Privatization and Concessions (PPP) In Airports

PRIVATIZATION AND CONCESSIONS
(PPP) IN AIRPORTS, Egypt - Feb. 2015
Loay Ghazaleh, MBA, BSc. Civil Eng.
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Content
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Introduction to Infrastructure & Airports PPP‟s
Key Success Factors in Airport PPP‟s
Transport Infrastructure PPP Framework
Airports PPP Market Examples , CEE,TURKEY, Brazil & USA
Global Airport Developers / Operators – (Fraport, GMR)
Focused Airports PPP‟s Successes (AIA, PIA, BIAL, DIAL)
Troubled Airports PPP‟s

Introduction to Infrastructure &
Airports PPP‟s
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Infrastructure Service Provision Options
Infrastructure
Services
Status Quo:
Govt creates
assets & provides
services
Privatization:
Private Sector
creates assets &
provides services
Commercialization:
Govt creates assets &
hands over to Pvt
Sector to provide
services
PPP/ PFPI

Usually!
Limited Number of Profitable & Large Projects
PPP
Larger Number Of Marginally Profitable Projects
Govt.„Leveraged‟
Privatization
Unprofitable, But Imperative Projects
Budgetary
Allocation
Maintenance Works
Dedicated Funds

PPP‟s & Airport Development
 The Airline Industry is dynamic and competitive sector - Leading factors: higher income and lower
air ticket prices
 There is a huge need for infrastructure developments at many airports markets, but public budgets
are limited.
 Service quality deterioration - Main airports already present operational bottle necks
 Infrastructure must be aggressively expanded to meeting the forthcoming demand
 Enhancing service level is critical (population‟s claim)
 The airport market has to be redesigned to meet its challenges
 There is no predefined airport model, but the solution certainly relies on private participation:
Opportunities!
 PPPs can provide a solution when the resources of private and public partners are bundled where
conventional privatizations are not possible.
 To be considered as investment opportunity by the private sector traffic has to be above certain
thresholds - but only few air transport markets have sufficient traffic yet.Thus Government subsidy
may be needed.
 PPPs with a fair allocation of risks and rewards provide a means to raise necessary funds and know-
how on the basis of a realistic business case.
 Risk mitigation strategies have to be developed to protect the public and private partners,including
e.g. re-definition of the airport value chain, tax advantages,direct subsidies,etc.
 The uniqueness of each airport development requires always a tailored approach structuring a PPP.
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Growth Factors of Passenger & Cargo
Markets – The Aviation Industry!
Passengers;
 Rapidly developing transportation markets
 Growing interests of the Low Cost Carriers, and market stimulation effect
 Passengers Markets Integration
 Participation of national carriers in Alliances (e.g. LOT – Star Alliance)
 Seating capacity on international flights continually increasing
 But: No domestic air transport markets in many countries
Cargo;
 Lessor Cargo Markets Integration. Real intra-continent cargo flows does not exist
yet. For example 80 % of inter-continental European air cargo traffic is with Asia and
less than 10% with Middle East countries.
 Huge transit potential, but poor cargo infrastructure at most airports
 Air imports are dominated by IT goods, pharmaceuticals, electronic, machinery parts
and textiles goods

Rationale for Airport PPP‟s
 Government as the only source of funding limits investment to
modernize airport infrastructure to handle increasing traffic volumes;
 Airport and service providers held monopoly power which led to high
prices for low service standards;
 PPP is seen as a „fast track‟ to modernizing and improving airports
performance;
 PPP maximizes investment efficiency in terms of risks allocation;
 Allows sustainable airport development with knowledge transfer to
bring the level of air transport services and facilities to be at par with
international standards
 PPP offers a combination of developmental & operational expertise from
the private sectors coupled with investment capability from the
international arena with reputable local stakeholders.
 The liberalization of the aviation industry creates a constructive cycle of
economic growth by making the industry more competitive, efficient and
increasing accessibility to a larger proportion of the population.
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PPP Fundamentals
Public Private Partnership
Outcome
Specification
Lifecycle
Costing
Risk
Transfer
Clear
Revenue
Streams

Airport Privatization
• Airport privatization is an ongoing international trend
which has brought a diverse range of new operators
and investors into the industry
Tendency
• Potential key benefits include access to new funding and
more efficient and commercial Operations but also
increased network economies as part of larger group
Motives
• Each privatization option has a number of advantages
and drawbacks and each airport requires a different
approach
Options
AIRPORTS AND AIRTRAFFIC CONTROL: PUBLIC PROVISION
AIRLINES AND AERONAUTIC INDUSTRY: PRIVATE PROVISION
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AIRPORT PRIVATISATION TRENDS
 The airport business is very capital intensive and substantial investment is needed
to accommodate traffic growth. Attracting private capital was seen as an option for
airport development.
 The privatization run of the 1990s slowed down after 2000 and recovered prior to
the 2007 crisis in Europe and North America, where we saw the highest level of
activity – in line with anticipated worldwide traffic increases. Following another
slow down in the period 2008-2011 privatization activity restarted with major
initiatives undertaken in UK, Portugal and several countries in the CEE region.
 Still only a limited percentage of the world‟s airports can be considered as being
privatized.
 Projects embrace all types of concessions and models and a wide range of financial
instruments; in developing countries (Asia in particular) Public-Private-Partnerships
are increasing.
 Investor groups are diversifying and expanding their business scopes; IPOs and
green-field developments are increasing (with mixed success).
 Activity in CEE is diverse in terms of privatization structures, but initiatives are
constrained by investment climate and air traffic considerations.
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Need for Private Participation in Airport
Infrastructure
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To bridge the resource gap for achieving the following
objectives;
• To build world-class airports with modern technology and
efficient management practices.
• To make the airport user friendly and achieve higher level of
customer satisfaction.
• To lay special emphasis on the development of infrastructure
for remote and inaccessible areas.
• To provide airport capacity ahead of demand.
• To encourage greater efficiency in Airport Operations.
• To provide multi-modal linkages.

Private Sector Involvement in the Airport
Industry
 While we see highest level of traffic activity that could induce more
Airport privatizations , still only 5% of the world‟s airports can be
considered being privatised
 Airport Projects embrace all types of concessions and models and a wide
range of financial instruments; in developing countries (Asia in particular)
Public-Private-Partnerships are increasing
 Investor groups are diversifying and expanding their business scopes; IPOs
and green-field developments are increasing (with mixed success)
Popular Schemes for Airports Developments
 IPO (as a whole or subdivided usually started as a JV)
 Construction and Operation of Airport / Components By Private
Companies
 Airport Concessions To Private Sector

Motivation of Public, Private Sector and
Lenders in PPP Transactions
 Enhancing the ability to
raise capital
 Transferring
responsibilities and
risks
 Improving airport
infrastructure and
customer service
 Increasing efficiency of
airport construction
and operation
 Know–how transfer
 Privatisation proceeds
(concession fees, tax
income)
Public Sector
 Proper risk allocation
among the parties
through a balanced
financing structure
 Being repaid according
to schedule while being
adequately
compensated for the
risks which remain
with the lender
 Assuring competent
airport management
and market
environment for the
project (as part of risk
mitigation)
Lenders
 Strategic objectives
(e.g. market entry)
 Maximizing investor
returns via sustainable
growth, operational
efficiency and
commercial
opportunities
 Limit the project risks
to those which can be
managed by the private
sector
Private Sector

