CASE STUDY MUTUAL FUNDS IN INDIA

DPGD/JA10/0312 FINANCE

SUBMITTED TO WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT AND RESEARCH YEAR OF SUBMISSION : 2011

CERTIFICATE FROM THE GUIDE

This is to certify that the Project work titled Mutual Funds is a bonafide work carried out by Anup Yadav (Roll No. DPGD/JA10/0312) a candidate for the Post Graduate Diploma examination of the Welingkar Institute of Management under my guidance and direction

SIGNATURE OF GUIDE NAME DESIGNATION ADDRESS : : : Yogesh Varma Technical Head RnS Computers India. Chembur,Mumbai - 400088

DATE: November 2011 PLACE: MUMBAI

ACKNOWLEDGMENT
With Immense pleasure I would like to present this report on Mutual Funds in India

I would like to thank Welingkar Institute of Management for providing me the opportunity to present this project.

My deepest thanks to Mr. Yogesh Verma- Technical Head(Rns) ,Mr. Ravindra Patil Relationship Manager (Robinhood Insurance Brokers) Mrs. Neha Dugar (Willis India) for their continuous help, encouragement and making available various reports and papers on the subject despite their tremendous work pressures.

I am extremely grateful to my guide, Yogesh Verma for their valuable guidance and timely suggestions. I would like to thank all my friends and colleagues for the valuable guidance& support. And lastly, I would like to express my gratefulness to the parents for seeing me through it all.

NAME: Anup Yadav

Executive Summary In few years mutual fund has emerged as a tool for ensuring ones financial well being. Mutual funds have not only contributed to the India growth story but have also helped families tap into the success of Indian industry. As information and awarenesss rising more and more people are enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual fund investors remains small is that nine in ten people with incomes in India do not know that mutual funds exist.But once people are aware of mutual fund investment opportunities, the number who decide to invest in mutual funds increases to as many as one in five people. The trick for converting a person with no knowledge of mutual funds to a new mutual fund customer is to understand which of the potential investors are more likely to buy mutual funds and to use the right arguments in the sales process that customers will accept as important and relevant to their decision. This project gave me a great learning experience and at the same time it gave me enough scope to implement my analytical ability. The analysis and advice presented in this project report is based on market research on the saving and investment practices of the investors and preferences of the investors for investment in mutual funds. This report will help to know about the investors preferences in mutual fund means are they prefer any particular asset management company (amc), which type of product they prefer, which option (growth or dividend) they prefer or which investment strategy they follow (systematic investment plan or one time plan). This project as a whole can be divided into two parts. INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS ASPECTS. Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus Mutual, i.e. the fund belongs to all investors. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund is an investment tool that allows small investors access to a welldiversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each day. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them.

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors. HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the Industry. In the past decade, Indian mutual fund industry had seen a dramatic improvement, both qualities wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under Management (AUM) was Rs67 billion. The private sector entry to the fund family raised the Aum to Rs. 470 billion in March 1993 and till April 2004; it reached the height if Rs. 1540 billion. The Mutual Fund Industry is obviously growing at a tremendous space with the mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase (1987 1993) Entry to Public Sector

of India with assets under management of Rs.29,835 crores as at the end of January2003, representing broadly, the assets of US 64 scheme, assured return and certainother schemesThe second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It isregistered with SEBI and functions under the Mutual Fund Regulations. consolidationand growth. As at the end of September, 2004, there were 29 funds, which manageassets of Rs.153108 crores under 421 schemes.

PART- I CHAPTER 1

1.0 INTRODUCTION
Today India is on a threshold of massive development, thanks to the various initiatives taken by the Govt. of India over the last 10 years or as we call it the Dawn of the era of liberalization. The economic policies have been liberalized time and again to accelerate the process of industrial growth. The government is making constant efforts to encourage the entrepreneurs by providing the climate conducive for development and growth. as a result of which various projects are coming up and due to which various applications are being received by state and national financial institutions for financial assistance. Project finance is thus becoming a field of specialization in itself. Project Financing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds. In addition, one must understand the cogent analyses of why some project financing plans have succeeded while others have failed. A knowledge-base is required regarding the design of contractual arrangements to support project financing; issues for the host government legislative provisions, public/private infrastructure partnerships, public/private financing structures; credit requirements of lenders, and how to determine the project's borrowing capacity; how to prepare cash flow projections and use them to measure expected rates of return; tax and accounting considerations; and analytical techniques to validate the project's feasibility. Increasingly, project financing is emerging as the preferred alternative to conventional methods of financing infrastructure and other large-scale projects worldwide. CASE STUDY : 1 PROJECT REPORT ON FINANCING OF AIRPORT INFRASTRUCTURE Airports play a vital role in the development of Industry and Commercial trade as they offer crucial services for transportation of goods and passengers from one place to another. They are also essential for domestic and international tourism, where limitation of time is the key factor. While airports play catalyst to economic development, the economic developments in turn generate demand for the former. As a result, the aircraft fleets of airlines are growing at a rapid speed with improved technology with regard to speed, time, capacity, etc., to cater to ever-increasing demand. To provide impeccable service, the airports also need infrastructural development. Thus, continuous improvement of airports needs airport management for planning, developing and operating efficiently and profitability to meet the present and future need of air travel; both, domestic and international. Airports also represent the country's door to the world. Passengers form their first impression about a nation from the condition of its airports. They can be effectively used as a symbol of national pride, if sufficient attention to their quality and up-keep is paid. Indian airports have been facing an infrastructural bottleneck since independence. A majority of airports was constructed during the Word War (1972) primarily to meet the contingent and defence requirements. Hence, they were not adequate to handle commercial traffic. These airports were opened for commercial operation in 1950, but till 1972, no major changes were envisaged in the field of airports, as the airports were under control of the Director General of Civil Aviation. In July 1967, the Government of India appointed a high powered committee under the Chairmanship of Mr. J. R. D. Tata, Chairman of Air India, to advise the Government about airport developments, etc. It was at the recommendation of the Tata Committee that the bill for formation of the International Airports Authority (IAAI) was placed before the Parliament, in July 1971. The proposal received the President's consent on the 8th of December, 1971.

