GMR not worried about airport politicking, will invest US$373 million

The GMR-Malaysia Airports Holdings Berhad (MAHB) consortium that recently won the controversial bid to develop Male’ International Airport will spend US$373 million on the upgrade, MAHB has reported.

Speaking at the opening of the cavernous Delhi Terminal 3 last week, GMR Manager P Sripathi told Maldivian journalists that physical work would begin on the airport towards the end of this year.

“The first phase is organising the finances and transitioning the airport from a government-run enterprise to a privately-run enterprise,” he explained.

“The transition will be a new thing [for the Maldives] and we will be there to help with that. We have done such things in other places, and we know how to go about it,” he said.

“There are over 100 various items have to be agreed and signed off between the [incumbent] Maldives Airport Company Limited (MACL) board and ourselves, but we expect to see work start on the new terminal 9-10 months from now.”

Sripathi said that within six months GMR would upgrade existing facilities at Male’ International Airport “to a level that international passengers and tourists may [expect]. We will deal with the ‘pinch points’ that are there today.”

Ultimately the development will involve 45,000 square metres of new terminal, repair and expansion of the runway, parking and taxiing space, and a turning point so more flights can be landed in the space of an hour.

The infrastructure giant’s ‘brownfields’ approach – refurbishing an active airport, as opposed to a ‘greenfields’ or ‘from scratch’ project – mirrors that of its much larger airport development in Dehli. The old terminal was upgraded prior to the opening of the new one last week, which is now expected to cater to 90 percent of the airport’s passengers, with capacity of 34 million per annum upgradable to 100 million.

Sripathi acknowledged that while nothing of similar scope was going to be built in the Maldives – Male’ International Airport currently handles 800,000 passengers per annum (each way), “[Dehli] is definitely in the vein we are planning.”

Representing a company about to plow US$400 million into Hulhule, Sripathi is unsurprisingly unconcerned about rising sea levels: “Worried? Absolutely not. Land that has been there for 2500 years is not going to disappear in 25 years,” he chuckled.

Local controversy regarding privatisation and the recent political upheaval have given equally little pause to the infrastructure juggernaut – but its recent entertainment of the Maldives press pack suggest it is sensitive to domestic public opinion.

“We are not worried, because we are out of the fold. We are here to do a job,” Sripathi said.

The debate [over privatisation] has obviously been there for a long time, and is perhaps coming to an end, that we leave to [the politicians]. We are only here to do our bit.”

Accusations by opposition parties about the transparency of the bidding process were not something in which GMR saw itself involved, Sripathi said.

“Let me distinguish our role from the government’s role,” he said. “Whatever the political debate that goes on in the country, we shouldn’t be interfering – that is not our duty. That is between the executive and the [opposition]. In this particular instance, if there is opposition to privatisation then this debate has taken place over many years. Otherwise government wouldn’t have initiated this privatisation program in the first place.

“The World Bank IFC has [monitored] this exercise and given a very good report, and that is where this should stop,” he said.

The government’s calculations acknowledge that the strength of GMR’s bid came from its US$78 million upfront payment (compared with US$27 million from the second-highest bidder) and in particular, its 27 percent sharing of fuel revenue.

Based on GMR’s forecast, the government anticipates that 60 percent of government revenue from the airport deal will derive from fuel – $74.25 million annually between 2015-2020, increasing to US$128.7 a year from 2025-2035. This in turn was the most significant element of the final ‘net-present-value’ calculations to determine the winning bid.

The Turkish-French consortium TAV-ADPM, who expressed dissatisfaction with the bid evaluation process to newspaper Haveeru and requested a “re-evaluation of the bids”, expressed disbelief that the GMR-MAHB consortium would be able to offer such a high percentage of the fuel trade to the government “without facing any loss.” TAV-ADPM had offered 16.5 percent, warning that pushing prices higher would drive buyers away.

Sripathi claimed 27 percent was “absolutely reasonable. We have done our homework, otherwise we would not have made the bid.”

“In Male [airport] there are two types of fuel trade going on: MACL sells directly to airlines, and in another kind of sale, parties buy from MACL and then sell to airlines,” he explained. “We looked at the margins of both lines of business, kept the same percentages, and calculated what we could offer the government if we took over all this and amalgamated it under one umbrella. The margin we can give to the government? 27 percent.”

Quizzed as to whether it was reasonable to estimate a revenue share by forecasting fuel prices over the lifespan of a 25 year agreement, Sripathi replied “everybody predicts. There are international agencies that predict the way fuel prices will go up and down.”