Highlights of an Airport PPP Model
PRIVATE FUND SOURCES - ALTERNATIVETO GOVERNMENT FUNDING
• Sources of fund (debt and equity) extend beyond government funds to include airport operators,
banks and other investor groups;
• Government may not be required to guarantee debt provided by local and foreign banks /
financial institutions.This enable the government to meet the infrastructure needs of the country
to facilitate economic development without adversely affecting its fiscal budget;
• Government acts as a shareholder / equity sponsor along with private parties in the Airport
Company (Special Purpose Company).
• Similar to a private shareholder / investor, government gets a return on its investment /
commitment in the airport
ENHANCED RISK ALLOCATION AND MITIGATION
• Project risks (regulatory,construction, operating,revenue etc) are mitigated as various risks are
allocated to private and public entities which are best equipped to manage those risks.
MAXIMIZINGTHE AIRPORT POTENTIAL
 Maximizing the lifespan of the airport system;
 Optimizing the utilization of available airport land resources and existing facilities;
 Safeguarding future development by means of a coherent and comprehensive phasing strategy;
 Balancing airside and landside demand and capacity in each phase of development
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Advantages & Disadvantages of using PPPs
 Deliver value for money
 Project may become affordable within
the annual public budget
 Force the public sector to focus on
output and benefit
 Competition already in the design and
engineering phases (achievement of
performance-orientated prices and cost
minimising effects)
 Maximises the use of private sector
skills
 Adequate risk sharing
 Delivers assets on time and budget
 Partly or completely off public budget
 Conclusion of fixed utilisation fee and
defined price adjustment clauses
 Loss of management control by the
public sector
 Voluminous agreement system
especially on items like control,
devolution, reversion of rights and
events of default
 Higher cost of finance
 Long term, relatively inflexible
contractual commitment
 Risk of insolvency (selection rights to
be agreed)
 Higher efforts for control and
monitoring of (quality standards) for
the community
 Tax duty
Advantages Disadvantages
PPPs are not “one size fits all” solutions
(each individual project has to be assessed for its PPP suitability)

Weakness of Traditional Procurement
• Project selection often driven by political rather than social or economic priorities
• Project design and structuring is inadequate : modern infrastructure projects are technically,
financially and institutionally complex
• The public sector‟s negotiating capacity vis-a-vis the private sector places it at a significant
disadvantage at every stage, both prior to award and during project implementation
• Project implementation is usually marred by significant delays and cost-overruns, which make a
nonsense of the project‟s projected economic viability, and, owing to inadequate risk distribution,
lead to growing contingent liabilities for government
• The quality of the asset is often below standard, leading to high maintenance costs or even
premature replacement or abandonment
• The quality of the projected services consequently falls well below public expectations, leading to
loss of political credibility and public perceptions of cronyism between the political and private
sector
• Poorly designed projects either find it difficult to raise finance and when they do succeed, it often
comes on punitively expensive terms and conditions
• Overall, projects take longer and are delivered more unsatisfactorily than election promises made,
with inevitable erosion of popular political support.

PPP Benefits for Government
Budgetary
Management
Exposure to
Private Sector
Skills
Smoothing of
CapEx Spend
Profile
Public Private
Partnership
Certainty &
Quality of
Service
Timeliness of
Delivery
OptimiseWhole-
Life Design &
Costing
Better Risk
Allocation
Generation of
Third Party
Revenues
PPP Potential Projects Requirements:
 Requirement for capital investment, either now or in the future
 Substantial service content within the requirement
 Scope for innovation in services delivery
 Competitive market, interested in the public sector‟s business,
 Private sector is better able to manage risks currently taken by the public sector
 Long term contracts are feasible
 Boundaries of activity are clearly defined
Final decision against
key evaluation criteria:
PPP offers
betterValue for
Money than the
Public Sector
Comparator
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Additional Benefits to the Government
 To attain commercial viability
 To improve accountability relative to Government run
operation
 Allow flexibility to join new initiatives that are important to
local region - Example: rapid transit stations & cruse ships
terminal initiatives to ensure smooth passenger flow between
the Cruise Ship Terminals / train stations and airport
 Utilizing Project / PPP Finance allows;
 Isolating „Risk‟
 Project „Transparency‟
 Greater „Leverage‟
 Control/ Ownership issues

Making PPP Projects More Attractive?
 Strong political consensus on a cross-regional master plan (What? When? How?)
 Realistic project planning & budgeting
 Awareness that PPPs are not a magic formula: bad projects cannot become good PPPs
 Awareness that private partners need certain returns & stable Cash-Flows
 Feasibility Studies and Public Sector Comparator crucial for choosing the right projects and
appropriate financing structure (Public Procurement vs. PPPs)
 Openness for alternatives to bank loans for financing (e.g. Project Bonds)
 Sufficient capacity and skills on the public sector side (PPP Task Force) & experienced
private partners (e.g. advisors)
 Legislation and regulatory framework to allow the proper execution of concession projects
(concession law, expropriation issues etc.)
 “Best Practice”: replicate the process of successfully realized projects available in the market
 “Best Practice” (even if it is in another country)

Airports Infrastructure Market
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Funding PPP‟s
Stake Holder Equity Provider Source of Debt
Airport Operator Local Commercial Banks / Pension Funds
Strategic Investor Foreign Commercial Banks
Financial Investor ODA ( Official Developments Assistant
Loans & Grants)
Local Government Export Credit Agencies / Banks (EXIM)
Government Multi Laterals WB,ADB,AfDB, IFC
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Steps Taken By Government To Ease Financing Constraints
 Viability Gap Funding (VGF)
 Infrastructure Fund / Initiatives
 Enhanced Annual External Commercial Borrowing ceiling
 Project Bonds reporting and trading platform
 Permission to foreign financial institutions and multilaterals to
raise local currency resources
 Encouraging development of new instruments such as grading of
PPP projects/SPV rating by the major credit rating companies

Strong Political will /
stable regulatory
and legal framework
Secure and
Stable
Cash-Flows
Demand for
Project
Environmental
Aspects
Technical
Complexity
Early-
Termination
Regulations
Liability
of Sponsors
Debt Service
Reserve
Government
Support
Optimal Risk
Allocation
Bankability
Issues
Strong revenue
support e.g. through
availability
payment mechanisms
e.g. Step-in Rights,
compensation payments
Solid
Private Partner
and adequate
Equity contribution
PPP schemes are often only considered to avoid budget limitations, therefore the
pre-conditions are often insufficient causing failures and delays of projects
“BANKABILITY“ OF TRANSPORT
INFRASTRUCTURE PROJECTS

Europe 2020 Project
Bond Initiative
Example; Europe 2020 Project Bond
Initiative - Structure
Special Purpose Vehicle
SPV
PPP Contract
Public Procurer
Public Sector
Private Sector
Equity
Subordinated
Debt
Construction
Company
Operator
„Unitary Charge“ /
„Lease“ Payment
Senior Debt in
form of Project
Bonds
Investors buy
or underwrite
Project Bond
Guarantee
Facility
EIB
EU
Risk
sharing