The IAAI was finally constituted on the 1st of April, 1972, for maintenance and development of 4 international airports in India, viz, Mumbai, Delhi, Calcutta and Chennai. Later on, in 1991, Trivandrum was also declared an international airport and brought under IAAI. IAAI undertook major infrastructural developments at the 5 international airports, all the old terminals were abandoned and new terminals were constructed to meet increasing commercial requirements. Today, these airports are comparable to any other international airport of the world. The Government of India established the National Airports Authority (NAA) in June 1986 by an act of Parliament, to provide safe and efficient Air Traffic Control (ATC) Services across the Indian air space including overflight provision of aeronautical communication services, rescue and fire fighting services at domestic civil aerodromes and procurement, installation and maintenance of radio navigational services and communication services for all airports including the 5 international airports. NAA presently manages 87 aerodromes and 28 civil enclaves. Both the organisations were functioning in tandem at the airports. From this alliance arose a lot of differences with regard to proper communication and co-ordination, effective and optimum utilisation of resources, accountability towards the Government and the consumer (Public). The Government felt the need to merge both the organisations. The Airports Authority Act (1994) was passed to provide the constitution of Airports Authority of India w.e.f. 1st April 1995 with better administration, cohesive management and profitable and optimum use of the resources. The Airports Authority of India presently has two wings IAD (International Airports Division) and NAD (National Airports Division); the latter encompassing the functions of the erstwhile NAA (National Airports Authority of India).

1.1 Objective
To study the trend of the existing airport infrastructure development in India. To project aviation traffic and demand for the next 10 to15 years. To study the estimated cost. need for infrastructural development and the subsequent

To study the existing and future financing methodologies, keeping in view the trend of development and financing in other countries.

CHAPTER 2

2.0 TREND IN THE DEVELOPMENT OF AIRPORT INFRASTRUCTURE

From its inception, the Management of erstwhile IAAI started the sustained and planned developments of the 5 international airports. While on one side, under short term planning, various infrastructural developmental activities started at all the international airports towards renovations, modifications of the existing terminals, strengthening and extension of runways, taxiways, aprons, bays, provision of operational airports lighting systems, air-conditioning of terminal buildings, uninterrupted bulk supply of electricity, construction of compound wall and other security measures, passenger facilitation, car park etc., under long term planning, a comprehensive master plan for airport infrastructure development was also undertaken after detailed and microscopic study of the traffic demand, capacity analysis (peak hour activity) facility requirements, environmental study, optional use of vast land available, airport access plan, etc. The Fourth Five-year plan marked the first concerted effort in the country to tackle the problems of aircraft and passenger saturation at the international airports. The take-off point was the International Airports Committee Report, which recommended construction of new terminal buildings, development of runways, taxiways and aprons, provision of ancillary services, buildings and acquisition of land necessary for development.

2.1 Consultancy Services

The International Airports Committee recommended that a firm of international architects/engineers with expert knowledge and experience of consultation with international airports may be appointed as consultants to develop the plans and architectural concepts for the new terminal building at the Delhi, Mumbai and Chennai Airports in close association with Indian architects and engineers.
The Government approved the appointment of Airport De Paris as a consultant for the preparation of traffic forecasts, master plans and programme drawing for the new terminal complex at the Mumbai, Delhi and Chennai Airports. The Govt. also approved the appointment of Dr. R. Buckminister Fulher, a renowned architect and comprehensivist, to advise and assist in the development of architectural concepts and schematic designs for the terminal based on the programme drawings prepared by the French consultants. A high-powered team was set up to co-ordinate and liaise with foreign consultants. The team was initially headed by the Director General of Civil Aviation and later by the Chairman of the then International Airports Authority. During the period under review, the team held meetings with the consultants to review the master plans, programme drawings and architectural concepts. Detailed work was also undertaken to finalize the master plan for the Mumbai and Chennai Airports. The Authority also examined a proposal to delegate the work of detailed planning and the construction of the new international module at Delhi Airport to a prime agency. It may be noted that the development of Calcutta Airport was not included in the scope of the work of the consultants, since the new International building had already been constructed at that airport to cater to the long term requirements of international air traffic. Apart from Indian Airlines and Air India, the two national carriers, the number of international airlines operating during 1972-73 at the international airports were as follows: Mumbai - 20,

Delhi - 16, Calcutta - 7 and Chennai - 2. The number of international and domestic airlines has now risen to 120 and 13 during 1996-97, respectively (4 times more): Chennai Airports IGI International Airports Mumbai Airports NSCBI International Airports Thiruvananthapuram International Airports 17 42 39 15 7 _____ 120 Domestic Airlines : 13

The number of embarking and disembarking increased considerably from 1972-73 to 1996-97. Passengers 1972-73

passengers and aircraft movements 1999-2000

International Domestic Aircraft movements International Domestic

21,56,589 24,39,009

1,18,38,314 1,53,15,279

40,589 71,764

86,298 1,68,469

This tremendous increase in Aircraft movements and passengers was due to: Introduction of wide-bodied jet aircrafts like B747 and the stretched version of DC-8 on intercontinental flights. Changing over of operations by international carriers on inter- regional flights from the piston engine aircraft to pure jets. Similarly, domestic carriers switched over to B707, B737, Boeings Airbus, etc. Air travel was no longer an elite mode of transport.

The various development activities that have taken place at the 5 international airports between 1972-73 and 1999-2000 have been briefly enumerated below:

2.2 Mumbai Airport (Position as on 1972 1973)

It was located near Santacruz, 26 km away from the city (Flora Fountain) with an area of1900 acre land. The main runway 09/27 was 11005' long and secondary runway 14/32 was 9000' long. Parking bays were 23, out of which, 10 were for wide-bodied aircraft and 13 were for domestic traffic. There was only one Terminal Building, with two channels for domestic and international passengers built in 1958.

