1. Performance Audit on ‘ IMPLEMENTATION OF PUBLIC PRIVATE PARTNERSHIP PROJECT IN AIRPORTS AUTHORITY OF INDIA AT CHHATRAPATI SHIVAJI INTERNATIONAL AIRPORT, MUMBAI’

2. Audit Objectives  The performance audit was conducted with the following objectives: – To assess whether the interests of Government (acting through AAI) have been adequately protected by the Public-Private Partnership (PPP) arrangement entered with the private operator and whether the risks and returns of the private partner were appropriately matched in the design; – To study the actual operation of the PPP arrangements in CSI Airport, Mumbai in the elapsed period (2006-12) and assess its impact on Government (and its nominee AAI) and other stakeholders.

3. Audit Coverage Period covered – 2006-2012 Documents examined: o Records available with AAI and MOCA o Records maintained at AAI’s Airport Infrastructure Restructuring Department, New Delhi, JV Co-ordination Cell, Mumbai, o Independent Engineer’s Reports, Independent Auditor’s Reports o Records and information maintained by AAI for calculation of revenue share of AAI, and information/ data provided by MIAL through AAI

4. Audit observations  Transaction documents  Project Management  Project Financing  Land  Revenue  Passenger Service Fee (Security Component)

5. Transaction Documents  Conflicts between OMDA and AERA Act in defining aeronautical and non-aeronautical services- Conflicts – Cargo and ground handling services  Concession Period Concession o Automatic extension of concessionaire term for another 30 years without review of performance or re-negotiations of terms  ROFR- Allowing Right of First Refusal in relation to Second Airport within 150 km of CSI Airport ROFR- o Provision thwarts competition and provides MIAL with a natural advantage on the second airport

6. Project Management  Design Constraint to Capacity and delayed second Airport Design o With the design constraint, maximum passenger traffic handling capacity of CSI Airport, Mumbai is 40 million passengers per annum which is expected to reach by 2015. – Considering the present status of NMIA project and saturation of CSI Airport, Mumbai, would imply increasing congestion and chaos for Mumbai airport in future.  Changes in Master Plan and Scope of WorkPlan – The Master Plan for the project remained flexible for over five years -October 2006 to March 2011. – Lack of active monitoring of the project by AAI/ MOCA. – 1 st Option to expand and upgrade the present Terminal 2 was changed to New Common User Terminal Building

7. Project Management  Status of Capital Projects – Mandatory Projects Mandatory MIAL was responsible for completing the 32 MCPs by 31 March 2010. Two MCPs were delayed – S06 and S09 In respect of project code: S 09 the expansion of the international terminal,scope of work was redefined with change of plan in 2007 to build an integrated terminal. However with the redefining of scope of work, the terminal facilities for international operations remained incomplete even after completion of the MCP (S 09) after a two year delay.  Other capital projects Other The targeted completion dates for other Capital works were progressively pushed back into later phases in the Master Plan 2011. The actual progress of work was even slower. Although AAI had the right to levy liquidated damages on MIAL,however, no communication for levying of liquidated damages or urging that MIAL speed up the work was on record.

8. Project Financing  Progressive increase in Project Costs estimatesProject Costs – Rs.5826 crore (2006) to Rs 11647.46 crore (as approved by AERA in Dec 2012). o No cap on project costs from MOCA o The original transaction documents (OMDA, SSA) does not mention a cost estimate for the project o Increase in project cost on account of Construction of New Common user Terminal Building  Change in the scope of work resulted in increase in cost of the construction of the New Terminal building from Rs.2319 crore to Rs.4884 crore i.e. by 110 per cent

9. Project Financing  Financing of the Project-Equity,Debt and Internal Accrual (100 per cent) Financing – MIAL’s private partners’ equity contribution: Rs 888 cr (7.2 % of cost) – Development fee: Rs 3400 cr (29.19 % of total funding) – Distorted the financing and risk transfer initially envisaged  Levy of Development FeeFee DF a means of financing was not envisaged in OMDA. – No efforts were made to secure alternate sources of financing for the project as envisaged in the OMDA. – AERAs justification while fixing DF for CSI Airport,Mumbai that the comparable size of investment by DIAL and MIAL – Two cases are entirely different.

