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GMR Hyderabad International Airport Ltd.
(GHIAL)
Tariff Filing Presentation to AERA
December 19, 2012
Annexure III
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GMR Hyderabad International Airport Ltd. (GHIAL)
GHIAL is a PPP Enterprise for building & operating Rajiv Gandhi International Airport, Hyderabad, with the following equity participation
63% 11% 13% 13%
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Contents of the presentation
1 Introduction
2 Basis of tariff filing
3 Historical Losses
4 Cost of Equity
5 Cost of Debt
6 WACC/FRoR
7 RAB and Rationale for Inclusions in RAB
8 Depreciation
9 O & M
10 Taxation
11 Traffic Forecast
12 Non- Aero Revenues
13 Aggregate Revenue Requirement
14 Detailed Fuel Farm Filing.
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Introduction
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• Jhjhjh 2001
GMR selected as preferred bidder
2003 Signing of Shareholders, State Support and Land
lease agreements
2004
Rehabilitation completion and acquisition of land Signing of Concession
Agreement
2005 Foundation stone laying
ceremony Financial Closure
First Concrete Pour
2006 &2007
Award of various concessions
2008 Commencement of
Operations at 00:01 hrs on 23rd March
2010 Best Airport in the world
for 2009 (ACI)
Significant Milestones Annexure III
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Benefits to Passengers and Airlines 1/4
Better Infrastructure
• Terminal Building - 117,000 sq.m
• Integrated Terminal building for quick transfer of
connecting passengers and ample seating.
• 4 Inclined Baggage carousels & 46 Immigration
counters
• 42 aircraft parking stands,12 boarding bridges
• 30 Escalators and 32 Elevators
• Several international and domestic F&B and Retail
outlets
• Free Wi-Fi, Free Buggy Service, Barrier-free access
for elderly and physically challenged.
• Adjacent car park for >3500 cars
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Secured Environment :
24X7 CCTV monitoring of entire airport,
24X7 available medical services
24X7 help-desk
Transportation Convenience :
Radio Taxi, Pre-paid Taxi, Rental Cars,
Aero-Express, AP State Buses,
Free Shuttle to passenger transportation
centre.
Better connectivity from nearby cities
through APSRTC buses.
Connectivity Convenience – 2 Entry points
to Airport from State and NH.
Benefits to Passengers and Airlines 2/4 Annexure III
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Benefits to Passengers and Airlines 3/4
Multiple Lounges including special Arrival
Lounge with nap & shower facility positioned for
Transit passengers.
Economic Stay for passengers: Passenger
Transportation Centre provide value options for short
stay.
Multiple Food and Beverage options in the
Arrival, Departure Areas and the Airport Village.
Better Services: Porter Services, Cloak Room,
APTDC counter for Tirupati packages, numerous
FIDS, ATMs, clean and green ambience
Caring and Smiling Terminal operations staff
including Security, Customs, Immigration and other
agencies.
Proactive listening to Travelers' feedback
through Kiosk, Website, Help-Desk, Twitter and
implementing suggestions
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Hyderabad is best choice to target South and
Central catchment area of India
Better Infrastructure with 146 Check-in counters
including 16 with Self-service facilities
Various Initiatives launched to promote RGIA as
a transfer gateway.
Fly via Hyderabad campaign in 19 catchment
cities to promote RGIA as a transfer gateway.
Seamless transit & transfer facilities with
Dedicated Airport Facilitation Cell. First-of-its-kind
concept in India for transfer passengers. Transfer
Desk manned by Airport staff, Baggage transfers,
airport and airline information assistance etc.
Working closely with the AP tourism to promote
Hyderabad and other cities in AP as a destination.
Benefits to Passengers and Airlines 4/4 Annexure III
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Socio-Economic Benefits: Findings of a study by NCAER
National Council of applied Economic research (NCAER) has conducted a study on the economic impact of GHIAL airport. This study provides an assessment of the economic impact of Hyderabad‟s Rajiv Gandhi International Airport (RGIA) on the regional and national economies in terms of output, value added (income) and employment. The study has been finalized and shall be released shortly. Some of the findings of the study are as under:
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Socio-Economic Benefits: Findings of a study by NCAER
RGIA‟s operations contributed Rs 75.9 billion to the national GDP in 2009-10. Its contribution relative to Andhra Pradesh‟s GSDP was 1.55 per cent. This total impact comprises of:
Rs 11.1 billion contributed directly through value added (air transport and airport services).
Rs 19.9 billion contributed indirectly through supply chain (multiplier impact).
Rs 44.9 billion in induced impact through tourism and investment.
RGIA airport‟s construction contributed Rs 11.9 billion to the national GDP in a single year of the construction phase. It is important to note here that this was a one-time impact which included one-third of the total project cost plus inflation adjustments. The total impact of the construction phase will, therefore, be three times this estimate but spread over three years. This total impact of the construction phase in a year comprises of:
Rs 4.65 billion contributed directly through value added.
Rs 7.25 billion contributed indirectly through supply chain (multiplier impact).
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RGIA‟s operations contributed 840,000 jobs (0.18 per cent of national employment) in 2009-10 and as a ratio to Andhra Pradesh‟s employment its contribution was 2.45 per cent. The total comprises of:
3.5 thousand directly contributed jobs.
119.6 thousand indirectly contributed jobs through supply chain (multiplier impact).
707.7 thousand jobs in induced impact through tourism and investment.
RGIA‟s construction activities contributed 121.7 thousand jobs during the entire construction phase. This total comprises of:
9,317 directly contributed jobs.
112.4 thousand indirectly contributed jobs through multiplier effect.
Socio-Economic Benefits: Findings of a study by NCAER Annexure III
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The other important findings of the study are:
RGIA‟s direct contribution to Andhra Pradesh‟s economy in terms of income will be 0.299 per cent of Gross State Domestic Product (GSDP) by 2020-21.
RGIA‟s direct plus indirect (multiplier) income contribution to Andhra Pradesh‟s economy will be 0.838 per cent of Gross State Domestic Product (GSDP) by 2020-21.
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Phenomenal Performance on ASQ (on a scale of 1 – 5)
As per the concession agreement GHIAL is required to maintain a
minimum score of 3.5.
GHIAL has been World‟s best airport in ACI ASQ 5-15 Mn pax category in
2009 and again in 2010
Several initiatives have been taken since April 2011 to improve the ASQ
score.
ASQ score for half year ended Sept‟12 is Average 4.68-
(Mar-12- 4.68, June-4.64, Sep-4.73)
4.44 2008-09
4.51 2009-10
4.57/ 2010-11
4.68 Sep12
Chart Title
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Stakeholder Recognition Galore 1/3
Passenger and Airline Recognition
Best performing Domestic Airport Award in SATTE 2012 Travel awards
during the Annual Tourism Trade Show SATTE-2012, held from 10th -12th February, 2012
at New Delhi.
World‟s Best Airport in ACI ASQ 5-15 mn pax category in 2009 and again in
2010
„Best Greenfield Airport in India‟ by Air Passengers Association of India
„Favourite Indian Airport‟ award by Conde‟ Naste Traveller magazine.
Best Airport India‟ Award at the Skytrax World Airports Awards 2010.
Best Airport Marketing award in Routes 2009 and again in Routes
2010 Asia Pacific Conference
Best Cargo Airport & Best Cargo Terminal of the Year” Award (Air
Cargo Agents Association of India (ACAAI))
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Stakeholder Recognition Galore 2/3
Industry Recognition 1/2 Best Airport in India‟ National Tourism Award 2009-10 and
2010-11 by Ministry of Tourism
„Certificate of Merit‟ in National Energy Conservation Awards – 2011 by Ministry of Power Govt. of India on 14th December‟11
Airport Landscape awarded 1st Prize by Dept. of Horticulture, GoAP for the second time in a row.
CAPA Environment Award of the year : Airport, 2009
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Stakeholder Recognition Galore 3/3
Industry Recognition 2/2 Leadership in Energy & Environmental Design (LEED) “silver rating” - 1st
airport in Asia & 2nd airport globally to have won this certification.
Outstanding Concrete Structure of AP award 2008 by Indian Concrete Institute (ICI).
World Routes award by ORBIS UK, for CSR projects undertaken around the Airport.
CNBC Infrastructure excellence award for Airports.
ISO 9001-2008 (Quality Management System), ISO 14001-2004 (Environment Management System) and OHSAS 18001 – 2007 (Occupational Health and Safety Management System) certified.
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Stakeholder Recognition Galore Annexure III
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Basis of tariff filing
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Background on earlier filing
• In February 2008, MoCA approved an UDF charge of INR 1,000 per international passenger. In addition to the international UDF, MoCA approved UDF of INR 375 per domestic passenger in August 2008.
• In Oct 2010, AERA provided an adhoc Approval to charge INR 1,700 per international pax and INR 430 per domestic pax (Exclusive of service tax) . The adhoc approval was provided on the basis of single till.
• AERA issued Final Guidelines for tariff determination based on single till in Feb 2011. GHIAL filed an appeal with the AERA appellate tribunal(AERAAT) majorly contesting single till methodology of tariff determination.