PPP Project‟s Funding Life Cycle
- 25 -
3
Traffic growth
Airport concept
Air transport
market
potential
analysis
Institutional
Investors
Public Market
Securitization
Banks / Loans
Financial
Institutions
ABLs
Customers
Trade
Lease
Mezzanine
Finance
Government
Suppliers
Strategic Partners
Early Stage Equity
Funds
Mezzanine Finance
Private Funds
Angels
Micro-financing
Sources of
Financing
Maturity
Full Operations
Revenue Growth
Capital Sourcing
for Expansion
Expansion
Free Cash-Flow
generation
Positive Income
(fuel growth)
Growth
Revenue Generation
Start-up
Validation of Concept
Market Confirmation
Seed
Start-up Capital
(for Feasibility
Studies, Market
Testing, business
formation)
Investment
Phases
Facility and
process
improvement
Exploitation of
market potential
New route
development
Start of operation
Company formation
(SPV)
Airport development
concept/master plan
Operations concept
Route development and
airport marketing
concept
Airport
Company
Activity
(Conces-
sionaire)
GROWTH PHASESTART- UP PHASE
PROFIT
LOSS

Risks in Airport PPP‟S
AIRPORT
INDUSTRY RISK
NATIONAL /
REGIONAL
COMPETITION
PASSENGER
AND CARGO
VOLUMES
INDUSTRY
RISKS
REGULATORY
FRAMEWORK
POLITICAL RISK
PRIVATISATION
STRATEGY
NATIONAL
STABILITY
GOVERNMENT
CONTINUITY
MACROECONOM
IC RISK
ECONOMIC
REFORMS
CURRENCY
RISK
COUNTRY
RATING
GROWTH
PROSPECTS
INVESTMENT
CLIMATE
PROJECT RISK
MARKET
CONDITIONS
AVAILABILITY
OF FINANCE
MANAGEMENT
CAPABILITIES
SOUDNESS OF
CONCESSION
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Risk Allocation!
PUBLIC SECTOR PRIVATE SECTOR
Other Approvals
Tariffs Policy
Service Pattern
Construction RisksRight to Build
Change in Law
Discriminatory
Law
Force Majeure
Title to Land
Tax & Inflation
Finance Risks
Demand Risk
Availability
Maintenance Risk
Operations Risk
Operating
Interfaces
Risks allocated to Public
Sector
Risks allocated to Private
Sector
Residual Risk
The remaining risks constitute the negotiable part of the risk
allocation, on which the private sector is asked to compete
3

Optimal Risk Allocation
Principles of Risk Management
 Allocate project-specific risks to parties best able to bear them
 Control performance risks through incentive contracts
 Use market-hedging instruments (derivatives) for covering market-wide risks (interest
and exchange rate fluctuations)
Risk Management
 Demand Risk is partly mitigated through provisions for change in duration of
concession –both upside and downside
 Competition from other suppliers limited through a variety of non-compete clauses
 Escalation in input costs mitigated through indexation of user charges to inflation
 Construction and performance risk to be borne by the investor
 Political risk and force majeure risks borne by the Government
 Termination payments and terms protect against arbitrary termination by Government
 Land acquisition risk borne by government
 Risk relating to permits and approvals especially environment permission borne by
government
 Provision of other related infrastructure an obligation of the authority

Remember; Five Major Types Of
Response
1. Risk avoidance, whereby the source of risk is eliminated
or is altogether bypassed by avoiding projects that are
exposed to it.
2. Risk prevention, whereby actors work to reduce the
probability of risk or mute its impact.
3. Risk insurance, whereby an actor buys an insurance plan
– a common form of financial risk transfer.
4. Risk transfer, whereby actors relocate risks to parties
who can best manage them.
5. Risk retention, whereby risk is retained because risk
management costs are greater.

Risk Types
 Examples of endogenous risk (usually company can control / transfer) :
 Equipment and physical structure (e.g. buildings, roads) deterioration.
 Wasteful use of inputs (i.e. x-inefficiency) – includes wasteful use of raw
materials, appointment of too many personnel.
 Failure to manage risk related to input prices (e.g. failure to negotiate best
price; failure to use hedge prices through use of future and forward contract).
 Failure to implement accounting and auditing procedures that leads to theft,
fraud and corruption.
 Examples of exogenous risk (unforeseen!)
 Unforeseen technological redundancy (e.g. ICT).
 Unforeseen demographic changes (e.g. migration, changes in labor force
participation, changes in population composition).
 Unforeseen changes in preferences (e.g. high-speed trains vs. airplanes).
 Unforeseen environmental changes (e.g. costs arising from pollution
management and pursuit of cleaner energy use).
 Unforeseen natural and manmade disasters (e.g. costs arising from floods,
wildfires or political acts).
 Unforeseen exchange rate movements driven by speculation.

Final Risk Thoughts!
Transfer of risk in PPP does not imply the maximum transfer of risk
to the private partner. It means that the party best able to carry
the risk, should do so.
 Leiringer (2005): Is this the party with largest influence on the
probability of an adverse occurrence happening, or the party that
can best deal with the consequence after an adverse occurrence?
 Corner (2006): To best manage risk means to manage it at least
cost.
 If cost of preventing an adverse occurrence is less than cost of
dealing with consequences of the adverse occurrence, then risk
should be allocated to the party best able to influence the
probability of occurrence.

Key Success Factors in Airport
PPP
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PPP Project Development
Standardized Approach
Contractual &
Bid
documentation
Bid Process
Feedback &
Monitoring
Project Conceptualization
Bid Process Management
Project
Identification
Technical
Feasibility
Financial
Viability
Project
Structuring
Options
Resolution of
Implementation
Issues

INCEPTION
Decision to explore PPP option
Register PPP project with PPP Unit
Assign Project Manager
Draft terms of reference and AppointTransaction Advisor
Negotiate and finalize contract with Transaction Advisor
FEASIBILITY STUDY
Feasibility Study (TA)
Solution option analysis
Project due-diligence
Value Assessment
FinancialAssessment
EconomicAssessment
Procurement plan
Evaluate recommendations of TransactionAdvisor
EstimateVGF or concessionary requirements
Market testing
Review market test results
Determine final PPP design parameters
Review by Project Feasibility Committee
Recommend, for long-term fixed rate local currency financing to
fill any market gaps
If required,project submitted toVGF Committee

DEVELOPMENT
DELIVERY
EXIT
PROCUREMENT
Draft tender documents (RFQ, RFP, draft contract)
Pre-qualify parties
Issue request for proposals with draft contract
Receive bids
Evaluate bids by comparing bids with feasibility study
and each other
Select preferred bidder and negotiate
Financial Closure – Agreements finalized and signed
Close-out report and case study

Successful Airports PPPs
 Size - traffic volumes at
satisfactory levels
 PAX profile - purchasing
power to make commercial
ventures viable
 Traffic - regular and growing
flow of traffic
 Connectivity -The major
markets (tourism and
business) should be served
frequently
Airport
 Rights and obligations -of
the Public and Private sector
should be clearly defined and
the technical requirements
specified in detail
 Exclusivity - airport
development should be
safeguarded from a
detrimental level of
competition
 Termination rights -clearly
linked to contractual defaults
Concession
 Feasible Strategy - when
it comes to generating
additional traffic and
maximizing aeronautical and
non-aeronautical revenues
 Realistic assumptions -
with high and low scenarios
and sensitivity analysis
 Financing Structure -
could make or break a deal
 Integration - in the overall
regional and industrial
context
Business Plan
Successful PPPs are based on attractive assets, clearly
defined concessions, and a sound business plan

Key Success in Airport PPP‟s
 Sound Regulatory Environment / Neutral Regulator With Clear Guidelines
 Sound Concession Agreement - Appropriate PPP Model with Reasonable
Concession Fee
 Stakeholder Management - Reconciling Divergent Considerations and with Local
And Central Government Acting As One Entity
 Qualified Project Partners / Strong Private Consortium - Best In Class Service
Providers
 Realistic Risk allocation / Business Plan Acceptable By All Parties
 Demand Forecasting – Accurate with Risk mitigation
Others Factors Include;
 Limiting change during construction;
 Airport is just one link of the air traffic infrastructure. Allied infrastructure (railways, roads,
ATC etc.) should be part of airport project;
 Airport city / economic zone planning to strengthen attraction / viability of airport
37

