Indira Gandhi International Airport Development Project

Submitted To:
Indian Institute of Management

Section B Group - 11 Sidhu

Acknowledgement
The special thanks go to our helpful supervisor, Mr. Rupesh Kumar Pati. The supervision and support that he gave truly helped the progression and smoothness of the project. The co-operation is much indeed appreciated. Our grateful thanks also go to management and authority of airport employees, for their timely help and suggestions, may it be by e-mails or telephone conversations, to help complete our project. without the guidance of them. Besides, this project in Project Management made us realize the value of working together as a team and the to effectively manage our roles in the team. Not to forget, great appreciation goes to our fellow classmates for their keen insights and help. Last but not least we would like to thank and bless the Internet, which is the best and fastest source to receive information. The project would be nothing

SIDHU

Introduction
Indira Gandhi International Airport is the primary international airport of the National Capital Region of Delhi, India, situated in South-West Delhi, 16 km (10

mi) southwest of New Delhi city center. Named after Indira Gandhi, the former Prime Minister of India, it is the busiest airport in India. With the commencement of operations at the new Terminal 3, Delhi's Indira Gandhi International Airport has become India's and South Asia's largest and one of the most important aviation hub, with a current capacity of handling more than 46 million passengers and aimed at handling more than 100 million passengers by 2030. Along with Mumbai's Chhatrapati Shivaji International Airport, it handles more than half of the air traffic in South Asia. Spread over an area of 5,016 acres of land, Delhi airport serves as the primary civilian aviation hub for the National Capital Region of India. The Indian Air Force previously operated it until its management was transferred to the Airport Authority of India. In May 2006, the management of the airport was passed over to Delhi International Airport Limited (DIAL), a joint venture led by the GMR Group, which also has the responsibility for the airport's ongoing expansion and modernization.1 DIAL is a joint venture consortium of GMR Group (54%), Airports Authority of India (26%), Fraport & Eraman Malaysia (10% each). GMR is the lead member of the consortium; Fraport AG is the airport operator, Eraman Malaysia - the retail advisors.

Terminal 3 is the 3rd largest international airport terminal in the world

http://en.wikipedia.org/wiki/Indira_Gandhi_International_Airport

 T3 has state- of- the- art complex that features Common Use Terminal Equipment (CUTE) and an advanced 5 level in-line baggage handling system with explosive detection technology,168 check-in counters & 78 aerobridges. Designed by HOK International in consultation with Mott McDonald and is being constructed by L&T and Meinhardt Engineering

GMR group GMR Group is one of the fastest growing infrastructure enterprises in the country with interests in Airports, Energy, Highways and Urban Infrastructure sectors. Employing the Public Private Partnership model, the Group has successfully implemented several iconic infrastructure projects in India. The Group also has a global presence with infrastructure operating assets and projects in several countries including Turkey, South Africa, Indonesia, Singapore and the Maldives. GMR Infrastructure Limited is the infrastructure holding company formed to fund the capital requirements of various infrastructure projects across the sectors. It undertakes the development of the infrastructure projects through its various subsidiaries.

Scope of Project

ACIs forecasts for the next fifteen years indicate that passenger traffic will grow at the rate of 4.1%, effectively doubling the number of passengers served at airports by 2020. For airports worldwide this means providing quality services to 7.4 billion passengers worldwide. Freight traffic will increase by 5.4% and aircraft movements by 3.5% over the same period. The Asia/Pacific and Middle East regions project the highest rates of growth for all three parameters. For the first time, ACI has collected data that estimates future travel demand on a dual basis, taking into account both unconstrained demand, which is based on anticipated demand for air transport by the traveling public, and constrained demand, which takes into account airport and airspace capacity issues. Now, more than ever, airport operators need economic incentives and a flexible regulatory environment to expand capacity in order to deliver a high quality of airport service. When the participating airports took into account anticipated

regulatory constraints to building new facilities, they estimated that capacity to accommodate demand would fall short by nearly one billion passengers, resulting in severe congestion. It is clearly time for governments to enable

airports to build capacity on a fast-track basis, or risk a re-emergence of the hassle factor, which dampens demand for air travel and causes diversion to other modes of transport. ACIs projections are based on forecasts reported in early 2005 by 273 airports, which represent approximately 60% of the total passenger traffic handled by ACI member airports worldwide. The sample is therefore significant and includes most of the worlds largest airports, with a good representation from all six ACI regions. ACI collates the forecasts of its members after carefully checking the data to ensure that it is reliable and consistent. All figures in this document are extrapolations from the sample and represent regional and global totals. ACI began forecasting trends in air passenger and freight volumes in 1997 in the belief that airports themselves are in the best position to recognize the constraints on their growth, including physical and infrastructure limitations and

regulatory obstacles to future expansion. In contrast, with a view to projecting future trends in air travel, many industry forecasters, using sophisticated models of the global economy, confine themselves to assessing trends in demand, without adequately assessing the supply side constraints faced by airports in meeting this demand. Another innovation in this edition is the addition of short-term forecasts to the survey, covering the period 2005-2007. Growth over the next 3 years will be unprecedented, creating short-term capacity issues at many hubs. Indeed the pinch is being felt already at a number of hubs in North America and in Europe as of this writing in August 2005.2