• Pending the decision of AERAAT on our appeal, as per the requirement of guidelines GHIAL had made an application with AERA for tariff determination as per Dual Till for 5 year control period on 31st July 2011.
• Subsequently, as per the order of AERA, GHIAL had filed the tariff application under the single till for the 5 year control period (2011-16) on 15th September‟2011. Pending the decision on the appeal, AERAAT had instructed AERA to go-ahead and determine the tariff but suggested not to implement the same until the appeal is disposed off.
• Since substantial period has elapsed from our earlier filing done in September 2011 and as there has been a substantial change in the assumptions and the business environment, revised application was filed on 14th December‟ 2012 .
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Basis of Current filing
Current filing for tariff determination is made under Single Till. Fuel Farm filing has been made separately.
The current application is for the aggregate revenue requirement for
the control period (ARR) which has been calculated as per the Authority‟s guidelines.
The control period considered is 5 years starting from April 1st 2011 up to March 31, 2016 as per the guidelines, considering the past 3 years losses from April 2008 to March 2011.
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Basis of Current filing
We have not factored in inflation in our O & M forecast. It is assumed that the Authority will give a year on year WPI based inflation increase over and above approved yield calculated, based on actual WPI data.
Actual audited numbers of FY 2011-12 have been used for calculation of
ARR.
Inclusion of 100% operational subsidiaries of GHIAL- ssubsidiaries of GHIAL namely GMR Hyderabad Aviation SEZ Limited, GMR Hotels and Resorts Limited and Hyderabad Duty Free Retail Limited have been considered in the current tariff proposal. The entire capex, opex and revenues are considered as part of current filing.
We would submit a detailed pricing proposal in due course
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Building Blocks for Single Till
CAPEX
Regulatory Asset Base (RAB)
Return on RAB Depreciation
Operating Expenses+ Taxes
Non
Aeronautical
Revenue
Aggregate Revenue Required
Traffic
Aeronautical Yield
per passenger Service Quality
Fair Rate of Return
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Historical Losses
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Financial performance over past 3 years
GHIAL has been continuously making losses over the first 2 years of
operations. The Company has made marginal profits during the year 2010-11,
due to the fact that the tariff had been revised upward by the Authority Effective
November 1, 2010 on Adhoc basis.
As on March 31, 2011 the accumulated losses of the Company after considering
the DTA is Rs.164 Crores
Equal to 43% of the Equity invested
accumulated losses without considering DTA is Rs.267 Crores which is almost
70% of the Equity invested by the promoters.
Therefore, for survival of organization, for recovering the past losses and to ensure
a fair rate of return to the promoters, it is very important for a substantial increase
in tariff levels from the current levels.
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Financial performance of GHIAL and Subsidiaries over past
3 years
Accumulated Losses of GHIAL and its subsidiaries as per audited Financials :
Company Particulars 2008-09 2009-10 2010-11 2011-12
GHIAL YOY -120.01 -109.22 127.00* 16.72 Accumulated -181.87 -291.09 -164.10 -147.38
GHRL YOY -22.55 -21.37 -17.24 Accumulated -22.55 -43.93 -61.18
GHASL YOY -0.19 0.82 4.18 Accumulated -0.19 0.63 4.8
HDFRL YOY -3.33 -0.94 Accumulated -3.33 -4.27
Total YOY -120.01 -131.964 103.117 2.72 Accumulated -181.87 -313.834 -210.727 -208.027
*Includes PAT for Fy10-11 is Rs 103.98 Crs (including Deferred Tax of Rs 102.89 Cr) and adjustment of Rs 23.01 Crs on account of Hotel Demerger pertaining to previous years.
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Cost of Equity
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Cost of Equity
Cost of Equity has been calculated as per the CAPM method recommended by the Authority.
Given the importance of an accurate estimate of the cost of equity, GHIAL had mandated an independent study by consultancy firm Jacobs for this purpose.
The study of Jacobs based on CAPM Model considers in detail, the risk free rate in India, the risk premiums and airport betas.
The report is already provided as part of our tariff filing
In line with this recommendation of Jacobs, we have taken cost of equity as 24%.
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Cost of Debt
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Cost of Debt
Cost of Debt is considered at actual for previous years. Rupee Loan :
Seeing the hardening trend of interest rates, forecasted a nominal increase of 50 basis points for rupee term loan for a period of 2 years during FY 2013-14 and FY 2014-15.
ECB: GHIAL has taken ECB loan of USD 125 million during 2007 at ROI
of L+1.75%. Due to continuously hardening in the interest rates, ECB lender has been
insisting for minimum 1% increase in the interest rate. Therefore, an increase of 1% interest has been considered in the ECB
outstanding loan with effect from April 2012.
Interest Free Loan (IFL) - Interest Free Loan of Rs.315 Crs. has
been assumed as part of total debt with 0% cost.
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Weighted Average Cost of Capital/Fair Rate of Return
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WACC- FRoR
Fair Rate of Return (FRoR) for the control period is determined as under :
FRoR= (g x Rd) + ((1-g) x Re)
ADFG - Advance Development Fund Grant has not been considered for the purpose of WACC calculation. Alternatively, RAB has been reduced by the amount of ADFG of Rs. 107 Crores.
Debt :- Average Debt of respective subsidiaries has been considered for the purpose of calculation of WACC.
Equity:- Equity of GHIAL is considered in the WACC calculations. Equity of Subsidiaries has not been considered in WACC as the same is knocked off with investments in GHIAL.
Interest Free loan:- Interest free loan of GHIAL has been considered for the calculation of WACC.
Weighted average of the above debt, equity and IFL has been used for calculation of WACC. Detailed calculation is given in next slide.
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WACC- FRoR
Fair Rate of Return (FRoR) for the control period is determined as under :
FRoR= (g x Rd) + ((1-g) x Re)
Fair Rate of Return (FRoR)
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-
16
Debt (average of the year) 1918 2082 2183 2111 2093 2072 1969 1809
IFL 315 315 315 315 315 315 315 315
Equity 378 378 378 378 378 378 378 378
Debt+Equity :(C) 2611 2775 2876 2804 2786 2765 2662 2502
Cost of Debt (Kd) 9.3% 10.3% 9.8% 11.1% 11.23% 11.58% 12.05% 12.10%
Cost of IFL 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Cost of Equity (Ke) 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0%
Individual year Gearing (G) 85.5% 86.4% 86.9% 86.5% 86.4% 86.3% 85.8% 84.9%
FRoR Calculations 1st
3 years Control period
Weighted Average Gearing (WG) 86.3% 86.0%
Weighted Average Cost of Debt (Rd)
8.5% 10.0%
Cost of Equity (Re) 24.0% 24.0%
Fair Rate of Return 10.63% 11.98%
Rs in Crs
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Regulated Asset Base (RAB)
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Regulated Asset Base (RAB)
RAB is calculated as below:
RAB at the start of a year/period (Opening RAB) +
Projected capital investment(Commissioned assets-CA) -
Projected depreciation(DR) -
Advanced Development Fund Grant(ADFG) -
Deletion/ Disposals of assets =
RAB at the end of a year/period) (Closing RAB)
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Regulated Asset Base (RAB)
Following approach has been adopted for firming up the RAB during the regulatory control period: • Financial year 2011-12 has been taken as the first year of the control period. • Initial RAB is as per the books of accounts. RAB for the control period has been
firmed up by aggregating the total assets (including assets in subsidiary books) other than fuel farm assets (for which separate filing is being made), at book value on the last day of the previous year (FY 2010-11).
• The Actual Numbers of 2011-12 has been updated in the model. Addition and
deletion to the assets has been taken as per audited financial statements.
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Regulated Asset Base (RAB)
• Advance Development fund grant (ADFG) of Rs. 107 Crores has been excluded from assets base. RAB and the corresponding depreciation also have been reduced accordingly.
• Fuel farm assets have been separated from total assets and subsequently
airport RAB as separate filing is required under the Authority‟s guidelines. • Assets of the fully owned subsidiaries have been included in the
calculation. GMR Hotel & Resorts Ltd. (GHRL) GMR Hyderabad Aviation SEZ Ltd. (GHASL) an Hyderabad Duty Free Retail Limited
For the financial year 2012-13 to 2015-16, Capex is projected and added to the respective year.
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Background of Hotel
• In line with this global practice, GMR has developed a Airport Hotel as part of the Hyderabad International Airport project. The hotel is operated by a reputed global operator “Accor” under its Novotel brand. It started its operations in the year 2008.
• Airport Hotel is fully owned by GHIAL and is mainly catering to the
passengers and airlines crew. Therefore, we have considered the asset base of the hotel fully as part of GHIAL RAB
• Hotel play a crucial role in facilitating the Airport for emerging as a
regional transit hub for both passenger and cargo and are required near the Airport to meet the requirements of Transit Passengers, Airline Crew and Other Business and MICE.
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Hotel : Facts of last 4 years
• Hotel has primarily been used by Airport travelers/transit
passengers, Airline Crew and by Corporates for their Meetings/Incentives and for Conferences and Social Events.
• Individual Airport Travellers contributed about 120,000 room-nights (54% of total occupancy)
• Airline Crew contributed about 48,000 room-nights (22% of the occupancy)
• In addition to the above, the Airport Hotel is also an integral part of the
Airline emergency Evaluation Plan for the passengers and airline staff Hotel has significant synergy with the Airport and has both directly and indirectly benefiting the Airport and Air Travellers.