Sound Regulatory Environment
Open to foreign direct investment (FDI) with
respective investment code and legal framework.
Stable with regard to tax laws and foreign
exchange transfers.
Transparent aviation tariff scheme which leaves
room for adjustment induced by legal or macro-
economic factors.
Clear approval mechanisms and a clear division of
tasks among the various regulatory authorities.
38

Interfaces of Regulation - The Civil Aviation
Sector
 The civil aviation sector can be represented in terms of regulatory interfaces
by the following structure: arrows denote interfaces.
Airports
Airlines Companies
Passengers Cargo
Public Private Partnerships
Competition between Airports
Competition between Airlines
Service
Providers
Service
Providers
1
2
3
4 5
6

Typical Civil Aviation Sector –
Development Policy Framework
The overall functions include regulation of air transport services to/from/within/over the
Country by Local and Foreign operators, registration of civil aircraft, formulation of air
safety and airworthiness standards for civil aircraft registered. It oversees the licensing
of pilots, aircraft maintenance engineers, flight engineers and air traffic controllers.
Several Policies at the authority disposal;
 PPP Policy:
Embracing various PPP models is needed.
 FDI Policy:
→ Usually up to 100% FDI is permissible with special approvals.
→ For Greenfield airports,100% FDI is permissible.
→49% FDI is usually permissible in domestic airlines but not from foreign airline.
 Taxation Policy:
Usually there is provision of 100% tax exemption for airport projects for a number of period
(10 years).
 Open Sky Policy:
„Open Sky‟ policy is desired as it results in the entry of new private airlines in the industry and
in increased frequency of flights of international carriers.

Slot Allocation – Interface between
Airports and Airlines
 For airports managed by Airport Authorities , the authority allocates the slots. For private
airports, the slots are allocated by the concerned SPV in coordination with aviation authority.
 Domestic airlines who want to operate at an airport, file for the landing or take off slots with the
authority and the respective airport operators. Slots usually are allocated twice a year. Usually
there are no charges for peak and non peak slots.
 The slot requests are analyzed vis-à-vis airport capacity parameters viz. runway, apron and
terminal building. Based on the analysis, airport operators either approve the slots in respect of
the airports or generate a list of alternate offers. These approved and offered slots are discussed
in a meeting where the airlines.
 Allocation of slots is based on (i) “Grandfather Rights” meaning slots allocated to a particular
carrier in the previous season and which were used to a significant extent, are reverted to the
same carrier. This policy accounts for allocation of a large majority of slots, particularly at peak
times.
 In the context of airlines mergers, „Use it or Lose it‟ rule implies whereas the acquiring airline, is
allowed to take control of the airport infrastructure, including slots.
 Slot is, therefore, a key asset for the airlines in the air space sector. It gives an airline an
advantage since it helps them to capture the market. In this regard, the process of grandfathering
of slots acts as a major entry barrier as it means that the slots allocated to a particular carrier in
the previous season and used to a significant extent, will be reverted to the same carrier.

Legal & Regulatory Framework
The legal & regulatory framework, provide conditions for grant of
license, validity of license, tariff fixation including levy of Passenger
Service Fee and User Development Fee, Ground handling
provisions etc.
Independent Airport Economic Regulatory Authority is
essential to;
Setting aeronautical price cap
 Charging of Aeronautical Charges by any JVCs,
Monitoring and assessing service quality performance standards
set by the Government
Review and assess aeronautical, operating and capital
expenditure
42

Keys Legal / Regulatory Issues in the
Agreement
The JV agreement with the Government should provide protections in matters
relating to;
 removal of encroachment or procurement of additional land for development of airport,
 removal of obstruction outside the airport boundary to ensure safe and efficient air
traffic movement, best endeavor to improve the surface access to the airport and to
 provide all the utilities namely water, power etc.
 assistance in procuring various clearances
The agreement needs to include a Provision of Statutory Services namely Immigration,
Customs, Health, Security etc.
The agreement typically includes Right of First Refusal for the Developers in case a green
field airport comes up within xxx kms of the airport being developed.
On the other hand; agreements should not confer any right to JVCs for enforcement of any
obligations of the Government or consequently for any damage or loss incurred by JVCs or
by any party.
43

PPP – Stakeholders - Reconciling
Divergent Considerations
• Attract new capital for infrastructure.
• Increase efficiency in project delivery, operation & management.
• Shift responsibilities and risks to the private sector.
PUBLIC SECTOR
• Strategic considerations of managing a portfolio of investments.
• Reduce various types of risk and shift to other partners.
• Exploit profit opportunities through better management.
PRIVATE SECTOR
• Proper assessment and allocation of risks especially demand risk.
• Secure repayment of loans on time.
• Selection of the best consortium in terms of management in
order to secure long term viability of project.
FINANCIAL INSTITUTIONS
44

Qualified Project Partners
Have the necessary know-how for the
development of the project.
Have the financial capacity to fulfill necessary
equity payments and sponsor support
obligations.
Have good knowledge of local market and
conditions. Well connected with the local
authorities
Have specified their relationship among each
other and third parties in a well drafted
contractual and financial structure.
45

Risk Considerations in PPP‟S
Construction
risk Private
Sector
Availability
risk
Private
Sector
Demand
risk
Public
Sector
• Construction Risk – wholly
undertaken by the private
sector.
• Availability Risk – a
government will be assumed not
to bear availability risk if it is
entitled to reduce significantly
its periodic payments.
• Demand Risk – a government
may assume this risk where it is
obliged to ensure a given level
of payment to the partner,
independently of the effective
level of demand expressed by
the final user, rendering
irrelevant the fluctuations in
level of demand on the partner‟s
profitability.
46

PPP in Airport Infrastructure
In Airports concessions, construction, operations and financing risks are usually transferred
to the Private Partner within the limits of the Government risk mitigation scheme. TRAFFIC
IS USUALLYA SHARED OR CONTROLLED RISK
PPP in airports can apply to most infrastructures – passenger terminals, cargo terminals,
runways, etc.-, however, Air Traffic Control (ATC), needs different arrangement and
different partners.
Critical factors in Airport valuations include;
 Traffic Potential
 Catchment area, population size, propensity to fly
 Natural traffic flows (tourism, diaspora)
 Domestic and regional competition
 Key Clients
 Strategy towards airlines: Anchor airline, Airline mix, Low Cost Airlines
 Malev effect (Hungary's flag carrier collapse in February 2012)
 Capex
 Benchmark of capex volume, costs per m², considering complexity, number of bridges etc.
 Opex
 Efficiency in operations, staff, outsourcing
47

KEY AIRPORT DEMAND
CHARACTERISTICS
Traffic
volumes at
satisfactory
levels
Well defined
catchment
area with
limited
direct
competition
Regular and
growing
traffic with a
combination
of regular and
charter
connections
Dynamic
passenger
profile with
high
spending
power
Regular
service
covering
main
market
segments
48