Submission: Given the strong market fundamentals, the robust rate of growth is expected to continue. IATA forecasts that the Indian civil aviation market will register a compound annual growth rate (CAGR) of more than 16% during the period 20102013. Looking further ahead, the Indian Ministry of Civil Aviations Vision 2020 statement envisages a compound annual growth rate of around 15% in the next five years. Investment opportunities of USD120 billion are envisaged up to 2020 with USD80 billion on new aircraft.

2http://www.aci.aero/aci/aci/file/ACI%20Worldwide%20Air%20Transport%20Executive%20S

ummary.pdf

Domestic passenger growth by country: Aug-2011 to Sep-2011

Source: IATA Air Transport Market Analysis

Project Definition:
DIAL to operate, manage and develop the IGI airport for initial term of 30 years extendable by a period of further 30 years.

Project Milestone:
DIAL entered to the Operation, Management and Development Agreement (OMDA) on 4th April 2006. The scope of the project was defined as safeguarding future unconstrained development by means of a coherent and comprehensive 5-stage phasing strategy up to 2026. Upgrading of existing terminal s and development of new domestic terminal 1D in phase 1A development of state-ofthe-art integrated terminal (T3) in Phase 1B development of terminal T4, T5, T6 in the subsequent phases develop the terminal envelope, aprons and landside pavements in a manner, which provides maximum flexibility, in terms of a

response to the fluctuating market, as well as an under-one-roof terminal environment. Enhancement of the existing cargo facilities within their current location, relying on both the provision of additional gross floor areas and operational improvements (mechanization and control processes) to meet the demand forecast within the initial three phases.

Project Plan:
DIAL appointed UK based Mott MacDonald Limited as their Lead Technical Advisors for preparation of Master plan as well as major development plans. As part of this, LTA has carried out traffic forecast, Site survey, Obstacle study, environmental audit and geotechnical investigations. The Master Plan was developed keeping in mind the following consideration -

 Optimum utilization of airport land resources and already existing facilities Minimum impact on existing operational areas and physical

encumbrances Maintaining a balanced airfield system at every stage, whereby the available capacity of each constituent part fits with the capability of the system as a whole Balancing landside and airside demand and capacity at every phase of the development

The entire project timeline is divided into 5 phases. The development of the first phase is already completed with the inauguration of Terminal T3 on 3rd July 2010. The development plan of each phase is as follows:Project Phases Phase 1A (2006-2009) Status Finished Key Activities Up gradation Works of Terminal 2 Development of Third Runway New Domestic Departure Terminal 1D Development of Integrated Terminal T3 Metro connectivity through Airport Express Line

Phase 1B (2007-2010)

Finished

Phase 2 (2010-2012)

In Process

Additional Remote stands near T3 New Central Transportation Corridor T1B to be razed New terminal for general aviation and parking lot New International Terminal- T4 Expansion of T3 including piers New ATC Tower Fourth Runway New Terminal - T5 New pier for T5 and Contact Stands New Terminal for LCCs T6 Expansion of T3 and T4 piers Remote stands for T6 New strengthened runway

Phase 3 (2012-2016)

Planning

Phase 4 (2016-2021)

Planning

Phase 5 (2021-2026)

Planning

The Milestones of the project achieved so far is shown in Figure

Jul 03, 2010 Feb 26, 2009

Nov 01, 2006 New Domestic Departure Terminal 1D inaugurated Jan 31, 2006 Upgradation Works of Terminal 2 (International Terminal) commenced

New Integrated Passenger Terminal 3 (T3) Inaugurated at IGIA

GMR led consortium was awarded the mandate to modernize the Delhi Airport

Based on the Phases and activities we have developed the Gantt chart for the Project which is shown in Figure