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Background of SEZ
• GMR Hyderabad Aviation SEZ Ltd. (GHASL) is developing a world class aviation and
aerospace SEZ park. And was notified by the Government of India (GOI) on October
20th 2009 in the name of GHIAL. Consequently, on March 3rd 2010, at GHIAL’s
request, the approval granted earlier was transferred by GOI in the name of GHASL.
• GHASL is a 100% subsidiary of GHIAL, and is undertaking all capital investments
required for the development of infrastructure in the Aviation SEZ.
• The development of SEZ has been planned to enhance the business activities and
traffic of RGIA and to create a larger multiplier economic impact in the region
• Currently, there are 2 operating units in SEZ namely MRO Services: Engine Maintenance Training.
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SEZ : detailed facts
• The presence of various aerospace units in aerospace cluster creates advantages of synergy in terms of resources such as
• Skilled manpower, • Special purpose machines, • Training etc.
and it makes aerospace units more competitive. This ultimately become a key engine for development and thereby provide the much required impetus and boost to the Airport Business.
• SEZ units would attract incremental ATM‟s into the MRO unit since the MRO would be competitive and would attract many domestic airlines to get their aircraft serviced within India as against the current practice of sending them overseas thereby being a valuable proposition.
• In the long run presence of facilities such as MRO, FTZ, Aviation Training Centers, Aerospace Manufacturing and Assembly Units in GMR Aerospace Park shall contribute significantly in Hyderabad Airport becoming a HUB
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Background of Duty Free
• Hyderabad Duty Free Retail Limited (HDFRL) was set up as a 100% subsidiary of GHIAL in June 2010 with the objective of owning and managing the Duty Free business in the international terminal.
• Prior to 2010 the Duty Free concession was given to Nuance Group. They
were not able to run the business successfully and GHIAL has to enter into a settlement to take over the assets and operations of the store.
• A careful consideration of options and business models was done to understand the profitability of the duty free operations. Hence in order to maximize the sales potential and ensure smooth store operations it was decided that GHIAL would run the duty free business on its own and build the necessary systems, processes and people capability required.
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Average Regulated Asset Base (RAB)
Particulars 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Opening Regulatory Asset Base [OR]
2214 2099 2300 2332 2299 2267 2226 2235 2207
Commissioned Assets [CA]
0 301 149 94 91 87 132 82 74
Depreciation & Amortization [DR]
8 100 116 127 123 128 123 111 113
Assets funded out of ADFG [S]
107
Disposals/Transfer [Di]
0 0 0 0 0 0 0 0 0
Closing RAB (CR) [OR + CA- DR -S-Di]
2099 2300 2332 2299 2267 2226 2235 2207 2168
Average RAB (RA) [(OR+CR)/2]
2200 2316 2315 2283 2246 2231 2221 2187
The gross block is as per audited financials as on March 31, 2012 and including gross blocks of subsidiaries which include GHRL, HDFRL and GHASL, except that the fuel farm assets of Rs 101.99 Crs have been separated.
As per Clause 5.2.3 of the final AERA guidelines dated Feb 28, 2011, RAB is considered at average of opening and closing. Rs in Crs
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Regulated Asset Base (RAB)
Future capex of GHIAL and Subsidiaries:
Name of the Company
2011-12 2012-13 2013-14 2014-15 2015-16
GHIAL 63.7 57.5 81.1 78.8 71.7
GHRL 0.5 0.4 2.0 2.0 2.0
HDFRL 3.1 1.1 0.4 1.5 0.0
GHASL 24.1 27.6 48.6 0.0 0.0
Total 91.3 86.6 132.1 82.3 73.7
Rs in Crs
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Depreciation
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Depreciation
Depreciation has been computed as per schedule XIV of the Companies Act 1956.
In case of Companies Act, 1956 the depreciation is calculated under a straight line method as against written down value method under Income Tax Act, 1961.
No depreciation has been charged on asset funded from Advance Development
Fund Grant. Depreciation has been restricted to 90% of the asset value.
Asset Classification Rate Useful life (Years)
Buildings 3.34% 30.00
Electrical Installations 4.75% 21.00
Furniture and Fixtures 6.33% 16.00
Improvements to Leasehold Land 1.67% 60.00
IT Systems 16.21% 6.00
Office Equipment 4.75% 21.00
Other Roads 1.63% 61.00
Plant and Machinery 5.28% 19.00
Runways 3.34% 30.00
Software 16.21% 6.00
Vehicles 7.07% 14.00
New Project Investment 4.50% 22.00
Hotel Future Capex 5.16% 19.00
Duty Free Future Capex 7.12% 14.00
SEZ Future Capex 5.00% 20.00
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Operations and Maintenance Expenditure
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O&M Projection
O & M Expenses: 2011-12 at actuals and 2012-13 onwards are forecasted
Expenditure Head 2011-12 2012-13 2013-14 2014-15 2015-16
Actual Forecasted Forecasted Forecasted Forecasted
Payroll costs-GHIAL 52.91 56.61 60.57 64.81 69.35
Administrative & General Costs-GHIAL
76.16 79.80 83.62 87.63 94.95
Operating cost-GHIAL
81.19 86.88 91.71 96.87 102.77
Hotel 35.13 31.45 33.56 35.81 38.21
SEZ 4.14 7.12 7.48 7.80 8.14
Duty Free 23.65 28.25 28.78 31.65 34.61
Sub -Total A 273.17 290.09 305.71 324.57 348.04
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Assumptions for O & M Expenses
The total operating and maintenance expenditure have been classified as under and the same have been escalated over the actuals of FY 2011-12 as given below: Salaries and manpower outsourcing: Real increase in salaries is taken
at 7% p.a. An increase is assumed in manpower by 10% for every 1.5 million increase in traffic.
Power Cost: Real increase of 7% p.a. has been considered.
Security Cost: Real Increase of 7 % has been taken for future year on manpower cost. Increase in manpower numbers by 10% has been considered for every increase in pax by 1.5 million.
General and Administration charges: Real increase is taken as 5% pa
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Assumptions for O & M Expenses
Repair and Maintenance: Real increase of 7% is considered pa and additional increase of 10% is taken for every increase in pax by 1.5 million
Utilities, other operating expenses and insurance: - Real increase of 7% is considered pa.
Revenue share- A revenue share of 4% as per the terms of the concession agreement.
Hotel, Duty Free and SEZ Opex - The total O&M expenditure for the FY 2011-12 has been taken as per audited numbers. The opex for FY 2012-13 is considered as per six months extrapolation and thereafter the growth rates as discussed above in GHIAL has been considered.
Inflationary increase is not considered as it is understood that the Authority will give an allowance towards inflation (WPI) over and above the target revenue being submitted herewith based on actual WPI numbers during the filing of annual tariff proposal every year.
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Taxation
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Assumption for Taxes
The computation of income tax, on total income, has been made on the prevailing Income Tax laws and rules.
Further, the assumptions are as under:
• Tax Computation has also considered MAT provisions.
• 80IA benefits have been considered for normal tax calculations.
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Traffic
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Traffic
During GHIAL Tariff Filing in Sept‟11, tariff determination was worked out
considering the base case growth forecasted by MSE.
However, the domestic passenger traffic at the Rajiv Gandhi International Airport has not witnessed any growth for the first 6 month period.
Considering this fact, we propose to extrapolate part of 2012-13 traffic achieved
till September 2012 for complete year
Duration Passenger (Million) ATM Domestic International Domestic International
6 months of 2012-13 3.13 0.98 39166 7343 Extrapolated for full year 12-13 6.26 1.97 78332 14686 Actual of 2011-12 6.70 1.90 85547 14111 % Growth in traffic for 2012-13 compared actual of 2011-12
-6.5% 3.9% -8.4% 4.1%
It will take some time for traffic to reach the earlier growth trajectory from the current level; hence for the year 2013-14 no increase in traffic growth is considered.
However, for the rest of years of the control period we have retained the same
traffic growth as proposed in the earlier filing.
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Summary of Traffic Forecast considered in filing.
Domestic Pax International Pax
Year Earlier
Projection
Revised
Projection
Filed
Projection
Revised
Projection
2011-12 (actual) 8.10% 16.5% 8.68% 1.4%
2012-13(extrapolated) 9.03% -6.5% 9.54% 3.9%
2013-14 7.29% 0% 8.14% 0%
2014-15 6.61% 6.6% 7.77% 7.8%
2015-16 6.70% 6.7% 6.89% 6.9%
Domestic ATM International ATM
Year Filed Revised Filed Revised
2011-12 - actual 6.52% 23.1% 7.48% 2.1%
2012-13 extrapolated 7.48% -8.6% 8.36% 4.1%
2013-14 5.76% 0% 6.97% 0%
2014-15 6.61% 6.6% 7.77% 7.8%
2015-16 5.19% 5.2% 5.74% 5.7%
Summary of ATM Forecast
Summary of Pax Forecast
Traffic Band True Up We are not proposing any traffic band and propose 100% true up for any shortfall in traffic at any given level of forecast
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Non Aero Revenues
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Assumptions for Non Aero Revenues
S.N
Particulars 2011-
12 2012-13 2013-14 2014-15 2015-16
1 Cargo
Revenue Share (18%) & Rentals
At A C T U A L s
Half Year ‘12
(Extrapolated)
Revenue Share on Gross revenues escalated by: • growth in cargo Tonnage • Rentals as per agreements
2 Ground handling- Revenue Share
Escalation by: • growth in the international ATM • additional 5% growth
3 Inflight Kitchen- Revenue Share & rentals
Revenues Escalated by : • growth in the Total Pax • additional 5% growth • Rentals as per agreement.