Traffic Forecast
 “Forecasting traffic demand is crucial in transport PPPs since traffic
influences both project costs (through capital and maintenance
expenditures) and project revenues, especially if direct user charges,
such as tolls, are the main source of cash flow for the PPP Company.
 An accurate estimation of the future level and composition of traffic
volumes is, however, a difficult task as: traffic forecasts tend to
overestimate actual traffic levels (the so-called “optimism bias”) ; and
inflated traffic forecasts may be linked to traffic modeling flaws but
also to strategic decisions of PPP consortia when they bid.
 Traffic forecasts commissioned by the lending banks, for example,
are less prone to traffic optimism bias.
 Given such uncertainty, the allocation of traffic revenue risk is a key
decision in the design of a transport PPP contract and the payment
mechanism”.
49

THREE MAIN OPTIONS TO ADDRESS
DEMAND RELATED RISK
50

Transport Infrastructure PPP
Framework
51

Introduction: PPP Popular Sectors
Public Private Partnerships
Industry Transportation Social InfrastructureUtilities
Oil and gas Roads, bridges,
travels
Airports
Seaports
Rail lines
Powerplants
Desalination water
/
treatment plants
Waste disposal/ recycling
,waste-to-energy & DC
Hospitals and clinics
Schools
PrisonsWastewater
treatment plants

 Design-Build (DB)
 Design Build-Operate (DBO)
 Operation & Maintenance Contract (O & M)
 Design-Build-Finance-Maintain (DBFM)
 Design-Build-Finance-Maintain-Operate (DBFMO)
 Build-Own-Operate (BOO)
 Build Operate Transfer (BOT)
 Build-Own-Operate-Transfer (BOOT)
 Buy Build Operate (BBO)
 Build-Own-Lease-Transfer (BOLT)
 Lease Renovate Operate and Transfer (LROT)
Typical PPP Models

Forms of Concession-I
Model Description Application
Build-
Operate-
Transfer
(BOT)
 Private investors are provided with a
concession to finance, build, operate and
maintain a facility
 during the concession period, the investor
collects Tolls from the users as a return to
their investments.
 At the end of the concession period the
facility is transferred back to public authority
on a pre agreed condition
Developing highway
networks, power
plants, utilities sectors,
air port, port and bus
terminals
Build-Own-
Operate
(BOO)
 Similar to a BOT model, without the transfer
of ownership. Ownership is perpetual
Telecommunication
projects, waste water
treatment plants,
power plants
Build-
Transfer-
Operate
(BTO)
 The private sector parties builds a facility and
transfer it to a public authority, after
construction
In “controversial” or
projects with high
opposition to private
sector participation

Forms of Concession-II
Model Description Application
Build-
Operate-
Lease-
Transfer
(BOLT)
 Similar to a BOT project, except that the
transfer is carried out over the years by
lease agreements
Developing power
plants, utilities
sectors, port
terminals
Lease-
Develop-
Operate
(LDO)
 Public authority retains ownership of the
facility under a lease agreement.The lessee
finances development and oversees the
operation
Airport facilities
Rehabilitate-
Operate-
Transfer
(ROT)
 Private sector rehabilitates and operates a
facility during the concession period, and
transfers the asset/facility to the public
authority at the end of the period
Retrofit sewage and
water systems

Evolving PPP!
 1st Generation PPP Projects: Asset Monetization
 2nd Generation PPP Projects:Variable pricing
 3rd Generation PPP Projects:Value-for-money (VfM), Cost-
benefit analysis
 Example - BOT
 User Fee Based
 Annuity Based
 Performance Based
 Turnkey Contracts
 Example,THEN!
 BLT
 DBFOT
 OMT
 BOO

With Many Definitions!
 IMF: PPPs refer to arrangements where the private sector supplies
infrastructure assets and services that traditionally have been provided by
the government.
 European Investment Bank: PPPs are relationships formed between the
private sector and public bodies often with the aim of introducing private
sector resources and/or expertise in order to help provide and deliver
public sector assets and services.
 European Commission: PPPs refer to forms of co-operation between
public authorities and the world of business which aim to ensure the
funding, construction, renovation, management and maintenance of an
infrastructure of the provision of a service.
 Standard and Poor’s: Any medium- to long-term relationship between
the public and private sectors, involving the sharing of risks and rewards of
multi-sector skills, expertise and finance to deliver desired policy
outcomes.

PPP OECD Definition
 PPP is an agreement between the government and one or more private partners
(which may include the operators and the financers)
 according to which the private partners deliver the service in such a manner that
the service delivery objectives of the government are aligned with the profit
objectives of the private partners
 and where the effectiveness of the alignment depends on a sufficient transfer of risk
to the private partners.
 The private partners usually design, build, finance, operate and manage the capital
asset, and then deliver the service either to government or directly to the end
users.
 The private partners will receive as reward a stream of payments from
government, or user charges levied directly on the end users, or both
(Concessions vs PPPs).
 Government specifies the quality and quantity of the service it requires from the
private partners.
 There is a sufficient transfer of risk to the private partners to ensure that they
operate efficiently.

 No Government funding, subsidies or grants for operation or construction of
infrastructure may be required
 Net earnings are re-invested in airport development & services improvement
 Annual “rent” is paid to the government
 Annual “rent” is composed of base rent plus a percentage of gross revenue
earned by Operator
 PPP Sources of Revenues
 Airport improvement fees
 Terminal fees
 Concessions
 Landing fees
 Car parking
 Others
Typical PPP Arrangements in Airports

CLIENT (GRANTOR)
LENDERS
TECHNICAL
ADVISOR
LEGAL
ADVISORS
PROJECT COMPANY
(Subsidiary of Developer)
Developer
CONTRACTOR
Subcontractors Suppliers
Technical
Consultants
3rd Party
Independent
QA/QC
Architect
Author
BOT /
CONCESSION
AGREEMENT
EPC
CONTRACT
Parties in PPP - Typical BOT Scheme

To Enhance the Feasibility – (ALL) Revenue
Sources to be Transferred to the SPV
SPV
Pax and A/C
Handling
Services
Landside
Service
Concessions
...
Airside Service
Concessions
Cargo Handling
Concessions
...
Concession Revenue
Concession Revenue

Concession Agreement
Government & Project SPV
SHA
Equity Investors
Equity Investment Agreements
With Pvt Equity Investors
Construction/O&M Contracts
Project SPV & Contractors/ Operators
DLA/ Substitution
Project SPV, Promoters,
Lenders, Government
State Support Agreement
Government & Project SPV
Loan Agreements
Lenders & Project SPV
Inter-Creditor Agreements
Inter-se the Lenders
Pledges & Hypothecations
Lenders & Promoters Site Lease Agreement
Project SPV & Land Owner
TRA Agreement
Trustee Bank, SPV, Lenders
Bank Guarantees etc
SPV Agreements

Privatisation Strategy - Financial Criteria
for the SPV as the Operating Concessionaire
 The composition of investors is driven by Government interests, investor interests
and availability of local, regional and international capital, typical SPV shares;
 The Government will take an appropriate capital share (ranging from10% up to
50%)
 Foreign investors / operators of the new airport will take a majority share (can go
up as high as 60%)
 Strategic investors usually take a minority share (like 5%).
 Local investors can take as high as 30%.
 The split of shares in any PPP needs to in line with the risks and rewards associated with
the investment.
 Start-up equity of the SPV usually should be at 50%, depending on the composition, i.e.
cash vs. assets provided by construction firms
 The long-term debt/equity-Ratio as based on a realistic business plan shall not be lower
than 70 : 30 during the term of the concession
 Internal Rate of return (IRR) of at least 12% for SPV to reflect various risk dimensions
properly
 SPV pays concession fees to the Government, dividend to the shareholders
 ability of the SPV under various scenarios and loan structures
 (ALL) Revenue Sources to be Transferred to the SPV to ensure positive cash-flow during
the term of the concession for debt service . SPV to enjoy TAX holiday status!

