Deficiencies in IT backup process and Disaster Recovery/Business Continuity Planning • There were multiple number of more than 100 court cases that had toTrue PPP Model handled with lot of co-ordination from AAI, MoCA, DDA, Railways Ministry which were handled in a time bound plan 28
  29. 29. Unique development strategy & mitigation of risks to meet timelines • Key principles were kept in mind: • Modular expansion to meet the incremental traffic growth • To meet the OMDA requirementsDevelopment • To meet the Traffic Forecast strategy • To optimize land use • To meet the ICAO and IATA recommendations • To meet requirements of Statutory Agencies • Comprehensive risk management measures in place • Key risks were identified: 95, of which critical were: 35 • High End software (Pertmaster Risk Analyst V8) for Risk Analysis Risk • Detailed Risk Mitigation strategy (incl. EPC contractor)management prepared for critical risks and monitored very closely for mitigation • Mitigation plans & strategies reviewed twice in a month 29
  30. 30. In the end, T3 was completed on schedule. Construction Period, Airport Capacity, mppa Floor Area, sqm monthsLondon 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 30
  31. 31. Stakeholder support was key in delivering T3 on schedule• Proactive participation among all stakeholders during design, construction and in seamless transfer of operations to T3: • The Government of India (GoI) supported DIAL at all levels: – Ministry of Civil Aviation provided guidance and facilitated clearances – Cabinet Secretary chaired National Facilitation Committee meetings to expedite issues • Regulatory agencies viz. Customs, Immigration, Central Industrial Security Force • Fuel farm joint venture partners (Indian Oil & Bharat Petroleum) • Airlines & ground handling agencies which participated in trials and gave valuable feedback to streamline processes in the new terminal 31
  32. 32. DIAL quality ratings have moved up by leaps and bounds• 101th position in 2007 worldwide out of 101 participating airports• 12th position in 2010 worldwide out of 154 participating airports• 4th position in the category of 25-40 Million Passengers per annum out of 19 airports in 2010• 9th position in Asia Pacific Region out of 35 airports in 2010 ASQ (Airport service quality) Trend 32
  33. 33. Today, T3 is helping IGIA to emerge as an international hub for the region
  34. 34. Suggested readingshttp://www.pppinindia.com/ My emailnambiar.madhavan@gmail.com 34
  35. 35. Thank You 35

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