Background – A bit about Indian Aviation Sector

With the opening of Indian airspace to private and international operators, the existing airport
infrastructure in the country proved to be inadequate to cope with the unprecedented growth in
traffic and cargo. The Ministry of Civil Aviation (MoCA) in 2006, projected a requirement of
an additional Rs. 40,454 crores to augment and modernize existing airports as also to construct
new Greenfield airports. The revenue surplus generated by Airports Authority of India (AAI)
was found to be grossly inadequate to meet this requirement.

The quality of airport infrastructure contributes directly to a country's international

competitiveness and economic growth by facilitating the smooth movement of people and high
value cargo, while spurring trade and tourism. Increased air connectivity also enables
manufacturing enterprises to exploit the speed and reliability of air transport to ship
components across firms that are based in different and distant locations thereby minimising
the inventory cost. Countries with better connectivity are also regarded as more successful in
attracting Foreign Direct Investment (FDI).

The traffic at Indian airports has been growing in all three segments- passenger, freight and
aircraft movement. Air passenger growth rate in India has been one of the highest in the world.
During the 12th Plan period (2012-17), the domestic passenger throughput is projected to grow
at an average annual rate of about 12% to reach 209 million by 2016-17 from about 122 million
in 2011-12. Similarly, international passenger throughput is estimated to grow at an average
annual rate of 8% during the Twelfth Plan period to reach 60 million passengers by 2016-17
from a level of 41 million in 2011-12. During the Twelfth Plan period, the domestic and
international cargo is projected to grow at a rate of 12% and 10% respectively to reach 1.7
MMTPA and 2.7 MMTPA respectively by 2016-17.

It has been observed that air transport generally grows at a rate which is about twice the GDP
growth rate. During the last three years (2009-10 to 2011-12), the total passengers handled at
the Indian airports grew at a compound annual growth rate (CAGR) of 14.2%, comprising a
growth rate of 8.9% in international traffic and 16.3% in domestic traffic. The freight traffic
handled by Indian airports increased at a CAGR of 8% during the last five years (2007-08 to
2011-12) to reach 2.28 MMTPA by 2011-12. International cargo, which accounts for two-
thirds of the total cargo handled, is mainly concentrated at the metro airports of Mumbai, Delhi,
Chennai, Bengaluru and Hyderabad. During the 11th Plan period, these international airports
witnessed the entry of several leading domestic and global cargo operators in the private sector.

The factors contributing to air traffic growth in India are entry of low cost carriers, higher
household incomes, strong economic growth, increased FDI inflows, increasing tourist travel,
rising middle class population, increasing competition, untapped market, increasing business
travel, increased cargo movement and supportive government policies. This rise in air traffic
growth needs to be supported with infrastructure development at airports which require large
investments. The Government had acknowledged the infrastructure deficit and invited private
sector participation to accelerate development of airports. Four metro airports at Delhi,
Mumbai, Bengaluru and Hyderabad have been redeveloped and modernised through PPP. The
investments made in these four airports during the Eleventh Plan period (2007-12) are given in
Table below:
In January 2000, the Cabinet approved the restructuring of airports through the long term
leasing route. Later, however, in September 2003, the Cabinet approved the restructuring of
Delhi and Mumbai airports through the Joint Venture mode. In pursuance of this decision, after
selection of the JV partner, AAI incorporated a subsidiary company viz. M/S Delhi
International Airport Pvt. Ltd (DIAL), and subsequently sold 74% of the shares of DIAL to the
JV Consortium. On 4 April 2006, in the capacity of the state promoter, AAI signed an
Operation Management Development Agreement (OMDA) with DIAL. The AAI handed over
IGI airport, Delhi to DIAL on 3 May 2006 on ‘as is where is' basis and granted DIAL the
exclusive right to undertake functions of operations, maintenance, development, design,
construction, modernization, finance and management of the Airport.

On 26 April 2006 Government of India signed another agreement with DIAL viz State Support
Agreement (SSA). The agreement laid down conditions and nature of support to be provided
by Government of India, along with the mutual responsibilities and obligations between
Government and DIAL.
During the course of audit, Ministry of Civil Aviation informed Audit:

“The decision to restructure and modernize Delhi Airport is a policy decision of the highest
body i.e. the Cabinet. The terms and conditions as well as the modalities of modernization/
restructuring as mentioned in the transaction documents were finalized and approved by the
EGOM. It is further clarified that there has been no change in the finalized transaction
documents. Several issues such as JV route, leasing of land /assets, Concession Period, Right
of First Refusal (ROFR) etc. are policy decisions of the Cabinet based on expert inputs in
formulation and inter- ministerial consultation. Hence these policy decisions should not be
brought into question at this stage through audit observations.”