2.2.1 Subsequent major infrastructure developments :

Short Term and Long Term infrastructure development was adopted. Under Short Term, various capital activities for sound basis of the airports were undertaken on yearly basis and completed. This development of the airport has been enumerated below: Re-carpeting of secondary runway 2286 mtrs long. The main power supply to the airport was improved by providing independent underground high tension feeder cables for power supply. Land worth Rs.2.88 crores acquired. Extension, modification of existing terminal building. Cat.II lighting system installed. Large-scale tree plantation, landscaping work, rose gardens undertaken. Construction of a new bay for 747 aircrafts. Construction of a new parking bay. Construction of a new International Departure Building at a cost of Rs.3.80 crores for Asiad 82 and CHOGM. Car park at a cost of Rs.14.58 lakhs constructed. Construction of Institute of Airport Management at a cost of Rs.60 lakhs on 26.12.88. Strengthening of secondary runway at a cost of Rs.1.00 crores. Extension of secondary runway by 520mtrs at Rs.1.74 crores, Apron Rs.1.21 crores, Hangars at Rs.1.96 crores, two cargo bays Rs.2.72 crores, additional domestic parking bays at Rs.1.37 crores Strengthening of runway Rs.3.27 crores. Special repairs to main runway 10/28 (Rs.2.57 crores). Construction of IAM, Phase II ..Rs.94.55 lakhs Construction of AAI, operational offices ..Rs.14.49 crores. Diversion of approach lighting 2.95, discreet security system, special LED display Boards, X-ray BIS for ATOs', Cat.II ILS made effective. Three additional bays for B737. Construction of Amenity Block for cargo. Construction of visitors lounge (Rs.18 crores).

2.3 New International Terminal (IGI) :

Commissioned on 1.5.96 at a cost of Rs.95 crores, the building has 3300 passengers peak hour capacity and 3.3 million international passengers annually. It has 9 parking bays for wide-bodied aircrafts and 5 remote bays. The new terminal has a mechanised cargo complex of 1400 sq.mtrs. It is a member of international club of cities, which is renowned for exclusive airports. The area is 61500 sq.mtrs. The new building is equipped with 9 aerobridges. It is an airport unique for architecture, aesthetic sense and service inputs. After suitable modification, the former international departure complex has been converted into the Domestic Airbus departure.

2.4 CALCUTTA AIRPORT (Position as on 1972-73) :

It was situated at Dum Dum at a distance of 20 kms from the Indian Airlines City booking office. The area of the land was approximately 1650 acres. The airport had two runways. The main runway was 11900 ft. long and the secondary runway was 7700 ft. long. There were 20 bays for parking aircrafts, out of which 7 were for international and 14 for domestic traffic. There is one newly built international building constructed in 1970 Rs.2 crores and an old domestic building constructed in 1960. at a cost of

2.4.1 Subsequent developments :

Extensions, modifications, beautification of existing terminal building. Cat.II lighting system installed. Pictograph sign posting was introduced. Secondary runway extended by 150'. Re-carpeting of Secondary runway . Re-surfacing work of instrument runway at a cost of Rs.1.97 crores. Construction of new building, E&M workshop (Rs.63.58 lakhs). Construction of link taxi track (Rs.2.44 crores). Extension of main runway 03/25 by 35.50 mtrs (Rs.1.08 crores). Extension of parallel taxi track (Rs.3.16 crores). Providing A/c to Civil building (Rs.1.05 crores). Construction of link building for administrative block, centralised a/c etc. (Rs.4.69 crores).

2.4.2 New Domestic Terminal Complex :

It was commissioned at a cost of Rs.40.50 crores, equipped with modern passenger facilitation.

2.5 CHENNAI AIRPORT (Position as on 1972-73) :

It was located at Meenambakam 16 kms away from the Indian Airlines City booking office. The area of the land is approximately 1140 acres. It had one building with different channels for international and domestic passengers. The main runway 07/25 at the airport was 10050 long. The secondary runway 12/30 was 6200' long. There were 8 bays for parking of aircraft, out of which 4 were for Jet aircraft and 4 for domestic traffic. The main runway was strengthened to LCW 100 during 1972-73.

2.5.1 Subsequent infrastructural developments :

Extensions, modifications, beautification of existing terminal building. Cat.II lighting system installed. New domestic terminal commissioned in April 1985 at a cost of Rs.15.86 crores, with 13000 sq.mtr. area with 2 aerobridges for

central parking. Has peak hour capacity of 1200 passengers per hour or 1.2 million per annum. Improvement to secondary runway. Jeep worthy road along with compound wall. Extension of secondary runway at a cost of Rs.37 lakhs. Construction of link building connecting New Domestic Ter.B and New International Ter.B at a cost of Rs.1.43 crores. Extension of main runway at a cost of Rs.1.98 crores and strengthening of parallel taxi track at a cost of Rs.94.56 lakhs. Two remote parking bays at a cost of Rs.89.70 lakhs. Extension of main runway 07/25 by 595 mtrs at Rs.1.98 crores, two remote parking bays at Rs.1.24 crores. Extension of parallel taxi track to meet the extended portion of runway 07 Rs.3.16 crores. Strengthening of main runway 07/25 Rs.6.50 crores. Liquid Emitting Diode (LED) computerised flight information system.

2.5.2 New International Terminal Complex

Construction of New International Terminal Complex (Phase I) at a cost of Rs.17.49 crores has been completed and has opened for operation as of 26.4.89. Can handle 1.0 million passengers annually and 2020 passengers during peak hours.

2.6 Cargo Infrastructure :

Cargo handling at all the 4 international airports viz: Mumbai, Calcutta, Delhi, Chennai increased gradually from the inception of the Airport Authority. To meet passenger requirements and Facilitation, keeping in view future needs, the cargo infrastructure development was undertaken at all the 4 airports. Integrated Air Cargo Terminals i.e. full-fledged multiple occupancy Cargo Terminals were Commissioned. In addition to these, many more blocks have been added to Delhi & Mumbai Airport in different Phases such as Foreign Airlines Cargo Terminals, ETV warehouse, Perishable Cargo Shed, Air India ETV Warehouse, Import and Export Courier Express Terminal Warehouse at a cost of huge Capital investment over the years. The Airports Authority has been working on establishing satellite Freight City near IGI Airport i.e. Gurgaon in line with the Indian Trade Promotion Organisation. Domestic Cargo Terminals for common users, is also under consideration. Cold storage warehouses for perishable cargo in association with Agricultural Processed Food Export Development Authority (APEDD) is also in the pipeline.

2.7 Report on Parliament Consultative Committee :

A.A.I presented a report of various projects completed since 4/97, schemes in continuous and future schemes planned, to the Parliament Consultative Committee in their meeting held on 9.9.98 at Mumbai.