Project Appraisal
The stakeholders appraised the project on various levels to test the feasibility of the same. The various aspects of Project appraisal are as follows: 1. Market appraisal For the sustainable flow and growth of revenues, the availability of a consumer market in place is an imperative. The market analysis shows that the average expected traffic growth for years 20102015 is 10%. During the same period, domestic passengers are expected to grow from 17.55mn to 25.4mn. Similarly, the international are expected to grow from 7.43mn to 11.94mn. So the figures indicate the availability of a market in place to take care of cash flows. 2. Economic Appraisal In this case, we analyze the impact of the project on the national economy and the benefits that obtained from the project. The project is supposed to be an identity of international prestige for the world. Also, it is a green project, which means that it is adding to the government effort to push more and more Green Field projects into the economy. Also, the project is supposed to generate huge employment of the order of 516000 jobs. Undoubtedly, the project is going to benefit the Indian economy in many ways. 3. Technical Appraisal To implement a project of such a huge size, the availability of technology to implement the project must exist. 2 vendors were ready to provide the technology for the project. Finally, the contract for execution of structural steel work was given to L&T. Also, few preliminary tests like official testing of operational readiness and ground handling capacity were carried out. 4. Financial Appraisal The financial viability of the project is tested in this appraisal. There were many stakeholders. And GMR group had a revenue sharing of 50.1%. All the demand forecasts were used to calculate the cash flows, and all the financial decisions were based on these cash flows. The initial estimated cost of the project after the first revision was envisaged to

be nearly 9000cr. The cost of capital for the same was 11%. The planning horizon was taken into account and accordingly the payback period was calculated. 5. Environmental Appraisal - The effect of the project on the environment was estimated and accordingly, appropriate measures were taken to minimize these effects. So it was decided to reutilize wastewater through sewage treatment plant. Similarly, wastes were recycled wherever possible. An air quality monitoring system was installed to monitor the emissions from the project. Also, efforts were made to construct energy efficient buildings wherever possible to reduce the detrimental effect on the ecosystem.

Stakeholders:
DIAL is a joint venture consortium of GMR Group (54%), Airports Authority of India (26%), Fraport & Eraman Malaysia (10% each). GMR is the lead member of the consortium; Fraport AG is the airport operator, Eraman Malaysia - the retail advisors. So the main stakeholders are: Airport Authority of India Government of India GMR group Delhi International Airport Limited Fraport AG MAHB Malaysia Share holders Lenders & Stakeholders Customers

Project Cost:

Estimated Capitalized Budget as per the approved major development plan was Rs. 6,756 Crore. But as per as the cost estimate prepared by DIAL at the time of financial closure total cost of the Project was earmarked as Rs. 8,975 Crore. The final project cost incurred by DIAL Rs. 12,718 Crore, which indicates that there, was almost 42% cost overrun in the Phase 1 implementation. The estimated and actual project cost is shown in figure

Project cost ( In Rs. Crore)

14,000.00 12,000.00 10,000.00 8,000.00 6,000.00 4,000.00 2,000.00 0.00 Project cost as per approved MDP Project Cost at the time of Financial Closure Project cost Final Project Cost as per Dial

Benchmarking of cost
In order to see whether the project is at par with other similar international projects DIAL appointed Jacobs consulting for a benchmarking study. Benchmarking is done with five other similar type of recent international airport. All these airports are compared with Delhi Airport in terms of total cost, cost/m2 and cost/mppa. The results are shown in figure

(Bangkok) Total actual cost (In Million USD) Actual cost per mppa (In Million USD) Actual cost/m2 of GFA (In USD) 2800 62.2 4973.4

(Kualalumpur) 1600 64 3337.5

(Beijing) 3800 88.4 4222.2

(Heathrow) 4100 146.4 11614.1

Delhi (Madrid) (IGIA) 2948.2 70.2 3894.6 1789 52.6 3563.8

Cost Benchmarking : Delhi IGI

4500 4000 3500 3000 2500 2000 1500 1000 500 0 3800 2800 4973.4 1600 3337.5 4100 11614.1 2948.2 1789 3894.6 3563.8 14000 12000 10000 8000 6000 4000 2000 0 (Bangkok) (Kualalumpur) (Beijing) (Heathrow) (Madrid) Delhi(IGIA Estimate)

4222.2

Actual cost per mppa(In Million USD)

160 140 120 100 80 60 40 20 0 62.2 64 88.4 70.2 52.6 Actual cost per mppa(In Million USD) 146.4

It was found that Delhi airport has incurred lowest total cost compared to all these international projects. It also has lower cost /m2 compared to all others except Kualalumpur. In Terms cost per million people per annum (cost/mppa) Delhi airport has better figures that all other airports. Therefore in spite of cost overrun the authority decided that cost is high but not out of limit.

Cost Overrun Reasons

Increase in area/volume of the facilities:

Apron area: Preliminary estimates was 7,00,755 Sq. m., whereas the actual works done at site as per DIAL is of 9,47,000 Sq. m. Terminal Building T3: Change in scope during detail design which was not incorporated at MDP stage incurred additional cost of Rs. 1015 Crore ATC & Associated Works : Pre- ponement of construction of new ATC tower and area control center (ACC)

Increase in cost of reinforcement material:

Change in scope increased the requirement of reinforcement from 59,203 MT to 1,16,847 MT which was underestimated earlier Increase in cost of steel from Rs.27,000 per MT (considered during preliminary Project cost estimates) to Rs. 43,143 per MT Impact of Rs. 210 crore additional cost.