Admittedly, the decision to adopt the joint venture route is a policy decision. Audit
acknowledges the sole prerogative of the Government to take such policy decisions. This audit
exercise, on the other hand, has been restricted to operationalization of the decision of the Joint
Venture mode. The terms and conditions as agreed to in the transaction documents do not fall
in the domain of the policies though they have been approved by the empowered group of
ministers.

It is acknowledged in this report that there have been significant improvements in services at
the airport for the travelling public. The new terminal T3 was completed within time for the
Commonwealth Games. The airport has been adjudged as the second best in the world in the
category of 25-40 million passengers per annum by Airports Council International.

As per the agreement relating to revenue share with AAI, DIAL is to pay 45.99 per cent of its
gross revenue. Accordingly, DIAL paid Rs. 271.98 crores in 2006-2007, Rs. 402.72 crores in
2007-08, Rs. 445.63 crores in 2008-09, Rs. 538.92 crores in 2009-10 and Rs. 577.26 crores in
2010-2011 to AAI.

Our observations pertain to operationalization of the JV mode and implementation of the

OMDA and SSA. In the course of audit, we have also tried to assess whether during the
conceptualization and implementation phases, the interest of Government and the revenue
accruing to it has been protected. The decision to enter into a joint venture to develop and
manage Indira Gandhi International Airport is a first of its kind. The present audit report thus
should be viewed in terms of lessons learnt for future guidance.

It is to be noted that at the time when OMDA and SSA were being considered and finalized,
no regulator was in place. The SSA in fact records the intention of the Government to establish
an independent Airport Economic Regulatory Authority (AERA). The AERA Act establishing
such an authority was passed in December 2008. The Act came into force on 1 January 2009.
The powers and functions of AERA, which are contained in Chapter III of the Act came into
force on 1 September 2009.
Delhi International Airport Pvt. Ltd. - A Glance

Delhi International Airport Private Limited (DIAL) is a joint venture consortium of GMR
Group (54%), Airports Authority of India (26%), and Fraport & Eraman Malaysia (10% each).
GMR is the lead member of the consortium; Fraport AG is the airport operator in Frankfurt
Airport, Germany, Eraman Malaysia - the retail advisors. DIAL entered in to an Operations,
Management and Development Agreement (OMDA) on April 4, 2006 with the Airport
Authority of India (AAI). The initial term of the concession was for 30 years extendable by a
further period of 30 years. On 3rd July, 2009, a new world class integrated passenger terminal
(Terminal 3) was commissioned. The first phase of the airport was designed and capable to
handle 60 million passengers per annum (MPPA). In subsequent stages, the airport will be
further developed with an ultimate design capacity of 100 million passengers per annum. As
per ACI, ASQ rating IGI ranked No.2 next to Incheon Airport (South Korea) in its group
Airports ranging up to 35 million Passenger movements.

Share Holding Pattern of DIAL

50.1%

26.0% 74.0%
10.0%
10.0%
3.9%

Public: Airport Authority of India Private: GMR Group

Private: Fraport AG Private: Malaysia Airports
Private: India Development Fund

DIAL also entered a consortium agreement with M/S Cargo Service Center (CSC) (74%) &
DIAL (26%) during 2009 and also formed a JV Company named as Delhi Cargo Service Center
(DCSC). One of the crucial contributors include, Mr. Pradeep Panicker who is currently a Vice
President and Chief Commercial Officer at Delhi International Airport (P) Limited. He was a
key person involved in the bidding process of Delhi airport right from its initial stage and won
the bid for modernization of Delhi airport in January 2006. He was also the key relationship
officer with consortium partners FRAPORT, MAHB & AAI. He had represented DIAL JV in
various domestic and international forums on the strategy and benefits of Public–Private
Partnership (PPP) model in India. He was actively involved in the formation of Association of
Private Airports Operators (APAO) in India, a forum taking up various issues with the Govt.
Agencies (MoCA & AAI).