2.8 MAJOR PROJECTS COMPLETED SINCE 2000 :

2.8.1 International Airports:
The newly constructed Terminal 1A at IGI Airport, New Delhi has been completed at a cost of s.26crores and was formally inaugurated on 2.7.1998 and put into operation from 3.7.98. Since the work was given on Turnkey basis, it was completed in the record time of 8 months. Construction of covered shed on Airside of Cargo Building at IGI Airport, New Delhi at cost of Rs.2.54 crores. A modern state of the art perishable cargo handling facility has been commissioned in May 1998 at IGI Airport, New Delhi. Construction of boundary wall to avoid encroachment of A.A.I. land is completed at a cost of Rs.5.76 crores. New remote apron for parking of aircraft constructed at a cost of Rs.3.65 crores at NSCBI Airport, Calcutta. Taxiway A-1 connecting to Runway 14 was commissioned in October 1999 at CSIAP Mumbai Airport. One additional bay (No.20) was constructed for parking of aircraft upto the wingspan of 16 M at domestic Apron in the month of October, 1999 at CSIAP. Four additional parking stands for aircraft type B-737-200 were commissioned at IGI airport. 18 new parking stands for Dornier type aircraft were commissioned at IGI airport.

Chennai Airport Re-carpeting of secondary runway 12/30 for strengthening and grade corrections was completed in November 1999. Three additional remote parking stands commissioned at domestic apron for B-737200 type of aircraft.

2.8.2 Domestic Airports :

Strengthening of runway and allied works at Dibrugarh at a cost of Rs.13.21 crores was completed in April 1997. Extension & modification of terminal Building complex and extension of civil apron at Goa at a cost of Rs.12.69 crores, was completed in May 1997. Strengthening and extension of runway, construction of new taxi track at Goa completed in February 1998 at a cost of RS.8.57crores New Terminal Building at Damapur built at a cost of Rs.14.90crores was completed in April 1997.

Extension of Apron at Guwahati at a cost of Rs.2.15 crores was completed in April 1998. Expansion & modification of Terminal Building at Bhopal at a cost of Rs.4.48 crores was completed in September 1997. Resurfacing of main runway, provision of shoulders at Bhopal airport completed at a cost of Rs.5.53 crores in April 1998. A new Terminal Building at Bhubaneswar built at cost of Rs.17.77 crores was commissioned in April 1998. Two new aerobridges commissioned in July1998 at the International Block of Hyderabad Airport at a cost of Rs.2.71 crores. Extension of Apron and expansion and modification of terminal Building at Agra has been completed at a cost of Rs.12.77 crores and commissioned in August 1998. A New Terminal Building built at a cost of Rs.8.55 crores with all modern facilities has been commissioned at Raipur in Madhya Pradesh in August 1998. Resurfacing of runway, taxiway and strengthening and extension of apron at CA Raipur completed at a cost of Rs.6.91 crores in August 1997. Strengthening of existing runway at Aurangabad Airport completed in June 1998 at a cost of Rs.4.67 crores. Conversion of old Terminal Building into Cargo Complex at Nagpur airport completed in October 1997 at a cost of Rs.1.33 crores. Extension and strengthening of runway, apron and construction of new taxi track (civil works) at Indore airport completed in April 1998 at a cost of Rs.9.71 crores.

Table 2.1 Facility Primary & secondary Radar Date of completion Guwahati 30.03.97 Ahmedabad 31.12.97 Calcutta 10.07.98 31.03.97 31.03.97 31.03.97 31.08.97 31.01.98 25.07.97 04.07.97 01.09.98 18.06.98 09.10.97 Airport Cost (Rs. in crores) 29.40 29.42 38.50 0.51 0.51 0.51 1.44 0.64 (DVOR only) 2.20 2.20 1.40 2.10 2.10

Low Power Distance Trivandrum Measuring Equip. (DME) Chennai Collated with ILS Chennai Doppler Very High Srinagar Frequency Omni-Range Goa (DVOR) & Distance Measuring Equip.(DME) Chandigarh Instrument Landing System (ILS) Agra Lengpui Mangalore Aurangabad

2.9 MAJOR PROJECTS IN PROGRESS :

2.9.1.1 International Airports : Mumbai : The existing domestic terminals have since saturated. Proposal for construction of new Domestic Terminal (Phase-II) has been submitted to the Ministry. The Feasibility Report submitted to the Ministry was returned for updating the cost estimate and for financial appraisal of the project by a merchant banker of a specialist agency. The appraisal report has since been received and the cost estimate updated. The updated report is being submitted to the Ministry. The probable cost of the project is RS.183.54 crores. After completion of the project, the annual passenger handling capacity of the Domestic Terminal will increase from present 6.45 million to 11.00 million. A modern state-of-the-art perishable cargo-handling terminal is proposed since the perishables constitute 40% of total cargo. The terminal is being financed by APEDA. The project will be delayed due to litigation of land earmarked for the purpose. A dedicated terminal for Courier (Express) cargo is planned. The site for this terminal is being finalised and the work shall be taken up in the next financial year. The expansion of flyover of Terminal II for RS.48.00 crores, renovation and expansion of module II of Terminal-II for RS.50.00 crores and modification of car park for RS.1.25 crores.

Delhi: A new domestic passenger terminal near the international terminal is being planned with an annual capacity of 16 million passengers. The construction of this project is now proposed to be taken up in Xth Five-Year plan. The plans for remodeling the existing domestic terminal IB are under finalisation. The work is proposed to be taken up in two phases and the remodeled terminal shall be spacious and user friendly. The possibility of augmenting the capacity of existing Domestic Arrival Hall is also being worked out so that the domestic terminal is constructed near the international terminal. The present international terminal has already saturated (3.4 million capacities). The feasibility report for construction of Phase-II at an estimated cost of RS.801 crores has been resubmitted to the Ministry on 28.7.98 along with the Environment Impact Assessment study carried out by a consultant. The Ministry of Environment and Forests has stated that a public hearing should be conducted and the case resubmitted along with a NOC from the State Pollution Control Board. On completion of the project, the capacity of the international terminal will increase to 10 million passengers. Chennai: The domestic terminal with 26.75 lakh passenger capacity is likely to saturate in 2000-01. Phase-II of the domestic terminal is planned for implementation during Xth plan period. Calcutta: A new integrated cargo terminal has been planned and estimates will be put up shortly to the A.A.I. Board. The terminal (Phase-I) is planned for completion in 2003. With the commissioning of this terminal, the cargo handling capacity will increase from 28000 tonnes to 33000 tonnes. Thiruvananthapuram: A new international terminal is proposed on the other side of the Runway and the land acquisition by the state Govt. is in progress. Domestic Airports: Amritsar Airport is being upgraded to international standards at an estimated cost of RS.120.00 crores. The Feasibility report is ready submitted to ministry and the work has been stated.