Corrective Measures Combining local make with foreign make for electrical high end fittings resulted in cost saving Various optimization measures including change of cable to aluminum from copper for HT In fire detection and protection works, the cost has been reduced by adapting ductile iron pipes Rationalization of specification of finishing items to contain cost overrun

Project Control:
A project management consultant, M/s Parsons Brinkerhoff International Inc. was hired for the purpose. The consultant advised on design review, contract management, project control and co-ordination and provided valuable insights. Also, Engineers India Ltd was appointed as Independent Engineer by AAI. EIL reviewed design, drawing and specifications to assess compliance with finalized Development Plan, Development Standards and Requirements of the project.

Assessment of Control Measures: There was no regular monitoring of cost by PMC. A separate cost consultant should have been appointed by DIAL for monitoring cost DIAL tried to subcontract the entire IT system to single entity, which was rejected later, and IT works were given to various specialized agency. This delayed the start date of IT activities. DIAL never made a detail estimation regarding the selection of vendors which was done by contractors Indirect cost considered by L&T for various Contractors work portion (CWP) was high (11-16.5%) compared to industry average (10-12%) No estimation done either by DIAL or L&T for the Sub-contract packages.

Evaluation of Project Success/Failure: The main objective of DIAL was to complete the T3 terminal before the Commonwealth games and they were successful in doing so. The project was completed in record time of 37 months. This was achieved without compromising the quality and incorporating all the necessary scope changes. But in terms of cost there was 42% cost overrun, which according to DIAL was not out of limit. There we can consider the 1at phase of this project as a successful one meeting

time and scope requirement with cost trade off. The basic three dimensions of project evaluation is shown in figure

Significant Cost overrun (42%) but not out of limit Cost inflated by scope change and

Cost

Quality is not compromised at all Significant change in scope leading to increased cost ranked as 4th best airport in the world in the category of 25-

Time
Project is completed in scheduled rd time : T3 inauguration on 3 July ,2010 before Commonwealth Games in Delhi Project duration crashed by adopting Design-Build approach strategy

Scope

If we consider the priority matrix of this project we can see the main objective was to complete the project within time with quality or performance as constraint. To achieve this purpose DIAL has accepted cost overrun. The project priority matrix is shown in fig

Therefore we can consider the 1at phase of this project as a successful one meeting time and scope requirement with cost trade off

Challenges:
The project called for huge investments, in the order of thousands of crores of rupees. Few of the political leaders in country questioned the need for the enormous expenditure when other aspects of national significance were falling short of funds. These political challenges were however tackled by elucidating the need for improved infrastructure for the overall development of the nation as a whole. Also, the project required vendors from across the globe to come together and work on a common platform and fulfill the objectives of the project. This required immense efforts to coordinate among the internationally dispersed project teams and bring about their integration. Nonetheless, advanced IT technology played a very crucial role in bringing about this integration. The land selected for the execution of the project was initially occupied by numerous encroachments. Entire village and industrial units had to be shifted before the work could begin. Similarly, protected wildlife species in the area had to be relocated. Also, the orientation of the site posed a problem. So, the whole master plan of the project had to be re-drafted to tackle the issue. During the execution of the project, an external financial requirement of 500crore was encountered. The arrangement of these funds also posed a serious challenge for the project.

Recommendation:
Though the 1st phase of this project is considered successful by DIAL we believe there are few areas where the project management process can be improved. Some of these recommendations are Finalize the cost estimates before inviting the bids to maintain transparency and to ensure reasonableness of the offers received Independent Cost Consultant should be appointed, which will monitor the following o Give early warning to any actual and potential variance in overall/actual project costing o In relation to project contracts, preparation of cost reports showing the original budget, revised outcome estimate and variance for each budget item o Maintain overall/individual project cost control system Implementing agencies should cap the Project cost in future for such type of Mega Projects so that there is no significant cost overrun While awarding EPC contract only two final bids were received, hence room for negotiating cost diminished. We believe a project of this size requires much more companies to participate in the bidding process. This can be done by allowing the JVCs to participate in the bidding DIAL has kept the same fee structure (20.20%) for both contractors work portion (CWP) and sub-contract packages (SCP). But the risk and effort required in these two areas are quite different. The fees of the SCP should have been lower around 10% according to the industry standard.

References: Consultation Paper No. 2/2011-12, Review of Levy of Development Fee-IGI Airport, New Delhi, Airports Economic Regulatory Authority of India Final Report for Technical Audit of DIALs Final Project Cost Estimate, August 2010, Engineers India Limited Review of DIALs final project cost estimate, 15th October 2010, KPMG http://www.newdelhiairport.in/master-plan.aspx http://www.gmrgroup.in/Airports/Delhi_International_Airport__P__Limited.html