Project Timelines
November 2005:

Two bidders GMR-Frapot and Reliance-ASA were shortlisted by bid evaluation committee. A
group of eminent technical expert led by Dr. Sreedharan was made to take the final decision

January 2006:
GMR-Frapot was awarded the tender to operate, manage and develop the Indira Gandhi
International Airport (IGIA), Delhi

April 2006:

DIAL entered into operations, management and development agreement (OMDA) with Airport
Authority of India (AAI)

Project Brief
 Delhi International Airport (DIAL) is a joint venture consortium of GMR Group (64%),
Airports Authority of India (26%) and Fraport (10%).

 In March 2010, DIAL completed the construction of integrated passenger terminal

(Terminal 3). The first phase of the airport is designed and capable to handle 60 million
passengers per annum (MPPA). This development was the first phase of the airport
expansion.

 In subsequent stages, the airport will be further developed with the increase in passenger
demand and more terminals and runways would be added in a modular manner to form a
U shaped complex with an ultimate design capacity of 100 million passengers per annum.

 The initial term of the concession is 30 years extendable by a further 30 years. The contract
was on BOOT (Build, Own, Operate, and Transfer) basis.
IGI Project – Design Build Approach
 IGIA – Terminal 3 used the Design build approach which is most common for public
works

 Owner selects a single firm (or consortium) to perform both design and construction under
a single contract

 Benefits of Design Build approach - Reduced owner risks, accelerated schedule, lower
costs, clear accountability and responsibility, reduces conflicts and litigation, and
improves design and construction efficiency

Economic Impact of Delhi Airport

Contribution to Indian and regional GDP
Delhi airport’s operations contributed in (2009–10) Rs 294.7 billion (0.45 per cent) to the national GDP
and its contribution relative to Delhi’s GSDP is 13.53 per cent. The total comprises of:
 Rs 42.9 billion directly contributed through value added (air transport and airport services)
 Rs 77.2 billion indirectly contributed through supply chain (multipliers impact).
 Rs 174.6 billion in induced impact through tourism and investment.
By 2020, the overall economic impact of Delhi Airport is expected to be approx Rs 909.5 billion, which will
be 0.7 per cent of the National GDP and relative to Delhi’s GSDP would be 22.2 per cent.
Delhi airport’s construction sector contributed INR 68.23 billion (0.104 per cent) to the national GDP (in
2009–10) and its contribution relative to Delhi’s GSDP is 3.13 per cent. This is a one-time impact which
includes one-third of the total project cost. The total impact of the construction phase would, therefore,
be three times this estimate but spread over three years. This total impact of construction phase in a year
comprises of:
 INR 25.7 billion directly contributed through value added.
 INR 42.6 billion indirectly contributed through supply chain (multipliers impact).
Contribution to Employment
Delhi airport’s operation sector contributes 1578 thousand jobs (0.34 per cent of national employment)
and this represents as a ratio to Delhi’s employment a significant 25.9 per cent. The total comprises of:
 64 thousand directly contributed jobs.
 452 thousand indirectly contributed jobs through supply chain (multiplier impact).
 1062 thousand jobs in induced impact through tourism and investment.
Delhi airport’s construction activities contributed total 614 thousand jobs in each of the three years of
construction phase. This total comprises of:
 35 thousand directly contributed jobs.
 579 thousand indirectly contributed jobs through multiplier effects.
Operations Phase

Gross Value Added

Output (INR Bn) Employment % GDP %Employment

Operations

Total Impact 491.2 294.7 1577.7 0.45 0.34

Induced Impact 291 174.6 1061.6 0.27 0.23

Direct and Indirect 200.2 120.1 516.1 0.18 0.11

Direct Impact 71.5 42.9 64.974 0.07 0.01

Airport Transport 49.28 29.57 33.956

Airport Services 22.22 13.33 30.118

Indirect 128.7 77.2 451.126 0.12 0.10

I-O table multiples 2.8 0.722

Employment Value Added

Direct Impact
Direct Impact Indirect Impact Indirect Impact
Induced Impact Induced Impact
Construction Phase

Value
Gross Added(INR
Output Bn) Employment % GDP %Employment

Total (Direct and Indirect) 113.8 68.3 614.1 0.10 0.13

Direct Impact 42.86 25.71 35 0.04 0.01

Indirect 70.94 42.59 579.1 0.07 0.12

I-O table
multiples 2.655 1.433

Value Added Employment

Direct Impact Direct Impact

Indirect Impact Indirect Impact