4 Car Park Revenues Escalated by • growth in the Total Pax • additional 5% growth Considered
5 Radio taxi revenue share of 19.02% on Gross revenues of taxi operators calculated @ Rs 40/ per pax escalated by 5% YOY.
6 Rentals • Rentals escalated by 4% YoY
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Assumptions for Non Aero Revenues
S.N Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
7 Advertisement
Revenue Share (60%)
At Actuals
Actuals HY „12
(Extrapolated)
Revenue share of 60% on Gross revenue calculated as per approved business plan projections as per the concession agreement. i.e 10% increase in the projected sales YOY
Promotions Escalated by 10% YoY
8 Duty free Revenue share as per contract on Gross revenues calculated by international passengers multiplied by the Current SPP. SPP escalated by 5% YOY.
9 Forex Revenue share of 5.56% on Gross sales calculated projected at SPP of Rs 300/International Pax.
10 Retail & F&B Revenues Escalation by • growth in the Total Pax • additional 5% growth Considered
11 Public admission fee
Revenues Escalated by growth in the International Pax
12 Miscellaneous Revenues Escalated by growth in the Total Pax in case of Paid portal .
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S.N Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
1 Hotel
At Actuals
Actuals HY „12
(Extrapolated)
Hotel revenues from the FY 2013-14 are considered with 5% increase in the occupancy levels.
2 Duty Free
Duty Free revenues from the FY 2013-14 are considered based on growth rate in the international passenger and based on the 5% increase in Spend per pax (SPP).
3 SEZ SEZ revenues from the FY 2013-14 are considered based on the land lease contracts entered as on date with the lessors.
REVENUE FORECAST OF Hotel, Duty Free and SEZ
The growth of subsidiaries revenue is total growth expected and there will not be
any additional increase linked to inflation
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Non Aero Revenues
Particulars 2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
Revenues from the other than regulated services
Fuel Farm excess set off 38.9 37.6 37.4 42.7 40.6 40.6 43.3 45.6
Cargo 13.2 12.2 15.9 16.5 16.4 16.6 17.4 18.3
Ground handling 5.4 5.2 5.6 5.2 5.3 5.6 6.3 7
Inflight Kitchen 4.8 4.4 5.2 4.9 5.1 5.4 5.9 6.6
Retail Revenues 15.5 17.5 20.1 25.6 30.2 30.5 33.9 37.7
Duty Free 10.7 10.9 4 6 8.9 9 9.7 10.3
Rentals 30.3 29.1 38 44.1 46.7 48.6 50.5 52.5
Advertisement & Promotions 15.2 15.3 16.2 19.3 18.9 15.8 17.4 19.2
Car park 8.5 9.4 12.8 14.3 15.4 16.2 18.2 20.4
Radio Taxi 1.9 2.5 2.8 5.2 6.5 6.6 7 7.5
Visitor Entry Ticket 0.6 3.1 4 4.2 5.7 5.7 6.2 6.6
Misc. Income (AEP/ fines/ filming) etc 5.6 7.1 8.7 8.6 7.5 6.3 6.5 6.7
Total 150.6 154.3 170.8 196.5 207.1 206.8 222.4 238.4
Rs in Crs
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Non Aero Revenues
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
B Revenues from interest income and Others
10.3 14 22.2 25.6 24.9 1 1 1
C Hotel revenues
0 31.7 41 47.9 38.5 40.4 42.4 44.5
D SEZ Revenues
0 0 2.8 11 16.5 17 17.4 17.8
E Duty Free Revenues
0 0 11.3 25.5 29 29.9 33.9 38
Total revenues other than regulated services (A+B+C+D+E)
160.9 200 248.1 306.5 315.9 295.1 317.1 339.9
Rs in Crs
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Aggregate Revenue Requirement(ARR)
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Aggregate revenue requirement
As per the AERA guidelines, the aggregate revenue requirement for the control period (ARR) has been calculated as under ARR= (FROR*RAB) + D + O + T – S
Where;
FROR= Fair rate of return(WACC) RAB –Regulatory Asset Base O= Total Operations and Maintenance Expenses D=Depreciation T= Taxation S=100% gross contribution from non-aeronautical revenues
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Aggregate Revenue Requirement
Particulars: 2009 2010 2011 2012 2013 2014 2015 2016
RAB 2200 2316 2315 2283 2246 2231 2221 2187
FRoR 10.63% 10.63% 10.63% 11.98% 11.98% 11.98% 11.98% 11.98%
Return on Capital Employed
234 246 246 273 269 267 266 262
Total Expenses 202 205 241 273 290 306 325 348
Revenue Share 16 17 21 25 25 37 39 42
Depreciation & Amortization
100 116 127 123 128 123 111 113
Taxes 2 0 0 11 2 61 74 87
Gross Target Revenue Requirement
554 585 636 705 714 793 814 852
Rs in Crs
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Aggregate Revenue Requirement
Particulars: 2009 2010 2011 2012 2013 2014 2015 2016
Gross Target Revenue Requirement
554 585 636 705 714 793 814 852
Less: Non Aeronautical Revenues
121 161 207 263 269 253 273 293
Aggregate Revenue Requirement
433 423 429 443 445 540 542 559
Less : Actual Aeronautical Revenues
192 255 323 376 371
Less : Fuel farm Excess revenues
39 38 37 43 41 41 43 46
Net Aggregate Revenue Requirement
202 130 69 24 34 499 498 513
Sum of ARR 1969
Rs in Crs
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Fuel Farm Filing
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Fuel Farm Filing
Based on the requirements of guidelines, the fuel farm tariff proposal has been filed by us separately.
The excess amount collected considering the continuation of existing fuel charges over the eligibility has been considered towards subsidizing aeronautical charges.
In case there is a change in the tariff approved for fuel farm charges, GHIAL tariff filing shall be revised accordingly.
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Fuel Farm Filing
1. The control period considered is 5 years starting from April 1st 2011 up to March 31, 2016.
2. Fuel Farm Regulated Asset Base (RAB) Following approach has been adopted for firming up the Fuel Farm RAB during the regulatory control period:
• Financial year 2011-12 has been taken as the first year of the control period.
• Opening RAB has been firmed up by aggregating the total assets of fuel farm assets, at book value on the last day of the year 2010-11.
• Addition and deletion has been taken as per audited financial statements.
• Additional Capex is projected for Fuel Farm from Fy 12-13 onwards as per the business plan.
• Depreciation has been computed as per schedule XIV of the Companies Act 1956.
Particulars 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gross Block 96.9 99.5 99.6 102.0 102.4 106.8 114.4 117.5
Opening Regulatory Asset Base [RBo]
0.0 96.7 91.9 89.4 84.4 81.6 76.9 75.9 77.7
Investment [I] 96.8 0.1 2.6 0.1 2.4 0.4 4.4 7.6 3.2
Depreciation & Amortization [D] 0.1 4.9 5.0 5.1 5.2 5.2 5.4 5.8 5.9
Closing Regulatory Asset Base [RBc]
96.7 91.9 89.4 84.4 81.6 76.9 75.9 77.7 74.9
Net Regulatory Asset Base = [Op+Cl/2]
94.3 90.7 86.9 83.0 79.2 76.4 76.8 76.3
Rs in Crs
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Fuel Farm Filing - WACC
3. WACC Means of Finance - Fuel Farm assets financed in the Ratio of GHIAL D/E
Ratio as given below Fair Rate of Return (FRoR): for the control period is determined as : FRoR= (g x Rd) + ((1-g) x Re) Cost of Equity Taken cost of equity as 24%. Cost of Debt : Considered at GHIAL‟s Average Debt Cost as used in FRoR of GHIAL. Cost of IFL Interest Free Loan of Rs.315 Crs. has been assumed as part of total debt with 0% cost. ADFG: Advance Development Fund Grant has not been considered for the purpose of WACC calculation.