Traditional Transports PPPs Definition
 A contract is awarded or signed between a public entity and a
private company (concessionaire) for the design, construction,
operation and maintenance of a specific material asset,
 The asset is an Air / Sea / Land system (Roads, Rails, Seaports and
Airports) or any sub-system (track, signaling, rolling stock, etc. –
Planes, ships are excluded and considered asset finance type)
 After contract’s termination, the public authority retains
ownership of the asset,
 The concessionaire is in charge of the funding of the asset,
including debt and equity, but may receive initial subsidies or
ongoing fees from the public authority over the asset’s lifetime,
 The concessionaire is bearing risks related to construction,
financing, operation and maintenance costs, but may or may not
bear risks related to commercial revenues.
64

PPP Groups in Infrastructure
Development Projects
PPP Group Characteristics Government Remuneration
Privatization
(Not PPP)
 100% Sale / IPO  Priority for upfront cash, indefinite Sale
 Framework given by the law
Concession
(Mostly Roads
& Rail)
 Concession defines obligations
on level of service
 Grantor keeps control and
looks for improvement in
efficiency and quality
 Government remuneration can be up-front
payment, or an annual concession fee, or a
combination of both
 Framework given by the concession
agreement
 Long term scheme (25 years up to 99 years)
BOT
(Mostly
Airports &
Sea Ports)
 Medium term agreement
focused on the immediate
implementation of a capital
investment program
 Upfront cash is not a priority
 Annual fee paid to the Government (initial
financial effort is on investment program)
 Framework given by the BOT agreement
 Term is set according to the initial
investment (usually medium term from 15 up
to 25/30 years) with possible extension
JV & Alliance,
etc ( Mostly
in O &M , sub
systems)
 Include a “Public control”
dimension in the company
governance but the Private
Partner remain in charge of
company affairs
 Dividends and Profit Sharing
 Aligns Public and Private economic interests
 Contributes to the cash equity of the
company
65

PPP Project Bids Parameters
66
PPPProjectDesign
Design by the
government
BEFORE the
tender
Needs to be precise with clear specification
Can lead to adopting too ambitious projects
Usually takes more overall time (preparation is not constrained by
bidding submission deadline)
At Government’s cost but can be refunded by the winning bidder
concession company
Design by the
bidders as part of
their offers AFTER
the tender phase s
started
The tender specifies a technical program in terms of capacity and
level of service
Allows to start tender earlier , faster overall process with
continued responsibility (and cost) of the bidders
Bidders need to finalize the design after the award and before the
construction starts
Requires a technical evaluation component in award decision
process
TariffStructure
Fixed in the tender
documents
Defines a common base for all bidders
Allows the government to control commercial conditions and in
particular the national company when it exist
Solution adopted in the large majority of the projects
To be proposed by
the bidders in their
offer
Allows for innovative schemes to be proposed
Sometimes difficult to evaluate
Poses the issue of responsibility for the implementation of the
proposed solution

PPP Selection Criteria in Infrastructure
Development
Selection Criteria Characteristics
Single criteria selection  Need for all parameters of the bids to be defined in the tender
document including design, level of service proposed, concession
duration etc
 Decision is made on 1 single financial criteria such as
• Remuneration of the conceding authority
• Level of investment
• Level of charges for the users of the project
 The evaluation process can include a previous pass or fail technical
qualification filter
 Value for money may not be achieved.
Multiple criteria
selection
 The evaluation process requires the establishment of marks for
each of the selected dimensions in economical, technical, social…
fields in addition to main financial mark
 Technical and Architectural offer
 Social and/or environmental proposal
 Level of service proposed , concession duration, Investment
 Tariff structure proposal.
 The decision sometimes appears less objective and can lead to
litigation
67

Airport PPPs Options
68
POLICY
OPTIONS/ROLES
OPTION 1 OPTION 2 OPTION 3
PPP OPTIONS
 Service
Concessions
 Management
Contracts
 Multiple
Concessions
 BOT, BOOT, BTO.
 LongTerm Leases
 Master Concessions
 Multiple
Concessions
 Trade Sales
 Capital Markets
OWNERSHIP STATE STATE PRIVATE SECTOR
INVESTMENT STATE PRIVATE SECTOR PRIVATE SECTOR
MANAGEMENT
/OPERATION
PRIVATE SECTOR PRIVATE SECTOR PRIVATE SECTOR
DURATION SHORT MEDIUMTO LONG LongTerm
REVENUE
CONSIDERATIONS
Annual fee
A combination of
upfront fee and annual
fees
Priority for upfront
payment
BOT = Build-Operate-Transfer; BOOT = Build-Own-Operate-Transfer; BTO = Build-Transfer-Operate;
LDO = Lease-Develop-Operate
Source ; Lufthansa Consulting

Operation &
Maintenance
Contract
Design
Build
Design
Build
Operate
Lease
Develop
Operate
Buy Build
Operate
Build
Transfer
Operate
Build
Operate
Transfer/
Concession
Build Own
Operate
Roles, Skill Requirements, and Risks of Private Sector
Low
Fully
Public
Fully
Private
High
PPPs : Spectrum of Options

70
Duration
Ownership of
assets
Source of
capital
investment
Private sector
responsibility
Operation
Risk
Revenue
Infrastructure
development
Management
Contract
3-5 years 3-7 years 20-30 years Indefinite
Public Private
PrivatePublic
Tariffs based on full cost recoveryO&M costs
+ rental fee
O&M costsMgt. fee
PrivatePublic
EverythingMgt. + O&M
+ Some
investment + Investment
PrivatePublic
Privatisation
Lease
Contract
O&M
Contract
BOT/BOO/
BOOT
Concession
Select the ‘RIGHT’ PPP Model
5-15 years

PPP – Duration Versus Ownership
Duration
Increasing level of delegation, risk & irreversibility
Service
contracts
Management
Contracts
Leases
Concessions
Divestures100 % non-public
ownership
100 % Public
ownership
5 10 15 20 25 30
BOT
BOO
Governments‟
Role
Provider
Enabler/ Regulator

PPP Models Involvement Levels
Degree of Priv ate Sector Involvement
DegreeofPrivateSectorRisk
Design-Build
Government
Operation / Maintenance
Service /License
Design-Build-Operate
Lease-Develop-Operate
Build-Lease-Operate-Transfer
Build-Own-Operate-Transfer
Build-Own-Operate
Buy-Build-Operate
Privatisation

PPP - Participation vs. Sector Maturity
Responsibility / Involvement of
Private Sector
Asset ownership
with operational
and commercial
responsibility
No asset
ownership; with
operational
responsibilities
Low cost
recovery
Full cost
recovery
Service
Contract
Management
Contract
Lease
Concession /
BOT
Divestiture /
BOO
Key Considerations
 Service contracts: Cost-effective way to
meet special technical needs, but benefits are
limited
 Management contracts: useful for rapidly
enhancing technical capacity, efficiency, and
degree of private sector‟s involvement
 Leases: An efficient way to pass on
commercial risk. Appropriate when large
scope for operating efficiency and limited
scope for new investments
 Concessions: Pass full responsibility for
operations and investment to the private
sector
 Build-operate-transfer (BOT) or
variations resemble concessions but are
normally used for greenfield projects, such as
wastewater treatment plant