10. Financing The Project  Assessment of Internal Accurals – AERA upfront fixed DF and then estimated internal accrual of as 1151.26 crore for the period upto March 2014, considering the actual cash balance (as on March 2012) and adding projected depreciation (for two years, 2012-13 and 2013-14 alone). – Deferred tax liability was not added to arrive at the internal accrual as per standard practice. – Lower estimation of internal accrual resulted in a higher funding gap which in turn has led to levy of a larger Development Fee on passengers.

11. Land  Lack of proper records with AAI and monitoringrecords – Neither OMDA nor the lease deed signed between AAI and MIAL demarcate and define the specific details of the leased land  In crease in land available for commercial exploitation -179.8 acres to 190.1 acrescommercial – OMDA (Article 2.2.4) allows MIAL to utilize ten per cent of the demised premises for provision of non transfer assets – Earning potential of the land considering lease period of 60 years is Rs. 94,461 crore (NPV of MIAL share Rs.1832.56 crore) – Being non-transfer asset, revenue does not form part of target revenue  Increase in area under encroachment - From 147 acres to 308.96 acres

12. Land  Agreement with HDILHDIL – AAI was not informed of the agreement with HDIL. – Agreement was entered into in haste. – Encroachment was to be removed by October 2011 but even after 5 years, the work is yet to be completed. Contract since been terminated by MIAL.  Transfer of Carved out Land to MIALCarved – AAI agreed to transfer 48.15 acres out of carved out assets to MIAL against a consideration based on upfront fee paid by MIAL (Rs 3.52 crores) without negotiations – Unwarranted benefit To MIAL on relocation of facilities and change in end use Unwarranted – AAI allowed MIAL to transfer facilities on demised land to the carved out land in contravention of the OMDA which enjoined use of carved out land solely for aeronautical purposes. – MOCA allowed MIAL for change in end use of vacated land on condition of alternate location of identical size –Location provided was in encroached land.

13. Revenue  Outsourcing Domestic And International Cargo Activities Outsourcing Fall in estimated cargo revenues and Higher tariff and burden to the passengers. Reduction in revenue share of AAI  Fo rmation of Subsidiaries – MIAL formed 8 subsidiaries so far - not operationalised  Hotel near Terminal 1C to a Group Entity consortium Hotel Master Plans (October 2006 and May 2007) did not indicate Hotel Not informed to AAI, MoCA, Appeared in Master Plan 2011 though the work was started in 2009 Bidder consortium in the project are GVK group companies by which revenue will flow back to the parent company and AAI gets 38.7 % of the 5% revenue share from hotel.

14. Post contractual benefits like increase in number of rooms and extension of concession period. No action taken against MIAL though the construction of the hotel had violated OMDA in initiating work without approval  Delay in receipt of Retirement Compensation- Delay  Undue favour to MIAL and consequent loss of interest to AAI amounting to Rs.71.37 crore.

15. Passenger Service Fee (Security Component) – Escrow Account  Unauthorised expenditure of Rs. 87.97 crore from PSF (SC) Escrow Account on purchase of Security Equipments and payment of Insurance Premium by MIALUnauthorised – MOCA progressively allowed MIAL to operate the PSF (SC) account in deviation from the provisions of the SSA. – MOCA permitted that entire cost incurred on security equipments deployed at the airports could be met from PSF (SC), over-riding the provisions of the SSA. – MIAL incurred expenditure out of these funds on ineligible items including computers, furniture, and fixtures and designated them as being essential for maintenance of security. – Unwarranted favour to MIAL amounting to Rs. 87.97 crore during 2006-12.

16. Thank You