GHIAL Project cost (Excluding Hotel Cost) Proportionate Fuel Farm Project cost Total 2683 99.60 Debt 1990 73.88 Equity 378 14.03 IFL 315 11.69
Rs in Crs
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Fuel Farm Filing – WACC Calculation
2008 2009 2010 2011 2012 2013 2014 2015 2016 Average Debt 73.9 73.9 72.0 68.3 64.6 60.9 56.5 51.2 Equity 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 IFL 11.7 11.7 11.7 11.7 11.7 11.7 11.7 11.7 Debt+Equity © 99.6 99.6 97.8 94.1 90.4 86.7 82.2 76.9 Cost of Debt (Kd) 9.32% 10.28% 9.72% 11.11% 11.07% 11.39% 11.86% 11.91% Cost of Equity (Ke) 24% 24% 24% 24% 24% 24% 24% 24% Cost of IFL 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Individual year Gearing (G) 86% 86% 86% 85% 84% 84% 83% 82% Weighted Average Gearing (WG) 86% 84% Weighted Average Cost of Debt (Rd) 8%
9.58%
Cost of Equity (Re) 24% 24% Fair Rate of Return 10.6% 11.9%
Rs in Crs
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Fuel Farm Filing
4. Fuel Farm Operating Expenses Real increase of 5% is considered pa from Fy 12-13 on actuals of Fy 11-12. 5. Tax The computation of income tax, on total income, has been made on the prevailing Income Tax laws and rules.
6. Fuel Farm Throughput Fuel Throughput has been projected to be increased in line with growth in ATM‟s.
2009 2010 2011 2012 2013 2014 2015 2016
ATM Growth % -6.76% 0.00% 6.79% 5.28%
Annual Fuel Off take
287383 Kl 291737 Kl 276360 Kl 318398 Kl 302588 Kl 302588 Kl 323129 Kl 340191 Kl
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Fuel Farm Filing : Aggregate Revnue requirement
7. Aggregate Revenue Requirement As per the AERA guidelines, the aggregate revenue requirement for the control period (ARR) has been calculated as under ARR= (FROR*RAB) + D + O + T – S
2009 2010 2011 2012 2013 2014 2015 2016
Net Regulatory Asset Base = [Op+Cl/2]
94.3 90.7 86.9 83.0 79.2 76.4 76.8 76.3
FRoR 10.64% 10.64% 10.64% 11.93% 11.93% 11.93% 11.93
% 11.93
%
Return on Capital Employed (FRoR* RAB) 10.0 9.6 9.2 9.9 9.5 9.1 9.2 9.1
Total Expenses [O] 7.2 7.1 7.9 8.6 9.0 9.4 9.9 10.4
Depreciation & Amortization [D] 4.9 5.0 5.1 5.2 5.2 5.4 5.8 5.9
Taxes [T] 1.4 1.4 0.9 1.7 0.9 0.8 1.1 1.6
Revenue Share 0.0 0.0 0.0 0.0 1.0 1.0 1.1 1.1
Aggregate Revenue Requirement 23.6 23.1 23.1 25.3 25.6 25.7 27.0 28.1
Rs in Crs
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Fuel Farm Filing
9. Eligible Yield Per KL. Eligible Yield Per Kl has been calculated as under:
PV(ARR Control period)/PV( Fuel Throughput Volume for control period)
PV of ARR is the present value for tariff year t being determined at the beginning of the control period and discounting rate is FROR. 2008-09 to 2010-11 2011-12 to 2015-16 PV of Gross target Revenue 95.01 118.57 PV of Fuel upliftment 0.12 0.14 Eligible Yield Per KL 816.27 829.23 Yield Actually charged 2,170.00 2,170.00 Excess Charged adjusted in GHIAL Aero Revenues per KL (1,353.73) (1,340.77) *
*The excess amount collected considering the continuation of existing fuel charges of Rs 2170/Kl over the eligibility of Rs 829.23/Kl has been considered towards subsidizing aeronautical charges in GHIAL Tariff Filing.
8. Current Fuel Farm revenues: Currently GHIAL is charging Fuel throughput fee of Rs 2170/Kl.
Fuel Farm Charges Per KL Royalty Per KL 670.00 Rs/KL Capital Recovery per KL 1500.00 Rs/KL Annual Escalation in Royalty 0%
In Case The Authority decides to change the rates of fuel farm than the amount being set off in determination of ARR of GHIAL will chnage
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Disclaimer
‘Please note that filing is being made solely in view of the Hon’ble Airports Economic
Regulatory Authority Appellate Tribunal’s order dated May 11, 2011 in Appeal Nos.
8/2011 and 10/2011 and to ensure compliance with the same. The said filing is being
made without prejudice to the claims and contentions raised by GHIAL pursuant to
the said Appeal Nos. 8/2011 and 10/2011 and is further being made without prejudice
to the factum of the impugned Order No. 14/2010-11 and Direction No. 5/2010-11
being erroneous and ultra vires the Airports Economic Regulatory Authority Act, 2008.
The annexed/enclosed filing should not be construed as an admission on the part of
the GHIAL as to the validity or legality of the said Order No. 14/2010-11 or Direction
No. 5/2010-11. We would also draw your attention to the order of the Hon’ble
Appellate Tribunal dated May 11, 2011 wherein the Hon’ble Tribunal has directed
AERA to maintain strict confidentiality of The information/filing made by GHIAL and
accordingly call upon you to strictly comply with the orders of the Hon’ble Appellate
Tribunal as to confidentiality.’
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THANK YOU
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GMR HYDERABAD INTERNATIONAL AIRPORT LIMITED
PRESENTATION TO AERA
1ST APRIL 2013
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OUR SUBMISSION AT THE TIME OF CONSULTATIONS
We had made various representations at the time of consultation process for
finalizing the regulatory philosophy of Major Airports in India. The major
observations in our submissions were as under:
Concession Agreement should be adhered.
Privatization and Single Till does not go hand in hand.
Dual Till should be allowed for Hyderabad;
Review of the consultation mechanism as suggest by the Authority.
Additional service quality parameter should not be mandated.
Cargo, Ground Handling and Fuel should be outside regulation.
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OUR SUBMISSION AT THE TIME OF CONSULTATIONS
• Airports having Single till do not necessarily have lower charges. In long run,
prices are determined by the characteristics of the airport, their ownership
structure and the way it is managed rather than the charging methodology.
• World over, in the matured regulatory regimes, airports are moving towards
dual or hybrid till to encourage better infrastructure and maintain efficient
level of service.
• In general airports under Dual/hybrid till have better quality rating than
airports under single till.
• There is a very important correlation between privatization and Dual/Hybrid
till. There is no major airport privatization under single till (except BAA which
was kept under Single till due to extraneous reasons).
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3
Airports having Single till do not necessarily have
lower charges
All regulatory approaches
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Toro
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Athe
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Cope
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Single Dual Hybrid Indeteminate Light hand
Prices are determined by the characteristics of the airport, their ownership structure and the
way it is managed rather than the charging methodology and one should not conclude that
single till leads to lower tariffs.
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Airports and their quality standards
Ranked quality
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Seou
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on-L
HR
Lond
on-L
GW
Sydn
ey
Mad
rid
Vie
nna
Dub
lin
Rom
e
Bud
apes
t
Fran
kfur
t
Pari
s-CD
G
Lisb
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Mila
n-M
XP
ASQ
sco
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ove
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sati
sfac
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Single Dual Hybrid Indeterminate Light hand
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5
TILL and Quality
Tills only quality
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Cancun Copenhagen Johannesburg Athens Amsterdam London-LHR London-LGW Dublin Paris-CDG
ASQ
sco
res
for o
vera
ll sa
tisfa
ctio
n
Single Dual Hybrid
Dual till, hybrid, and light handed and indeterminate airports have average scores of just
over 4 while single till airports have scores averaging 3.75.
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6
No major airport privatised on a single till basis
Country AirportMajority Private
Ownership
Till at
PrivatisationTill now
Belgium Brussels Yes Dual till gradually Dual till gradually
Denmark Copenhagen Yes No till Hybrid
Hungary Budapest Ferihegy Yes No till No till
Italy Rome Yes No till Hybid
Naples Yes No till Hybid
Venice Yes No till Hybid
Malta Malta International Yes Dual till Dual till
Slovak Republic Bratislava Yes N/a
Australia Melbourne Yes No till/dual till? Unregulated/dual
Perth Yes No till/dual till? Unregulated/dual
Brisbane Yes No till/dual till? Unregulated/dual
Adelaide Yes No till/dual till? Unregulated/dual
Sydney Yes Unregulated/dual Unregulated/dual
New Zealand Auckland Yes Unregulated/dual Unregulated/dual
Wellington Yes Unregulated/dual Unregulated/dual
Mexico Cancun Yes Dual till Dual till
Guadalejara Yes Dual till Dual till
Monterrey Yes Dual till Dual till
Mexico City Yes No till/dual till? No till/dual till?
List of privatised airports and their till (Except UK Airports-BAA)
No privatization under single Till Annexure III
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7
TREATMENT OF LAND
• The treatment of land as envisaged in the Authority‟s Order No.
13/2010-11 was not subject to any consultation.
• Our current submission in this regard may kindly be
considered.
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8
Request
Its earnestly requested that our earlier submissions made at
time of consultation and also the submissions made in our
appeal are relooked and reconsidered in the review of
philosophy applicable to GHIAL.
Since, the treatment on land was not laid down in the
Consultation Paper, our views in this regard may kindly be
considered.
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9
AERA’s Position vide its Order No. 13/2010-11 dtd 12th January 2011.
The Authority opined that "Single Till is most appropriate for the economic
regulation of Major Airports in India".
The Authority opined the general framework for economic regulation of
aeronautical services i.e. Single Till regulation is consistent with the ICAO
policies. Therefore, the framework being laid down here would also be
applicable to Bengaluru and Hyderabad airports.