JV vs. PPP
Project
Public Sector Private Sector
Assets $$$
O & M
Service Product
End User
Public Sector Private Sector
Assets
$$$
O & M
End User
Project Service
Public
Service
Service
Contract

Airport PPP Market Examples –
CEE, TURKEY, Brazil & USA
75

MAJOR AIRPORT PPPs CEE & TURKEY
77

MAJOR AIRPORT PPPs CEE & TURKEY
79

Brazilian Airports Government - Airport
Concessions Pipeline
80

São Gonçalo do Amarante Airport
81

Examples of U.S. Airport PPPs:
 Orlando-Sanford Airport (TBI Airport Management)
 In 2008, AIB One LLC, a GE Commercial Aviation Services (GECAS)
company, opened the privately-developed South Terminal at Austin-
Bergstrom Airport in Texas; it was then closed down a year later (due to
economic downturn and swine flu in Mexico) and returned to the city‟s
Aviation Department
 In 2009, the first private greenfield commercial airport, Branson, opened.
Operates entirely outside of FAA‟s remit, apart from safety and security
requirements
 Other examples:
 HAS Development Corporation (with OMERS and ADC)
 JFK Terminal 4
 FortWorth Alliance Airport
 Management contracts at commercial airports (Albany, Burbank, Indianapolis)
and GA airports (Teterboro and L.A. County)
 Panama City
 Stewart (prior to 2007)

Global Airport Developers /
Operators – (Fraport, GMR, TAV)
83

Global Developers – Value Added
KNOW-HOW
• Increase productivity of facilities
• Streamline & develop operating
procedures
• Implement quality management
system
• provide master planning and
airport development expertise
TECHNOLOGY
• IT systems and solutions to
optimize productivity
• Best suited/latest equipment and
control systems
• Sophisticated software and
hardware products
• Environment-committed
applications and solutions
REVENUE STREAMS
• Benchmark aeronautical revenues
• Strategy for airline offering
• Terminals retailing,F&B
• additional revenues from
concessions and others
• Maximize cargo and real estate
potential
AIRPORT IMAGE
• Develop an airport strategy
• Implement service orientation
driver towards customers
• Provide service levels to support
hub airline in own strategy
• Image promote airport
84

Current & Pipeline PPP Projects
87

GMR Group - India
World’s 5thlargest
private airport
company
Handles over 48
million passenger and
over 700,000 MT of
Air Cargo
Airport capacity of
100 million passengers
Handles nearly 30% of
India’s passenger and
29% of Cargo traffic
100

GMR 4 Airport - PPP‟s Structure
101

GMR 4 Airport - PPP‟s Scope
102

Delhi International Airport (DEL)“A global
marvel”
103

Delhi International Airport:
Innovative financing
104

Hyderabad International Airport
“First Greenfield PPP Airport of India”
105

SabihaGokcen International Airport
Istanbul, Turkey
106

Male‟ International Airport (MLE)
Maldives
107

TAV Airports Holding: An Integrated
Business Model
109
TGS (50%)
Havaş Europe
(67%)
Airport Companies
Atatürk (100%)
Esenboğa (100%)
Adnan Menderes
(100%)
Gazipaşa (100%)
Tbilisi & Batumi
(76%)
Monastir & Enfidha
(67%)
Skopje & Ohrid
(100%)
Latvia (100%)
Medinah (33%)
Service Companies
ATÜ (50%)
BTA (67%)
Havaş (100%)
O&M (100%)
IT (99%)
Security (100%)
Synergy betweenTAV Airports
and TAV Construction is another
key success factor in PPP projects.

Global Footprint
110
France
Paris-CDG:62mn
pax
Paris-Orly:27mn
pax
Owner and
operator
Schiphol Group
(8%)
51mn pax
Industrial
cooperation
Liège (25.6%)
0.6mn tons of
freight
Strategic partner
Jeddah (Hajj
Terminal) – Saudi
Arabia 7mn pax
Management
contract
Amman – Jordan (9.5%)
 6mn pax
 Management contract
 Strategic partner
Cambodian Airports
 Phnom Penh & Siam Reap:
4mn pax
 Assistance in management
Conakry Airport
(29%)
0.3mn pax
Operator
Algier Airport
5mn pax
Operator
Mauritius (10%)
3mn pax
Operator
Strategic
partner
Tunisia (67%)
Enfidha &
Monastir 3.3mn
pax
Concession
Turkey
 Istanbul Ataturk: 45mn pax
 Ankara: 9mn pax
 Izmir: 9mn pax
 Gazipasa
 Concession operator
Georgia (76%)
Tbilisi & Batumi:
1.4mn pax
Concession operator
Macedonia (100%)
Skopje & Ohrid:
0.9mn pax
Concession
operator
Medinah (Saudi
Arabia) (33%)
Concession operator
13 Regional airports
Mexico North
Central (25.5%)¹
13mn pax
Operator & Strategic
partner
TAV Airports
AdP

111
Ohrid St.Paul The Apostatle InternationalAirport, Macedonia
Skopje Alexander The Great International Airport, Macedonia
Alanya Gazipasa Airport,Turkey
Istanbul Ataturk Airport, Extension and Trigeneration,Turkey
Enfidha Hammamet International Airport
Istanbul Ataturk Airport DomesticTerminal Renovation,Turkey
Batumi InternationalAirport, Georgia
Tbilisi International Airport, Georgia
Izmir Adnan Menderes International Airport Extension,Turkey
Izmir Adnan Menderes International Airport,Turkey
Ankara Esenboga International Airport,Turkey
Istanbul Ataturk Airport InternationalTerminal and Extension,Turkey
12 BOT Projects delivered underTAV Airports &TAV Construction
TAV Airports : 12 airports in 6 countries under management representing 72m pax
TAV Airports + AdP: A global platform of 37 airports under management representing 200m Pax

Duration of the Construction : 24 Months
Operation Period : 40 years
Terminal Building Area : 90,000 m²
Total Construction Area: 800,000 m²
Apron Area : 129,000 m²
Passenger Boarding Bridges : 18 units
Total Passenger Capacity : 7m
Total Project Cost : USD 715m
Total Financing Raised: USD 513m
Enfidha Airport
EnfidhaAirport,is financed under a 20 years
Project Finance regime.The group of lenders
are led by IFC,EIB,AfDB, Societe Generale,RBS,
StandardBank and Proparco.

113
Medinah Prince Muhammad Bin
Abdullaziz International Airport
First Full Fledge Airport PPP in Kingdom of Saudi Arabia
To be Completed in 32 months (February 2015)
Expected to cost USD 1.2b
State-of-the-art 138,000 sqm passenger terminal building
Construction of various ancilliary buildings
Extension of runway and construction of a number of new
taxiways
18 Passenger Boarding Bridges and 20 new remote stands,
Upgrade of airport lighting and fueling system
Total Financing Raised: USD 1.1 b (Lenders: NCB,ANB,
SABB-HSBC)
First large project finance transaction in KSA which is wholly
financed on a Shariah compliant basis
First infrastructure project in KSA with traffic risk element

Focused Airport PPP‟s Successes
 Athens International Airport (AIA)
 Pristina International Airport (PIA)
 Bangalore International Airport (BIAL)
 Delhi International Airport (DIAL)
114