CHAPTER 3

3.0 QUALITY OF INFRASTRUCTURE:

International Civil Aviation Organisation (ICAO) is a UN Agency that regulates technical and operation aspects of the airports. Sister institutions include IATA (International Air Transport Association), ACI (Airports Council International), etc. ICAO has been responsible for establishing guidelines and standards for navigational aids, technical characteristics for landing areas, aircraft certification, licensing of pilots, infrastructure and maintenance level for fire, reserve, lighting and emergency power system and other specialised personnel, market access, safety supervision and pricing schedule for both airlines and airports. Airport Navigational equipment is judged by strict international standards (the Cat I-II ratings) that define the maximum level of traffic that can be accommodated safely at one time given physical capacity constraints. Technical regulations largely (but not exclusively refer to the ability/quality of existing airside facilities i.e. runways, taxiways, aprons, cargo, traffic handling areas (Terminals) to accommodate larger aircrafts plus a range of traffic handling activities. By extension technical regulations also include the amount of available terminal space for passengers traffic levels at airports.

3.1 CIVIL INFRASTRUCTURE

In view of the above requirements and guidelines, Airports Authority started its operation from its inception year of 1972 onwards, in a planned and systematic way by appointing airport De Paris as consultants for the preparation of traffic forecast, model plans and programme drawing for terminal complex. Wide-bodied jet aircrafts like B-747 etc. started their operation from 1972 onwards. Therefore, the first priority task before Airports Authority, was to meet the operational and navigation requirements towards airsides. In the first phase runways, taxiways, aprons were strengthened, re-carpeted to achieve the required PCN for wide-bodied jet aircrafts. These runways and taxiways, parking bays were suitably extended in parallel to provide better operational services. Terminal buildings at all the international airports were modified, expanded/altered and also beautified to provide all facilities to arriving and departing passengers. The terminals available initially could not cope with the increased number of passengers, with the introduction of wide-bodied aircrafts and increased number of international airline operations, and therefore under peak hour operation, the capacity constraint was tremendously felt at all the international airports. To overcome the above problems, the construction of New Terminal Complexes was undertaken in phases at Mumbai, Delhi, Calcutta and Chennai. New international airports/terminal complex was constructed at Mumbai in two phases for international passengers and the 3rd phase of the international terminal is also under way. A new domestic terminal complex was constructed in addition to the existing old one. The New international Terminal Complexes at IGI Delhi and Chennai Airports and the New Domestic Terminals at Calcutta and Chennai were also constructed. These terminal buildings were built under a new modular concept of terminal designs, where passenger handling is efficiently carried out in different floors of the buildings. While this concept facilitated passenger movement, it could not cope with the tremendous increase in number of aircraft movement, passenger and cargo handling, etc. and therefore once again started facing congestion problems. The quality of the structure created is of ICAO requirement and of international standards. The IGI airport at Delhi is considered as one of the best international airports. On city side roads, bridges, car park etc. were constructed. Multilevel car park was constructed at New Domestic Terminal Complex at Chennai Airport. Presently passengers who are using both international and domestic airports for their

onward-connected flights are taken by free coach facility to cover road distance. The concept of providing a tunnel in between international airports and domestic airport for easy and quick movement of the passengers is still under consideration stage.

3.2 Electrical Infrastructure

In the first Phase of electrical infrastructure, ICAO requirements as laid down in its chapter IV regarding Visual lighting Aids which includes Approach light, VASI/PAPI, Threshold light, Runway Edge light, Taxi Way Edge light, Apron Edge light, guidance signs were provided in the initial years of Airports Authority. All these visual aids lights were imported as well as indigenous and also comparing to international standards. In addition to these, apron lighting with high mast and lowering type platforms have also been provided at all the international airports meeting ICAO requirements of 20 lux illumination. In the second Phase new terminal complexes built at Mumbai, Delhi, Chennai and Calcutta were equipped with modern, sophisticated and international standard of lighting, energy efficient light such as mirror optics to meet the required level of illumination as per ISI and as per passenger requirement. Endless type passenger baggage conveyors for arrival conveyors with facility of transferring baggage from floor to floor in the multilevel terminals created for different arrivals and departures. Mumbai and Delhi were provided imported conveyor belt for highly international standards at an approximate cost of RS.30 crores. Newly constructed modular type buildings were provided with escalator, elevators for transfer of passengers, centrally air-conditioned system for comfort of passengers, automatic sliding door with air curtains, pictograph for guidance of passengers. All new terminals have been connected with Japanese and imported from other Asian European Countries aerobridges for direct transfer and movement of passengers from aircraft to terminal buildings. Mumbai international Airport has 22 aerobridges and 2 at Domestic Terminal at an approximate cost of RS .crores. Delhi, IGI International Airport building has 10 such aerobridges at a cost of RS.18 crores. Similarly, Calcutta Domestic building, Chennai international and domestic buildings have been provided such aerobridges.

3.3 Passenger Facilitation:

ICAO has laid down no standards or guidelines as far as passenger facilitation is concerned. However, passenger facilitation has always remained the main objective of the various airport authorities across the world. To improve the passenger facilitation many steps have been taken such as improved baggage trolleys, improved toilet facilities, black and white CCTV, the present look of the new terminal complex is with improved automatic announcement system with high resolution bilingual color CCTV monitors, centralised announcement system, wide screen TV projection units, computerised split flap board system, most modern integrated liquid crystal display (LCD), Flight information boards, Light Emitting Diode (LED), Satellite channel entertainment TV/Video STD/ISTD/PCO telephone booths, soft drink/coffee vending machine. X-ray baggage machine have been replaced from black and white to color, X-ray baggage machine with new technology i.e. multi energy X-ray baggage machine, Hardware & Software of split flap system was customised earlier by German Co has now been improved indigenously by User friendly software. These electronic systems are better than many European and Asian airports.

