COMPARATIVE ANALYSIS OF COCHIN AIRPORT AND BANGALORE AIRPORT

A PROJECT FINANCE PERSPECTIVE

Group 16 | Section A
Jignesh Rathod | Lalit Mohan Meena | Pratyasha Burman Ray

WHY CHOOSE PPP AS A MODEL IN INDIA

Alternative funding from private sources
Sources of fund extend beyond government and include debt, equity and quasi equity
In many cases government itself can act as a shareholder and not the principal owner(CIAL) and can function as an equity partner
Local and foreign commercial banks and export credit agencies can all act as sources of debt
Enhanced Risk allocation and mitigation
Project risks- regulatory, construction, operating and completion risks are mitigated as risks are distributed among those parties which can
handle it best
Maximisation of potential as sources of revenue
Maximising lifespan, optimising utilisation and safeguarding future development of airports by means of comprehensive phasing strategies

RATIONALE FOR PPP IN AIRPORTS

Government was the only source of funding. This limited investment to modernise the airport infrastructure
Airport and service providers held monopoly power which led to high prices for low service standards
PPP as a fast track to modernising and improving the performance of airport
PPP maximised investment efficiency in terms of risks allocation
Dual till planning for sustainable airport development. Commercial revenue profits would be significantly
enhanced through application of dual till and a large number of private airports can shift the current revenue
structure
Combination of developmental experience, operational expertise and investment capability from the
international arena and local stakeholders

CIAL
Special Purpose Vehicle: Cochin International Airport Ltd.( CIAL)
PPP MODEL
Build Own and Operate(BOO)
The government grants the right to finance, design, build, operate and maintain a project to a private
entity, which retains ownership of the project. The private entity is not required to transfer the facility back
to the government. Effectively, after the concession period, the airport is under the ownership of CIAL
PPP STRUCTURE
The CIAL is a green field airport with a BOO (Build Own and Operate
structure). The shareholding pattern is as follows
Govt. of Kerala: 13%
Central Government: 13%
NRIs, Financial Institutions, Airport Service providers and the public: 74%
QMV-CIAL
Microsoft Excel
Worksheet

CIAL-RISKS FACED AND MITIGATION STRATEGY SUGGESTED

RISK

NATURE

MITIGANT

POLITICAL RISK

As the major shareholder, the state government

had exercised its leverage over critical decisionslike appointment of CEO. Interference was also
extended to daily operational issues.

Professionalise the board and

management and invite expert opinion as
an input for decision making to improve
the quality of decisions taken

REVENUE RISK

Demand side risk : Passenger and cargo demand

would be driven by the availability of convenient
flights
Anticipated decrease in gulf demand due to the
changing employment pattern
Traditionally, overdependence exists on
aeronautical revenue

Working with airlines to offer convenient

schedules and better in-flight services
Better quality of customer service
judicious mix of aeronautical and nonaeronautical revenues.

OPERATING RISK

The airport is located in Kerala, a state known for

its high level of political activity and trade unions
Cost escalation

evolve institutional frameworks like

collective bargaining, dispute resolving
machinery and adherence to negotiated
settlement

REGULATORY RISK The time delay in acquiring international airport

status, which required up gradation of facilities,
tariff fixation(which were set by the AAI) and did
not involve cost considerations and revenue sharing

Creation of a Centralised Tariff authority,

which brings the regulatory changes and
can respond to cost considerations of
newer airports under the PPP model

BIAL
Special Purpose Vehicle: BIAL International Airport Ltd.( BIAL)
PPP MODEL
Build Own and Operate(BOOT)
The private sector designs and builds an asset, operates it, and then transfers it to the Government when
the operating contract or the concession period ends, or at some other pre-specified time. The private
partner may also subsequently rent or lease the asset from the Government.
PPP STRUCTURE
State Promoters

Private Promoter

KSIIDC

13%

Siemens

40%

AAI

13%

Unique Zurich Airport

17%

Larsen & Tourbo Ltd.

17%

TOTAL

26%

74%

After the operations started, GVK bought 12% from Zurich airport (maximum equity allowed to be sold by Zurich airport under
the agreement) and 17% from L&T after the construction phase started giving GVK 29% stake in BIAL. Later on GVK acquired
14% from Siemens making GVK the largest stake holder in BIAL at 43% equity holding.
ICICI was a lead arranger giving Rs 7.36 billion loan amounting to 50% of estimated cost. Further 20million were to be
provided commercially in case of cost over runs.

QMV-BIAL
Microsoft Excel
Worksheet

CIAL-RISKS FACED AND MITIGATION STRATEGY SUGGESTED

RISK

NATURE

MITIGANT

MARKET RISK

Demand fluctuation and

reduction in market power

In the concession agreement, Sponsors have made it

a contractual obligation under concession agreement
that no new or EXISTING airport (including old HAL
airport) shall be permitted by GOI/GOK within 150km
radius of BIAL for the first 25 years of operations of
BIAL

COMPLETION RISK

Since ICICI has agreed to give a

loan with no recourse and there
is no contractual obligation
from any party to complete the
project, there is a risk of noncompetition of the project.

ICICI has made an agreement with GoK to infuse

Rs.350cr loan in the project and have the guarantee
taken by State bank of Travancore for the same. This
would ensure commitment from the government on
the project, mitigating risk of non-competition.

SUPPLIER RISK

Poor supplier material and poor

quality of workmanship

Supplier Siemens and construction work contractor

L&T both were made part of the sponsors, thus
mitigating the stated risk.