Athens International Airport (AIA) –
Source- S. TRAVLOS, MAY 2013
115

ATHENS INTERNATIONAL AIRPORT (AIA)–
Adopted Alternative Finance Structure
 The Athens International Airport project consisted of a 30-year
BOOT concession which received EU grants amounting to
approximately €250 million or 11% of the project cost.
 An EIB loan of €997 million supported approximately 45% of the
initial project cost. The Hellenic Republic and a private consortium
created a private company, Athens International Airport SA, to own
and operate the airport for a period of 30 years.
 A grant from the Hellenic Republic amounted to €150 million and
share capital amounted to €134 million, additional project financing
came from commercial loans. A consortium led by Hochtief and also
comprising ABB and TKT Krantz GmbH, undertook the
construction project. Subcontractors, of which 80% were Greek
companies, carried out 70% of the construction work.
116

AIA STRUCTURE AND PARTNERS
RELATIONS
117

AIA Financial Contributions
118

Key Issues Considered in AIA
119

AIA Summary
Development of Infrastructure
Pre-Operational RiskTransfer
Alignment of interests
(Focus on whole-life costs)

Government Contribution Upfront
EU Grant Contribution


Usage RiskTransfer

Demand
Quicker implementation 
Innovation and Best Practice 
As previous beneficiaries of EU grant funding, New
EU members will benefit from deploying private
finance as a source of co-financing (for the right
project) in order to make full use of the increased
EU funds now available
EIB Loans

9
► Citigroup was advisor to the Greek government in
the structuring and implementation of the tender
to the private sector for the construction of the
new Athens Spata International Airport.
► Private financing was completed via a syndicate
of mostly German banks
► EIB loans were made available for 50% of total
construction costs with a total maturity of 25
years
► Greek government agreed to seek to secure
two EC grants (€150m & €250m), and agreed to
make those grants itself if EC funds were not
made forthcoming
► Greek government agreed to levy an additional
passenger departure fee from November 1994
until at least 2014 (the “Spata Airport
Development Fund”). Government retains
“sovereignty” in respect of its ability to levy, vary
or not levy taxes. Government committed to
make these amounts, or an alternative
guaranteed minimum of €45m p.a., available to
fund the construction
► Represents the first successfully completed
PPP structure for a European airport

PRISTINA INTERNATIONAL
AIRPORT (PIA)
Source- S. TRAVLOS, MAY 2013
121

PIA BASIC FACTS
 PIA is one of the busiest airports in the Balkans, serving 1.2 million
passengers and handling 14,000 aircraft operations in 2008.
 Before PPP over 35 aviation companies operate at PIA, serving over 30
destinations and providing direct connections to many of Europe’s largest
cities, including Zurich,Vienna, and Istanbul.
 In 2008 aeronautical revenues have already reached 21.8 million euro.
122

PIA BIDDERS AND THE WINNING BID
Three bidders took part in the final stages of the tender process:
 German-Turkish airport operating and construction alliance of Fraport IC
and ICTAS;
 Consortium comprised of French concession companies Bouygues
Batiment International and Egis Group;And
 Consortium consisting of theTurkish construction company Limak Group
and the French airport operator Aéroport de Lyon.
The winning bid based on offered concession fee:
 Limak Group- Aeroport de Lyon have offered an average of 39.42% of gross
revenues, in exchange for concession rights.
 IC Frapport Havamanli ICTAS, the bidder that has occupied the second
place, has offered an average of 30.37% of gross revenues.
124

Bangalore International Airport
(BIAL)
Source - John Duffy; HSN Nord Bank, May 2010
125

Key Terms of the Concession
Agreement for BIAL Greenfield Project
127

Delhi International Airport
(DIAL)
Source- John Duffy; HSN Nord Bank, May 2010
129

Key Terms of the Concession Agreement
for DIAL Greenfield Project
131

DIAL Consortium & Terms
Private Consortium
 Strong private consortium comprised of GMR Group, Fraport, Malaysia Airport Holdings Berhad
acting through Malaysia Airport (Mauritius) Private Limited and India Development Fund;
 Fraport to provide management services for the operation of the Airport for 7 years. Thereafter,
if the Government is agreeable, DIAL can take over as the Operator provided that DIAL enters
into a technical airport advisory services agreement with Fraport for a minimum of 8 years;
 External bank borrowings in the range of 50% to finance the project.
Term and Expiry
 Concession for a period of 30 years with an option before the period ends to extend another 30
years;
 Right of first refusal for other airport developments within 150 m radius of the Delhi Airport for
30 years;
 Payment of TransferAssets to be determined by related paid-up equity capital and / or debt;
 Payment of Non TransferAssets, if any, will be based on Net PresentValue.
132

Troubled Airport PPP„S
Bourgas andVarna
 CopenhagenAirports emerged as the winner of the tender and was ready to invest in the
expansion and modernization of the facilities.
 Fraport AG/BM Star consortium and the FrencheVinci groups attacked this deciscion.
 SupremeAdministrative Court demanded reopening of negotiations with the both airports
 Bourgas andVarna are now pressing hard to find measures of coping with the lack of terminal
capacity to serve the increasing volumes of passengers
Hungary Budapest Ferihegy Airport
 Originally 10 consortiums were interested in Budapest FerihegyAirport
 The initial tender was declared invalid by an employment court
 A single-round closed tender was launched then and opened to the five parties shortlisted in the
original tender
 CopenhagenAirports was also participating in the process, but announced its decision to pull out
 Also Australian MacquarieAirports dropped its bid
 Three bidders only went forth as the tender closed for the majority stake

Typical PPP Structure
Procuring Authority
Project Company’s
Shareholders
Project Company
Project Company’s
Lenders
D&B
Contractor
Operating
Contractor
Lender’s Direct
Agreement
Loan and
Security
Documents
Key: = contract
= flow of money
Project Agreement

PPP Model – The Consortium
Company Joint Venture Model
Procuring
Authority/
Public
Agency, and
ongoing
users of
public
services
Special
Purpose
Vehicle
Construction
contractor
Facilities mgmt
(FM) operator
Construction
investor
Facilities mgmt
(FM) investor
3rd party equity
investor
Debt investor
Services
delivered in
return for
annual
charge
Unitary
charge
payment
Carried out
under
contract
Equity and
sub debt
finance
Debt
finance
Government
Customer
Operation Finance

Responsibility
Design
Bid
Build
Private
Contract
Fee
Services
Design
Build
Build
Operate
Transfer
(BOT)
Long
Term
Lease
Agrmnt
Design
Build
Finance
Operate
(DBFO)
Build
Own
Operate
(BOO)
Other
Innovative
PPPs

Legal Counsel
Design Engineer
Investment
Banker
Revenue Modeler
Accountants
Rating
Agency(ies)
Parent Guarantor
O&M Provider
Sponsors Senior Lenders
Term Notes
-Banks
-Public
-Institutional
Investors
Bank Revolver/LC
Facility
Subordinated Lenders
Subcontractors
Equipment and
Material Suppliers
EPC Contractor
Parent Guarantor
Warranties
Performance Guarantees
Equity Investment
Shareholders Agreement
Project Input Contract
Fixed Price
EPC Contract
Offtake Agreements/
Concessions/Project Agreements
O&M Agreement
Guarantees or
Support
Paying
Agent
Collateral
Agent
Funding Company
Passive Equity
Investors
Insurers
Supplier
Legal Counsel
Independent Engineer
Market Consultants
Insurance Consultant
Project Company
Offtake
Purchaser(s)
Parent
Guarantor
Subsidiary Infrastructure
(e.g., rights-of-way)

140
Loay Ghazaleh, MBA, BSc. Civil Eng.
Advisor, Undersecretary Office
Ministry of Works, Bahrain
loay.ghz@gmail.com , +973-36711547

Privatization and Concessions (PPP) In Airports

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