3.4 Security:
In recognition of growing threat to Security faced by Air Transport Industry, A.A.I. has provided several state of art equipment at the airports. X-ray scan machines, modern door frame, improved metal detectors, night security alarm system, surveillance camera, night vision binoculars coupled with airport security, compound wall with fencing, perimeter road security and anti-hijacking by trained and dedicated police personnel.

3.5 Communication, Navigation and Surveillance System (CNS):

Air Traffic system at Mumbai and IGI Delhi Airports has been changed from its existing system to the state-of-art system i.e. most advanced system in air traffic automation. This system has been purchased from M/s Raytheon, which provides a high degree of automation , which will lessen the stress on ATCO's and the system would help reduce delays. This would lead to substantiated fuel savings for the airlines. Apart from this, Instrument Landing System (ILS) at Bangalore, Bhuvneshwar, Mumbai, Thiruvananthapuram airports, Doppler Very High Frequency Omni Range (DVOR) at Agartala, Jorhat, Belgaum, Calicut, Bhavnagar, Tirupati, Rajkot, Distance Academy Equipment DME(HP) at Coimbatore, Rajpur, Jaipur, Bhopal, Jorhat, Bhopal, Patna, Jammu, Varanasi, Udaipur, Jodhpur, Indore, Badodara, Cochin, Calicut, Sikanderabad, Rajkot, Tirupati have been provided. ASR/MSSR installation provided at Calcutta, Chennai, Ahmedabad and Guwahati.

3.6 Airport Support and Safety Services:

Fire services: The standards and stipulations of the international Civil Aviation Organisation are being followed scrupulously in the maintenance of Category IX Fire Services at MUMBAI and Delhi Airport and Category VIII services at Chennai and Calcutta Airports. These involve maintenance of sizeable contingent of Crash Fire Tenders, Rapid Intervention Vehicle, Water tender, ambulances, first aid centers. Most of these fire fighting equipment are imported and as per ICAO standards. Ground Safety measures are also invariably maintained. Mechanical runway sweepers, to keep aircraft maneuvering area free from dirt or damage by foreign objects, high pressure steam jet cleaning machines, Runway friction, Co-efficient measuring equipment (skidometer), conforming to ICAO requirements have been provided at international airports.

CHAPTER 4

4.0 MODE OF INFRASTRUCTURE FINANCING:

It has to be appreciated at the outset that financing of airport infrastructure has some inherent problems. These projects require huge amount to be invested at the initial stages and the arrangement of finance is to be done internally, very less Govt. grant is available and Airports Authority is not registered under Company's Act.1956 so no public issues can be issued to raise money. So the growth rate of development fails to materialise.

4.1 Internal Resources:

The current pattern of financing is predominantly based on internally generated resources of AAI. AAI(IAD) have generated internal resources from 1972-73 to 1999-2000, the yearwise details is placed at annexure-II along with internal resources generated by erstwhile NAD from 92-93 to 99-2000.

4.2 Budgetary support:

Airport infrastructure financing was made through budgetary support given by Govt. of India coupled with internally generated resources. Budgetary support given to erstwhile IAAI from 1972-73 to 1985-86 is to the tune of RS.110.17 crores, year-wise details is placed at Annexure-II. Similarly, budgetary support given to erstwhile NAA from 1992-93 to 1999-2000 is placed at annexure-II. No budgetary support was obtained after 1985-86 by erstwhile IAAI.

4.3 Budgetary Grant:

The budgetary grant is limited to certain airports in remote and in accessible areas. Budgetary grants given by Govt. during 1996-97, 1999-2000 is RS.26.97 crores and RS.29.02 crores respectively as shown in Annexure-II.

4.4 Other resources:

Funding through external assistance, external commercial borrowings and loans and other sources can be done to get ample fund the two organisations were merged w.e.f. 1.4.95 also under a Parliament Act. Since A.A.I have not been formed under Companies Act, 1956 raising of financing through public was never permitted by Govt. of India.

4.5 Consolidated fund of India:

Currently, the revenue from the taxes imposed in the aviation sector in the shape of IATT and FTT is credited to the Consolidated fund of India, with only 10% of FTT being given to A.A.I. Even this 10% is now sought to be taken back. Tacking into account the astronomical sum to be required for infrastructural development, there is a strong case for conversion of these taxes into Common Civil Aviation Cess, the proceeds of which should be credited to National Civil Aviation Fund to be operated by Ministry of Civil Aviation.

4.6 Capital Expenditure/Infrastructure Expenditure:

Since the inception of the AAI infrastructure expenditure are being financed either by internally generated resources or budgetary support given by the Govt. of India, AAI have stopped taking budgetary support from Govt. of India from 1985-86 onwards and all its Annual Plan expenditure are being financed by internal resources. Infrastructure expenditure incurred from 1972-73 to 1996-97 against the Govt. of India Approved Plan Outlay is placed at Annexure-III.

4.7 Adequacy of the Capital resources generated:

A general view on the data relating to yearly capital expenditure incurred, Approved Plan Outlay by Govt. and Gross Internal Resources generated in respect of erstwhile I.A.A.I for 1972-73 to 1996-97, the following facts emerges out: The Approved Plan Outlay from 1972-73 to 1984-85 and Capital Expenditure incurred against this outlay were more than the internal resources generated and therefore there was the inadequacy of the fund/resources gap, which was met by the budgetary support granted by Govt. of India. The Budgetary Support given by Govt. of India to fill the resources gap into 1985-86 i.e. upto VI five year plan was to the tune of RS.110.17 crores and internal resources generated was RS.162.83 crores to meet the capital expenditure of RS.256.39 crores against the IV,V & VI five year plan approved outlay of RS.260.22 crores. Authority proposed an outlay of RS.59.43 crores in 1986-87 but Govt. expressed its inability to provide budgetary support. In consequence the authority had to prune and restrict the outlay to the extent of RS.31.20 crores as approved plan outlay and incurred an expenditure of RS.34.08 crores. From 1986-87 onwards, AAI stopped taking any budgetary support from Govt. and al infrastructural expenditure were purely financed by the internal resources. The financial data as referred in the annexures II & III further reveals that from 198687 onwards despite A.A.I. enhanced capabilities of generating a good amount of internal resources and the capability of incurring expenditure towards infrastructural development, through its dedicated professional engineers and planners, the Govt. always had put a restriction on the plan outlay by reducing proposed plan outlay of the Authority which was always on higher side. Therefore, there was an indirect Governmental restriction on the infrastructural development. Upto 1994-95, AAI generated gross internal resources of RS.976.14 crores and spent RS.753.76 crores