“I’m talking about the top line,” he said. “Bottom line, if the fuel prices go up, similarly everywhere will go up and the selling prices will also go up. We have to put a margin in there.”

At its airport in Hyderabad, GMR allows five independent fuel suppliers to compete to offer the most competitive price to the airlines.

In Male, “the volume does not support that. In India there are refineries and many fuel companies operating, and fuel companies can sell directly to the airlines,” Sripathi noted. “But in the Maldives fuel is imported, and the volumes are such that not many people come and buy fuel – the model is different.”

While its fuel figures are undoubtedly one of the major reasons behind GMR’s winning bid, a simple fuel monopoly is unlikely to recoup the consortium’s US$400 million investment.

Either GMR anticipates that global growth in the fuel trade is worth the risk, or it is taking a hit on the fuel price for the sake of offering a much lower 10 percent share of gross airport revenue, as compared to the other bids (TAV-ADPM offered almost 30 percent). The only figures available to the government in estimating this revenue (a staid US$20.43 million by 2025-2035) will have derived from the existing commercial revenue from the airport.

Compared to the glittering Gucci-lined corridors of airports in tourist cities such as Dubai, Male’ International’s 4-5 meagre departure lounge shops and dilapidated eateries look positively downtown in comparison – a striking missed opportunity, given the bulging wallet of the average visitor to the Maldives.

Sripathi indicated that the consortium is very interested in the well-heeled concourse traffic – sufficiently interested for the infrastructure giant to invest a sum equal to almost half the country’s entire GDP.

“It’s a lovely project. The type of tourists coming are from the very high-end tourism market, therefore the business opportunities are plenty,” Sripathi hinted.

“I would say the airport is naturally located to advance a lot aspects, like cargo. For example, many people would be surprised to know just how much cargo goes through the airport, because of the number of international connections and wide body aircraft using the airport. People are transiting air freight through the Maldives from places like Colombo – this means there is niche value out there.”

Some investment will be recovered through a US$25 airport development tax, set by the government for all bidders to be levied only on international travellers at time of departure and added to ticket prices.

Sweetners

Many longer term “vision” projects associated with the airport seem designed to appeal to government planners. The airport will be unlocking 50 acres of land and will develop “what we envision will become the Maldives’ financial district,” Sripathi said. “That’s from our vision document. [The government] asked what can be done, and we used our expertise and experts from the US, and this is one of the things we have proposed.”

The company also runs a social responsibility foundation, GMR Varalakshmi, that funds schools and vocational training in areas where it operates. The company took the Maldivian media on a tour of its centre near Hyderabad, which included a residential technical training college running free courses for 500 young people in trades ranging from air-conditioning and electronics to IT, sewing and hotel management – often in conjunction with the group’s partners and suppliers. Guides emphasised the importance given to instilling discipline and professionalism in students, as well as technical training.

Regarding salaries and employment of existing airport staff in Male’ – a key point of contention among the opposition parties critical of the deal – Sripathi commented that the company was “not about to bring Indian standards [of employment] to Maldives – income levels and expenses are dependent on place – it is independent.”

Ground handling, currently outsourced to Island Aviation, will be taken over by the new airport company, Sripathi confirmed.

“Whether we need more than one ground handling company depends on the size of business,” he said. “If size of business allows it, then we can [involve another company], otherwise there will be single party doing it to international standard.”

For other airport staff – aside from security, immigration and air traffic control, which will continue to run by the government as per other international airports – the 1500 people currently working at the airport “will become part of the privatisation process. We are in talks MACL board members,” Sripathi said.

“We are looking at their concerns and anxieties – ultimately people think somebody is coming into the country to take over the airport. But we are here to help develop the airport’s assets and show people its full potential,” he continued.

“But what is important keep in mind is that investment in an airport is a heavy investment – US$400 million is a heavy investment. These sorts of numbers must be returned to us – and the government – otherwise we both cannot survive.”

Disclosure: Minivan News and 10 other representatives of the Maldivian media recently toured Hyderabad airport and attended the opening of Dehli Terminal 3 as guests of GMR.

Correction: A previous version of this article erroneously referred to ‘Malaysia Airlines (MAHB)’ in one instance, where it should have read ‘Malaysia Airports Holdings Berhad (MAHB)’. This has been corrected.

Likes(0)Dislikes(0)