New Land Ring fencing principle and New Service Quality regulations
have been advocated (which were not mandated under the Concession
Agreements).
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10
AERAAT Order dtd February 15th 2013
GHIAL appealed against the Orders of the Authority which enshrined the
Single Till philosophy in the AERAAT. AERAAT had recently disposed off the
appeal with directions as under;
AERAAT Judgment extract
8. In that view, we would dispose off these appeals with the direction to the AERA to
complete this exercise of determination of tariff and while doing so, the AERA would give
opportunities to all the stakeholders to raise all the plea and contentions and consider
the same. The impugned orders herein would not come in the way of that exercise. We
would, however, request AERA to complete the determination exercise as expeditiously as
possible. We have taken this view as we are of the firm opinion that it would not be proper
to entertain the appeals on different stages of determination of tariff and to give the
finality to the questions of final determination of tariff.
In view of above judgment its 'earnestly requested that the philosophy of
economic regulation applicable to GHIAL is reconsidered by the Authority
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11
Our Appeal to Appellate Tribunal (Major Issues)
ICAO principle do not support Single Till
Single Till is not mandated under Concession Agreement and under the
AERA Act.
Authority should adhere to the concession agreement and ensure
economic and viable airport.
Regulating the usage of land and its economic benefit is not mandated
under Concession Agreement and the AERA Act.
Bad debt should be considered as opex while determining tariffs
Cargo, Ground Handling and Fuel services should not be regulated as
they are not regulated revenues under the Concession Agreement.
Authority is mandated to only monitor the service standards as laid down
under the concession agreement and not prescribe any new standards to
be set.
Asset can be depreciatied upto 100% of the value
Authority is earnestly requested that our earlier submissions as
also our submission in the Appellate Tribunal are re-considered
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12
Our Submission
Pursuant to the disposal of the appeal by the AERAAT (without
expressing any views on its merits) and subsequent invitation by the
Authority vide letter dated March 21st 2013, GHIAL is herewith
presenting the additional facts in subsequent slides for the
consideration by the Authority.
We request the Authority to consider our submission made herein and
reconsider its philosophy of economic regulation for the Hyderabad
Airport. We however, reserve our right to make additional submissions
in this regard.
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13
AGENDA FOR THIS SUBMISSION
SUBMISSION IN SUPPORT OF DUAL TILL
• CONCESSION AGREEMENT CONTEMPLATED DUAL TILL
• ICAO POLICIES ON ECONOMIC REGULATION
• PROVISIONS OF THE AERA ACT, 2008
• MINISTRY OF CIVIL AVIATION‟S STAND ON CHOICE OF TILL
• GOVT. OF ANDHRA PRADESH (GoAP) VIEW ON TILL
• PLANNING COMMISSION ON TILL
• ACI VIEW ON CHOICE OF TILL
• UK COMPETITION COMMISSION ON TILL
• EUROPEAN UNION ON TILL
• INTERNATIONAL EXAMPLES AND RESEARCH STUDIES OF AIRPORTS MOVING TO DUAL TILL
SUBMISSION IN SUPPORT OF LAND OUTSIDE REGULATION
• CONCESSION AGREEMENT AND LAND
• STATE SUPPORT AGREEMENT AND LAND
• INTERNATIONAL EXAMPLES ON LAND AND REGULATIONS.
OTHER ISSUES
• CARGO, GROUND HANDLING AND FUEL TO BE OUTSIDE REGULATION
• SERVICE QUALITY STANDARDS
• OTHER ISSUES
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SUBMISSION IN SUPPORT OF DUAL TILL
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15
Regulated Charges are to be in accordance with ICAO policies
Airport Charges under the Concession Agreement
10.2.1 The Airport Charges specified in Schedule 6 (“Regulated Charges”) shall be
consistent with ICAO Policies.
ICAO 9082 8th Edition
The Council also states that in determining the cost basis for airport charges the following
principles should be applied:
i) The cost to be shared is the full cost of providing the airport and its essential ancillary
services, including appropriate amounts for cost of capital and depreciation of assets, as
well as the costs of maintenance, operation, management and administration, but
allowing for all aeronautical revenues plus contributions from non-aeronautical revenues
accruing from the operation of the airport to its operators.
ICAO 9082 9th Edition
The cost to be allocated is the full cost of providing the airport and its essential ancillary
services, including appropriate amounts for cost of capital and depreciation of assets, as
well as the costs of maintenance, operation, management and administration. Consistent
with the form of economic oversight adopted, these costs may be offset by non-
aeronautical revenues.
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ICAO current position on till
Therefore, ICAO has in its current edition of economic policies in Doc
9082 9th edition removed the ambiguity related to the choice of Till.
• ICAO has clarified that it does not endorse Single Till regulation as the
most preferred form of regulation.
• ICAO leaves it to respective member states to adopt their choice of till
based on suitability to local condition.
• The DUAL till mandated in concession is an adoption of DUAL till by the
state.
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Till adopted in various ICAO member states
Regulatory Approaches in Selected Countries
Country Airport Regulatory Till
Australia Adelaide, Brisbane, Melbourne, Perth, Sydney Ex post regulation
Belgium Brussels Single till (moving towards dual till) *
Denmark Copenhagen Hybrid till
France Charles de Gaulle, Orly Single till **
Germany Frankfurt, Hamburg Dual till
Germany Berlin, Cologne-Bonn, Dusseldorf, Hannover, Munich, Stuttgart Single till
Greece Athens Dual till
Hungary Budapest, Ferihegy Dual till
Ireland Dublin Single till ***
Italy Rome, Milan, Venice Dual till
Italy Other airports Hybrid till
Malta Malta International Dual till
New Zealand Auckland, Christchurch, Wellington Ex post regulation
The Netherlands Amsterdam Dual till
Portugal ANA airports Single till
South Africa ACSA airports Single till
Spain AENA airports Administrated tariffs
Sweden Stockholm-Arlanda, Malmö Single till
United Kingdom Heathrow, Gatwick, Stansted Single till ****
* No-airport-related (non-airport) real estate activities are excluded from the regulatory till
** Activities such as retail, advertising, no airport-related (non-airport) real estate, ground handling and activities carried out
by subsidiaries are excluded from the regulatory till
*** Activities with non nexus to the airport (AerRianta International, Cork and Shannon airports, International
investments, property related to joint ventures) are excluded from the regulatory till
**** Some retail activities and real estate pertaining hotels are excluded from the regulatory till
Source: NERA analysis
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An overview of regulatory approaches implemented in selected
countries gives evidence that the regulatory approaches that enforce
ICAO principles may comprise Light handed (ex post regulation) as well
as Heavy handed (ex ante regulation).
In this latter case, the scope of the regulatory till may include
contributions of all or some non-aeronautical activities performed by
airport (single till approach), or may include only a percentage of
contributions of non- aeronautical activities (hybrid till and dual till
approach).
As such it is evident that majority of contracting states of ICAO
have followed dual till with only a handful of airports following
single till.
It is requested that AERA may review its conclusion that ICAO
recommends single till.
ICAO Position on till-Conclusion Annexure III
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19
Regulation of Regulated Charges
EXTRACT FROM CONCESSION:
10.2 Airport Charges
10.2.4 From the date the IRA has the power to approve the Regulated
Charges, HIAL shall be required to obtain approval thereof from the IRA.
In this regard HIAL shall submit to the IRA, in accordance with any
regulations framed by the IRA, details of the Regulated Charges proposed
to be imposed for the next succeeding relevant period together with such
information as the IRA may require for review…
The Concession Agreement contemplate the regulation of only Regulated
Charges mentioned in the Schedule 6 of Concession Agreement.
By adopting a Single Till, indirectly the non aeronautical yield is also being
regulated which is against the provisions of the concession agreement
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Regulation of Other Charges
EXTRACT FROM CONCESSION:
10.3 Other Charges
HIAL and/or Service Provider Right Holders shall be free without
any restriction to determine the charges to be imposed in respect of the
facilities and services provided at the Airport or on the Site, other than
the facilities and services in respect of which Regulated Charges are
levied.
By adopting single till and using revenues from Non regulated charges,
the Authority is indirectly regulating the Other Charges.
This is conflicting with the provisions of the Concession Agreement.
Fixing the return on entire RAB under single till leads to indirect
regulation of Non Aeronautical charges which is against to the
provisions of Concession Agreement.
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21
List of Regulated Charges under Schedule 6
• Landing Charges
• Parking Charges
• Housing Charges
• User Development Fee
Only above 4 charges are mandated to be regulated by the Authority.
The bifurcation the charges into two categories clearly shows that
concession has mandated a DUAL till
Hence all the charges should not be brought under the single till method as
this goes against the concession provisions.
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22
GOI has the option of not taking over the Non Airport business at
the end of concession period
The Para 13.5.2 of Concession agreement lays down as follows:
“Prior to transfer of The Airport GOI shall have the right to conduct a due
diligence of the contracts and the agreements pertaining to Non-airport
Activities, the rights and obligations of which it is assuming and shall not be
bound to assume the rights and obligations of the contracts ...”
The above fact is also reiterated in schedule 7 of the CA which deals with
settlement amount. Here also GOI has the option of not taking over Non Airport
activities.