against the approved plan outlay of RS.906.19 crores. The resultant slow progress of infrastructure development was due to Govt./political interventions, slow decision marking by the Top Management, a decline in dedication in the working force, multiple and bureaucratic codal procedure etc. The merged AAI (International Division and Domestic Division) w.e.f. 1.4.95 planned for phase-III of Mumbai Airport, Modernisation of Air Traffic Services at Mumbai & Delhi, Aeronautical Commercial Services, Ground Safety Services, modernisation of domestic airports, Improvements in the existing facilities and spent the following amount out of internal resources: Internal Resources (Figures in crores) 1995-96 International Division ) Domestic Division ) 1996-97 International Division ) Domestic Division ) 222.93 181.73 320.16 501.89 131.12 189.25 320.37 228.52 140.16 375.00 515.16 100.41 262.03 362.44 Approved Plan Outlay Actual Expdr

1999-2000 International Division ) Domestic Division ) 625.04 228.04 397.00 625.04 159.61 201.02 360.63

In totality from 1972-73 to 1999-2000, AAI have spent RS.2468.68 crores against the Approved Plan outlay of RS.3633.63 crores. Internal resources of RS.3989.81 crores and budgetary support have financed the entire expenditure. Erstwhile NAA spent RS.1055.87 from 1992-93 to 1996-97 (VII Plan) against the approved plan outlay of RS.3595.00 crores. Govt. social commitments to invest in the nonviable/non-profitable domestic airports, investment in airports in remote and inaccessible area are further additional liability on AAI resources. During the year 1995-96, AAI received RS.9.97 crores from Govt. as Budgetary support for investment in Northeast Region and RS.34 crores (50% as Capital and 50% as loan capital) for remote areas like Jammu & Kashmir and Lakshwadeep Islands: During 1996-97, AAI received RS.16.00 crores from Govt. as Budgetary support and RS.10.96 crores for investment in northeastern Region. An amount of RS.2.06 crores has been received as Equity Capital as assistance from the Overseas Economic Co-operation Fund of Japan for further development of Aurangabad Airport. In 1999-2000 Airport Authority of India received from Govt. as budgetary support

The increased projected traffic demands in terms of Traffic movements, Passengers, Cargo etc for the next decade shall definitely ask for further speedy developments of international and domestic airports infrastructure which shall demand a heavy infrastructure investment. The financing through internal resources and limited budgetary support shall not be sufficient enough and therefore necessary sources of finance from private, external borrowings, foreign investments have to be studied in advance to keep pace with the international developments of airports.

CHAPTER 5

5.0 PROJECTION OF TRAFFIC DEMAND

5.1 PROJECTION OF TRAFFIC DEMANDS

Foundation for Aviation and Sustainable Tourism in April 1996 has projected traffic growth rates for different airports for the years 2011-12 considering various aspects viz: trend, field assessment, projection developed by airlines, aircraft manufacturers, IATA, ICAO, other agencies, tourism forecasts and econometric models i.e.(a) multivariate regression model (variables: Tourists, GNP, Foreign Trade, Population, Domestic Pax); (b) Linear Time Trend; (c) Exponential Growth curve; (d) Other information available in PGCA report, IATA traffic forecast, ICAO forecast. Based on these growth rates extended upto the period of 2016-17, the traffic projections have been prepared. The airport-wise traffic forecast for the top 45 airports where 99.3% of commercial traffic was handled in 1999-2000 is at Appendix IV a,b,c. It is projected that domestic and international passenger traffic in India in the coming two decades will grow at 8% and 5.7% respectively. It is also projected that the domestic and international cargo traffic will grow at 5% and 10% respectively. Annexure I depicts traffic levels at all the Indian airports put together by different plan period upto the year 2016-17 . In comparison to the year 1996-97, the international passenger traffic during the year 201617 would be 3 times, whereas, domestic passenger traffic would multiply by 4.65. The international and domestic cargo traffic is likely to be 6.5 and 2.7 times respectively. It will be seen that the domestic cargo traffic growth is low at all the airports as it faces strong competition from rail and road. There is the effect of introduction of improved railway services and roadways on the short haul air traffic. The effect, however, has not been assessed explicitly. But is can be seen that Shatabdi Express joining New Delhi to Agra, Gwalior, Jhansi, Bhopal, Kanpur, Lucknow, Amritsar, Jaipur, Ajmer; Mumbai to Surat, Badodara, Ahmedabad, Pune; Chennai to Bangalore, Coimbatore to replace the air traffic by railway traffic to some extent. The impact of improved railways and road services may be significant only on foreign tourist traffic proportion. It may effect marginally on business traffic component, which matters. As such, these factors absorbed in traffic forecast when a feasibility study is done in respect of a specific airport through developing traffic forecast ranges.

5.2 Traffic handled in 1999-2000

In 1996-97, all the 120 airports including 28 civil enclaves at defence/HAL airports managed by the Airports Authority of India, put together handled 257.41 lakh domestic and 132.93 lakh international passengers and 2.65 lakh metric tonnes of domestic and 5.31 lakh metric tonnes of international cargo. Understandably, the larger chunk of traffic was handled at international airports situated at Mumbai and Delhi.

