Greenfield airport development has been a high priority area for the government. The capacity challenges that the Indian airport sector will face in the future can only be dealt with by timely creation of new capacity as well as augmentation and enhanced utilisation of the current capacity. At a recent conference organised by India Infrastructure, Daniel Bircher, chief executive officer, Zurich Airport International (Asia), shared his views on the experience so far, plans for the development of Jewar airport and the targets for the next few months. Excerpts…
Zurich International Airport AG forayed into the greenfield airport segment in India in 2002 when it won the concession for the Bengaluru international airport, with three other partners. Though the company divested its stake in the airport in 2017, the company gained valuable experience and deep insights into the challenges faced while executing airport projects in the country.
The company has recently won the concession for the development of the Delhi-Noida greenfield international airport, located in Jewar. The airport is a valuable proposition as it is strategically located between Delhi and Agra and is already connected to all the major highways. In comparison to Bengaluru airport, which lacks metro connectivity, the Uttar Pradesh government will provide metro connectivity to Jewar airport in the next two years. Further, factors such as limited peak hour slots at Delhi airport, large catchment area in the eastern and north-eastern areas, availability of low-cost airline models and the company’s global experience bode well for the project.
As per plans, construction work on the airport will be taken up in four phases. Four terminals will be developed in a phased manner. Under Phase I, the airport will develop a capacity to handle 12 million passengers per annum (mppa). This will increase to 30 mppa in Phase II, 50 mppa in Phase III and 70 mppa in Phase IV by 2040. With this, the immediate next steps are to execute the concession agreement and achieve financial closure for the project. The project is expected to close financially by end November 2020. To expedite the process, the company is working in close cooperation with stakeholders and has started setting up its team of experts.
However, there are several challenges that need to be addressed to ensure smooth project development. Growth in passenger traffic, despite being a good indicator, is one of the challenges as it creates bottlenecks in operations and efficiency. Ensuring operational efficiency, that is, reducing lag time and facilitating smooth transfers, is vital. To this end, while the country has a lot of potential to become a transfer hub, designing infrastructure in an appropriate manner is key. For this, passenger traffic needs to be taken into account right from the planning stage.
Further, based on studies, many metropolitan cities worldwide already have two or three airports. However, in India, land acquisition continues to be a major issue. Another challenge is the airport service quality. In the past decade, Indian airports have undergone the first phase of transformation in quality standards through the adoption of technology but there are still challenges with respect to the strict regulatory regime for ensuring security instead of better passenger facilitation. Therefore, in comparison to global benchmarks there is room for improvement wherein advanced technologies can be used to make processes smoother. At the same time, passenger expectations are constantly increasing, creating an additional challenge on operators.
Substantial investments and optimal risk allocation in a public-private partnership concession framework is another complexity. With the government’s ambitious plans of developing second airports in Tier I cities, additional capacity and upgradation in Tier II and Tier III cities as well as the development of 100 greenfield airports, financing is a major constraint. Banks are cautious when it comes to financing infrastructure projects given the increase in non-performing assets. In order to overcome this constraint, a sound legal framework that will effectively mitigate risks is required. This involves drafting of concession agreements that are sound and have balanced risk sharing. India, in comparison to other South Asian markets, has sufficient experience in drafting concession agreements and is more advanced in setting terms and conditions. However, state support and land lease agreements are still big bottlenecks that have to be looked into. In the case of the Delhi-Noida airport, land acquisition is not an issue as the state government has acquired a major portion of the land. That said, to make the project viable, engagement with lenders at early stages of project development is called for. Besides, the award of the engineering, procurement and construction contract for the airport is also an important milestone since there is a smaller contractor basket to choose from.
Finally, when it comes to risk allocation, the proven set-up is that the government takes care of land acquisition, political risk, force majeure, and to a certain extent demand. In the existing model, there is fair risk allocation between the government and the concessionaire as the bidding variable was based on the per passenger fee, the more the passengers the higher the amount to be paid and vice versa.