This clearly goes on to show that the concession agreement contemplates a
dual till. If a single till was envisaged the GOI would have opted to takeover the
entire gamut of business including Non Aeronautical and Real Estate
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CONCESSION ENVISAGES GHIAL TO OPERATE AS A
COMMERCIAL UNDERTAKING
Clause 8.9 of Concession Agreement states that
“HIAL shall...manage and operate the Airport in a competitive, efficient and
economic manner as a commercial undertaking”
AERA‟s Single Till approach may not be in sync with the above clause as
• Under Single Till, the “Total Return‟ , considering Aeronautical and Non
Aeronautical revenues together, is capped.
• Single Till scenario leaves no incentive for the operator to maximize its non-
aeronautical revenue since any increase in the non-aeronautical income will
be offset by an equivalent reduction in the aeronautical tariffs
• Providing aeronautical services at artificially lower tariffs provides a
distorted economic picture. Charges to passengers should be reflective of
actual cost
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Request
The concession agreement clearly lays down regulation of
Regulated Charges as given in schedule 6.
Adopting of Single Till goes against the provisions of
concession agreement (as indirectly we are restricting the
return on Non Aero and Real Estate activities) which are
against the prudent commercial principles.
As such it is earnestly requested that Dual till may kindly be
approved for GHIAL
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PROVISIONS OF THE AERA ACT, 2008
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26
AERA Act was enacted in 2008, pursuant to which the Airports
Economic Regulatory Authority was established. The preamble of
the AERA Act, is as follows:
“An Act to provide for the establishment of an Airports Economic
Regulatory Authority to regulate tariff and other charges for the
aeronautical services rendered at airports and to monitor performance
standards of airports and also to establish Appellate Tribunal to
adjudicate disputes and dispose of appeals and for matter connected
therewith or incidental thereto.”
PROVISIONS OF THE AERA ACT, 2008
As such it is contemplated that Aeronautical Charges will be
regulated and the performance standards will be monitored
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27
Section 13 of the AERA Act, which prescribes the functions of the Respondent No.1 provides as
follows:
(1) The Authority shall perform the following functions in respect of major airports, namely:-
(a) to determine the tariff for the aeronautical services taking into consideration-
(i) the capital expenditure incurred and timely investment in improvement of airport
facilities;
(ii) the service provided, its quality and other relevant factors;
(iii) the cost for improving efficiency;
(iv) economic and viable operation of major airports;
(v) revenue received from services other than the aeronautical services;
(vi) the concession offered by the Central Government in any agreement or
memorandum of understanding or otherwise;
(vii) any other factor which may be relevant for the purposes of this Act:
AERA Act, empowers AERA to consider only the revenues from services other
than aeronautical while determining tariffs. There is no provision under the Act
wherein opex and capex of non aeronautical is to be considered while
determining tariff for aeronautical services.
This clearly goes on to prove that Single Till was not envisaged under AERA Act.
AERA also need to consider concession given by Govt. Of India.
PROVISIONS OF THE AERA ACT, 2008 Annexure III
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STAND ON CHOICE OF TILL OF MINISTRY OF CIVIL AVIATION
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Extract of affidavit filed before AERAAT by MoCA Annexure III
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MoCA Affidavit before AERAAT
MoCA in its affidavit has categorically laid down a hybrid/shared till (30% of
Non Aero revenues considered for cross subsidy) based regime for levying User
Development Fee at;
• Jaipur
• Amritsar
• Udaipur
• Varanasi
• Mangalore
• Trichy and
• Ahmedabad
Further, hybrid/shared till philosophy has been adopted in the case of Delhi
and Mumbai.
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List of Airports and their tills
As such the tills adopted for various airports is as under:
• Jaipur Shared Till
• Amritsar Shared Till
• Udaipur Shared Till
• Varanasi Shared Till
• Mangalore Shared Till
• Trichy Shared Till
• Ahmedabad Shared Till
• Hyderabad Single Till
• Bangalore Single Till
• Delhi Shared Till
• Mumbai Shared Till
Therefore, it is not correct to assume that Hyderabad Airport, a Greenfield investment,
with significantly higher risks have been privatized and developed on a single till basis
whereas for other Major Airports in India, like Mumbai and Delhi and for smaller
airports like Jaipur, Amritsar, Udaipur, Varanasi, Mangalore, Trichy, Visakhapatnam and
Ahmedabad , a Hybrid /Shared Till was adopted.
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GOVT. OF ANDHRA PRADESH VIEW ON TILL
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GoAP envisaged Uncapped returns:
Letter of Award by Govt. Of Andhra Pradesh
Government of AP, while approving GMR Consortia as a preferred bidder
for Hyderabad Airport, envisioned that the project may have potential
upside that would be shared in proportion to equity holding.
If AERA adopts a Single Till and allows a return equivalent to 18.33% as
minimum assured by GoAP, then the above provision relating to sharing
of return over and above 18.33% get redundant.
This goes against the promise made by the Government at the time of
privatization. Any change in the conditions will cause irreparable loss to
the airport operator.
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Govt. Of Andhra Pradesh view on TILL and land
We understand that the Govt of AP has written to AERA during March 2011
clarifying its position on the Equity IRR and utilization of land.
GoAP has categorically clarified that article 10 (3) of the Concession
Agreement gives the right to GHIAL to set tariffs for non airport facilities
and services. The concession does not envisage cross subsidy of Non
Aeronautical revenues to defray aeronautical charges.
GoAP also clarified that Cargo, Ground Handling and Fuel should not be
regulated. Govt further clarified that an Equity Internal Rate of Return
needs to be maintained.
GoAP also clarified that under clause 2.3b(i) of State Support Agreement,
its necessary to maintain an Equity Internal Rate of Return of 18.33%. It
was further clarified that 18.33% was not a cap on the return on equity.
GoAP also clarified that the land given was for the socio-economic benefit
of the state and by reducing its market value from the RAB, the desired
benefit will not be achieved.
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PLANNING COMMISSION VIEW ON TILL
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PLANNING COMMISSION VIEW ON TILL
We understand that the Planning Commission of India (PC) has written to
AERA in October 2010 clarifying its position on the choice of till to be
adopted.
We understand that PC has advocated need for a Hybrid Till regulation.
This has been also in light of the fact that India required a huge private
sector investment into the Airport sector under the 12th plan.
PC has underscored the importance of the choice of economic regulation
especially a Hybrid Till approach in achieving the investment goals.
Therefore, we again reiterate that the views of the PC may be taken into
consideration.
Therefore, we earnestly request to Authority to accept the views of the
Planning Commission in finalizing philosophy applicable to GHIAL
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ACI VIEWS ON TILL
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ACI views on Till
Airports Council International (ACI), Montreal while referring to the AERA Order
13/2010-11, has brought to the notice of AERA about the amendment done to
the para 30(i) of Doc 9082 and clarified about the neutral position of ICAO on
the matter of regulatory till and stated that the conclusions with regard to ICAO
Doc 9082 as well as ICAO Doc 9562 in paras 5.17 -5.32 of the AERA Order
13/2010-11, are therefore not tenable and require rectification.
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UK COMPETITION COMMISSION ON TILL
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UK Competition Commission View
In UK, in 2002 the Civil Aviation Authority (CAA) proposed to move from a
single till approach to a dual till approach at any of the three BAA London
airports subjected to economic regulation.
The Competition Commission (CC), in drawing its conclusions on this issue, has
assessed whether “the dual till approach could be regarded as consistent with
international obligations, guidelines and practice”. [Source: Competition Commission (2002), A Report on the Economic Regulation of the London Airports Companies
(Heathrow Airport Ltd, Gatwick Airport Ltd and Stansted Airport Ltd),]
The CC, explicitly referring to ICAO policies and guidelines, stated that:
“The ICAO has said that there should be flexibility in applying either the single
till or dual till approach. [Source: Competition Commission (2002), A Report on the Economic Regulation of the London Airports Companies
(Heathrow Airport Ltd, Gatwick Airport Ltd and Stansted Airport Ltd)]
The UK‟s Competition Commission‟s also concludes that ICAO neither
suggests, nor precludes a single till or a dual till approach.
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EUROPEAN UNION AND TILL
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EU Directive on Airport Charges
The EU Directive, that explicitly mentions policies on airport charges endorsed
by ICAO,states that:
“It is necessary to establish a common framework regulating the essential
features of airport charges and the way they are set […]. Such a framework
should be without prejudice to the possibility for a Member State to determine
if and to what extent revenues from an airport’s commercial activities may be
taken into account in establishing airport charges.” (Emphasis added) .
[source; Competition Commission (2002), A Report on the Economic Regulation of the London Airports Companies
(Heathrow Airport Ltd, Gatwick Airport Ltd and Stansted Airport Ltd),]
The above quotation provide evidence that the EU Directive, in coherence with
ICAO policies, “does not prescribe the basis on which airport charges should be
set, and explicitly leaves open key issues such as the regulatory till” [Dr. Francesco Lo Passo and David Matthew, NERA (2009), The EU Directive on Airport Charges: Principles, Current
Situation and Developments.]
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INTERNATIONAL EXAMPLES AND CASE STUDIES OF AIRPORTS
MOVING TO DUAL TILL
Case Study of Aéroports de Paris which has, in 2011, shifted
from Single Till to an “Adjusted Till” system
Aéroports De Paris (ADP) is the airport authority that owns and manages 14
civil airports / airstrips in the Paris area. It was partially privatized in 2006.
•For the period 2006-10, Single Till principle was used, but for 2011-15 the
French Government has allowed “Adjusted Till‟ principle for tariff regulation
with the withdrawal of commercial and real estate diversification activities
from regulated scope
•Some of the arguments put forward by the authority in its Consultation paper
included:
Would be a stronger incentive to improve the competitiveness and
attractiveness to users because traffic growth is a positive external driver of
retail activities
Would be a driver for increasing employment. The retail and restaurant
activities majorly employs local labor and represent nearly 7,000 jobs on
these airports
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INTERNATIONAL EXAMPLES AND CASE STUDIES OF AIRPORTS
MOVING TO DUAL TILL
Case Study of Aéroports de Paris which has, in 2011, shifted
from Single Till to an “Adjusted Till” system
Would allow the airport to capture some of the value created over the long-
term will help strengthen its financial robustness and hence its investment
capacity
Decreasing the level of cross-subsidy between non-aviation activities and
aviation activities will enable airport fee rates to be a price signal linked
more directly to the cost of developing infrastructure and services, favoring
sound and responsible economic behavior.
WORLD OVER THE FACT THAT SINGLE TILL REGULATIONS ARE NOT
ECONOMICALLY EFFICIENT, ARE NOT COST REFLECTIVE, PROVIDE LIMITED
INCENTIVE TO THE OPERATOR TO INCREASE TRAFFIC AND DOES NOT
ENABLE AIRPORTS TO CREATE VALUE OVER LONG TERM AND BUILD
CAPACITIES.
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Empirical Study on Governance Structure, Economic
Regulation and its impact on Efficiency
Annexure III
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EMPIRICAL STUDY BY ASSAF AND GILLEN, 2012
Quoting from the study:
“the consistent result is that regardless of governance type, moving away from heavy handed
price regulation such as single till always improves economic efficiency”
“Therefore, in jurisdictions such as India where there is a shift to full or partial privatization, the
efficiency gains that would arise from such a change in governance can be undone by imposing a
heavy handed form of regulation such as single till.”
Soft Touch DUAL till
Soft Touch
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SUBMISSION IN SUPPORT OF LAND OUTSIDE REGULATION
Annexure III
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Concession Agreement and land
The Concession Agreement signed with the Union of India through MoCA
has clearly earmarked two distinct set of activities namely: Airport activities
and Non Airport activities. Details of these activities have been laid down in
Schedule 3 Part I and Part II respectively. The Non Airport activities include
various Real Estate related ventures and the entire list of Non Airport
Activities as per Part II of schedule 3 .
GHIAL or the service provider have been mandated to be free to set/re-set
the charges in respect to the activities other than those covered under
Airport activities.
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COVENANTS OF LAND LEASE DEED
GOVT. OF AP (LESSOR) INITIATED THE PRIVATIZATION PROCESS AND SELECTED GMR CONSORTIA AS
THE SUCCESSFUL BIDDER FOR DEVELOPING NEW HYDERABAD AIRPORT.
THE LAND GIVEN UNDER THE LEASE WAS TO ENCOURAGE, INDUSTRIAL DEVELOPMENT, TOURISM,
PASSENGER, CARGO MOVEMENT AND GENERAL ECONOMIC AND SOCIAL DEVELOPMENT. (AND NOT
JUST THE AIRPORT DEVELOPMENT)
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COVENANTS OF LAND LEASE DEED
ONCE PRIVATIZATION PROCESS WAS COMPLETED, A CONCESSION AGREEMENT WAS SIGNED WITH
THE GOVT. OF INDIA. AS SUCH THE ENTIRE PRIVATIZATION PROCESS WAS CARRIED BY GoAP.
THE LEASE DEED CLEARLY STATES THAT THE PROJECT IS VIABLE ONLY WITH STATE SUPPORT AND
LEASE OF LAND.
Annexure III
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GoAP gave land to make project viable
Unless the State support was extended, this projects would not have
been feasible. Therefore, the GoAP entered into a State Support
Agreement and Land Lease Agreement giving 5,500 acres of land on
lease to make project feasible to GHIAL.
At the time of grant of land lease, the state govt has not ascribed any
market value or assigned any transfer consideration to the land
transferred to GHIAL as that would have made the project not feasible.
AERA is ascribing notional market value to the land and reducing this
value from the RAB. Its is submitted that the value of underlying land is
not reflected in the RAB in the first place. By adopting this methodology,
AERA‟s proposed philosophy takes away the benefits envisaged to be
provided by the State to GHIAL.
As such its earnestly requested that land has been given for making project
feasible.
So its earnestly requested not to take away this incentive.
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AERA Act mandates regulation of airport.
Definition of airports as per AERA Act, 2008 is as under
“airports” means a landing and taking off area for aircrafts, usually with
runways and aircraft maintenance and passenger facilities and includes an
aerodrome as defined in clause (2) of section 2 of the Aircraft Act, 1934.
Definition of aerodromes as per Aircraft Act, 1934
"aerodrome" means any definite or limited ground or water area intended to
be used, either wholly or in part, for the landing or departure of aircraft, and
includes all buildings, sheds, vessels, piers and other structures thereon or
appertaining thereto;
As per AERA Act, the Authority has mandate to regulate airports which by above
definition is area for landing and taking off of aircraft.
As such its earnestly requested that the land may be kept outside the
regulation
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Only revenue from Non Aero was to be considered
As previously stated, the benefit given in the form of land by the GoAP is for
overall General and Social development of the state and not just limited for
the Airport development. By ascribing a value to the land, the Airport
operator has no incentive to develop this land as similar (freehold) land
without any restrictions is available in market and as such the
development as envisaged by the GoAP on this land would not materialize.
Annexure III
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Land and Regulations: International Examples
Regulatory till and real estate treatment in selected countries
Country Airport Regulatory till Real estate IN/OUT the regulatory till
Australia Adelaide, Brisbane, Melbourne, Perth, Sydney Ex-post OUT
Belgium Bruxelles Single till OUT
Denmark Copenhagen Hybrid till Partially IN *
France Charles de Gaulle, Orly Single till OUT
Germany Frankfurt, Hamburg Dual till OUT
Ireland Dublin Single till IN
Italy Rome, Milan, Venice Dual till OUT
Italy Other ariports Hybrid till Partially IN/OUT **
New Zealand Auckland, Christchurch, Wellington Ex-post OUT
South Africa ACSA airports Single till IN
The Netherlands Amsterdam Dual till OUT (but hotels IN)
United Kingdom Heathrow, Gatwick, Stansted Single till IN (but hotels OUT)
(*) A percentage of the difference between revenues and costs related to real estate is included in the regulatory till
(**) Real estate with no monpoly condition or locational rent is outside the regulatory till. Otherwise 50% of the
commercial margin (difference between revenues and costs) is included in the till
As such in most of the regulatory regimes the Land is outside the airport
regulations.
Its earnestly requested that Land must be kept outside the regulation
Annexure III
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Quality and Regulation
AERA Act: Section 13 (1) (d) of the AERA Act requires the Authority to monitor
the set performance standard relating to quality, continuity and reliability of
service as may be specified by the Central Government or any authority
authorized by it in this behalf.
Concession Agreement of GHIAL lays down quality parameters in clause 9.2 of
the concession agreement. The relevant provisions have mandated the
standards and time frame which are as follows:
The agreement lays down for carrying out ASQ (erstwhile IATA) survey every
year and achieving minimum 3.5 under ASQ survey. The time given for
achieving these parameters is from third year of airport operations.
Its earnestly requested that Authority may only monitor those quality
parameters as given in concession agreement
Annexure III
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Cargo & Ground Handling are not regulated as per
Concession Agreement
REGULATION OF CARGO, GROUND HANDLING AND FUEL
In the concession agreement of HIAL cargo facilities, ground handling and
fuel facilities are not treated as „Regulated Charges‟.
Schedule 6 of the concession agreement classifies regulated charges which
needs approval from the regulatory body.
These regulated charges are Landing, Housing and Parking charges,
Passenger Service Fee and User Development Fee only.
Therefore it is quite clear that regulation of cargo facilities, ground handling
and fuel facilities are outside the purview of the Authority.
Its earnestly requested that the Cargo, Ground handling and Fuel
must be kept outside regulations
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Other issues
• We request the Authority to allow Bad Debts as part of operating
expenses as these are normal business expenses.
• We request the Authority to allow 100% of the RAB as depreciation and
not 90% as that will mean that the full depreciation is not accruing to the
airport operator
Annexure III
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Request
Based on various submission made in this presentation and the
submissions made at the time of consultation we request the
Authority to:
• Approve DUAL till for GHIAL
• Keep land outside regulation
• Not to regulate Cargo, Ground handling and Fuel
• Not to impose new quality parameters.
• Allow 100% of asset to be depreciated
• Allow bad debt as part of operating expenses
Annexure III
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