5.3 Traffic in terms of workload units (WLUs)

Passenger and Cargo Traffic in terms of WLU; All airports in the country handled 797 lakh WLUs. One WLU is equal to on passenger or 100 kg of cargo and has been adopted for appreciation of the combined passenger and cargo traffic at an airport. Mumbai and Delhi airports accounted for 54.4% of the total number of WLUs handled. The top five, ten, fifteen, twenty, twenty-five and thirty airports handled 76.0%,86.9%,90.7%93.4%,95.3% and 96.3% of the traffic respectively. The balance 3.7% traffic was shared by the remaining 90 airports. Ninety-two airports due to low volume of traffic are unable to meet even their operating cost. Further, following is the classification of operational and abandoned airports: Table 5.3 Total no. of airports No. of operational airports 82 83 90 56 No. of airports 10 73 46 6 abandons

Owner A.A.I State Govt. Defence Private

5.4 Distribution of Air Traffic in states:

The state of Maharashtra and Delhi handled 33.1% an 23.0% of the total air traffic in the country. The top ten states in the descending order and their share of WLUs are: Maharashtra (33.1%), Delhi (23.0%), Tamil Nadu (10.3%), West Bengal (7.2%) Karnataka (5.8%), Kerala (5.3%), Andhra Pradesh (3.4%), Gujarat (3.0%), Goa (1.7%) and Uttar Pradesh (1.1%). These ten states accounted for 93.9% of the traffic and the balance 6.1% traffic was shared by all other states. It will be seen that states having gateway airport tourist potential, industrial centres and higher per capital income have an advantage over the others.

5.5 Passenger Traffic

Domestic : Mumbai and Delhi Airports accounted for 43.6% of traffic. The top five, ten fifteen, twenty-five and thirty airports handled 66.6%, 79.2% 84.4%, 89.0%,92.3% and 94% of the traffic respectively. Other airports shared the balance 6% of traffic. International: Mumbai and Delhi Airports accounted for 69.3% of the international passenger traffic. The top five airports at Mumbai. Delhi, Chennai, Calcutta and Bangalore accounted for 87.3% of the international passenger traffic. The next five airports at Hyderabad, Trivandrum, Goa, Ahmedabad and Calicut handled 9.9% of the traffic. Thus these ten airports accounted for 97.2% of the traffic. Combined : Mumbai and Delhi airports accounted for 52.1% of the combined passenger traffic. The top five, ten, fifteen, twenty-five and thirty airports handled 73.5%,85.2%,89.6%,92.6%,94.8% and 95.9% of the traffic respectively. Other airports shared the balance traffic of 4.1%.

5.6 Cargo Traffic

Domestic : Mumbai and Delhi Airports accounted 48.3% of the domestic cargo. The top five, ten, fifteen, twenty-five and thirty airports handled 76.2%,87.9%,90.7%,92.9%,95.4% and 96.2% of domestic cargo respectively. All other airports shared the balanced 3.8% of traffic. International : Mumbai and Delhi Airports accounted for 74.1% of the international cargo traffic. The top five airports handled 94.4% and the top ten airports accounted for 99.5% of the traffic handled. Combined : Mumbai and Delhi airports accounted for 66.4% of both domestic and international cargo. The top five, ten, fifteen and twenty airports handled 89%,96.1% and 97.6% respectively.

5.7 Summary status of airports

It will be seen that Mumbai and Delhi Airports account for about 54% if the traffic. The top five airports at Mumbai, Delhi, Chennai, Calcutta and Bangalore handle about 76% of the traffic. The next ten airports at Hyderabad, Trivandrum, Goa, Ahmedabad, Guwahati, Cochin, Jaipur, Varanasi and Nagpur account for 14.7% of the traffic. In short, the top fifteen airports account for about 91% of the air traffic whereas the top thirty airports account for 96.3% of air traffic in the country. The air traffic in the country, as is in many countries, is highly concentrated around gateway airports. Historically, air traffic at Indian Airports has broadly followed the distribution pattern of 1996-97 except that some airports have changed their interest positions. The air traffic in the country has good potential for growth, but its impact will be felt more at these thirty airport only. In the emerging scenario, when the economy is opening up and India is keen to be a global player, the civil aviation sector is expected to play an important role. The airports are expected to gear up to competently handle the growing traffic by providing comparable quality services. Thus there is a need to put the existing infrastructure to optimum use by manning all immigration or customs counters, introducing CUTE, EDI and adopting automation/computerisation in various areas to reduce dependence on manual handling and augmenting facilities at least at the top thirty airports.

CHAPTER 6

6.0 FUTURE CAPITAL REQUIREMENT

The technical progress made by airlines, the size and capacity of aircrafts according to its usage as carriers of passenger or freight, determine the design capacity of the airport infrastructure and the associated facilities therein, besides the support services. The airport capacity and configuration generally caters for a peak demand situation. Once the growth cannot be efficiently sustained, the need arises for upgradation/modernisation of the existing infrastructure. The air traffic trend and forecast for the regions as the destination are important input for infrastructure planning and design. The air traffic growth rates are influenced by the macroeconomic outlook of the region, growth rate of GDP, geo-political security scenario, policy on track and travel, Civil Aviation regulatory mechanism on air transport etc. In the light of the above major parameters and guidelines the creation of airport infrastructure in India has been taking place from IInd 5 year plan onward. Despite various constraints, progress is going.

6.1 COST OF AIRPORT:

The cost of developing an airport, the world over is high and India is no exception. For example: the cost of a small size airport comparable to new Cochin Airport under construction is estimated around Rs.600 Crores. Its annual cost of capital at 15% rate of interest and 5% depreciation on runways, taxiways, terminals and other equipment say costing around Rs.400 crores (other Rs.200 crores is the assumed land cost) would itself be Rs.110 crores per annum. In addition, its annual operating cost based on comparable airport managed by AAI will be around Rs.20 crores. For an airport, having an investment of the order of Rs.600 crores to be profitable should handle annually more than 7000 departure of B747. It would amount to more than 20 departures of B747 type of aircraft in a day and that is a tall order for an airport of that size. These calculations are based on current landing charges levied at Indian Airport.

6.2 IX FIVE YEAR PLAN:

Airports Authority with continuous endeavor to create more infrastructure and to improve the existing one has planned both for domestic and international airports in its IX Five Year Plan, which starts from the year 1997-98 to 2001-2002. Airports Authority have planned to incur expenditure on infrastructure during the IX Five Year Plan to the tune of Rs. 4303.00 crores on different regions of the country as detailed below:

Table 6.1 Capital requirement Region wise. --------------------------------------------------------------------------------------------------------Rest. in crores 1210.96 1146.62 1148.14 360.00 437.28 ------------Total 4303.00 ========= --------------------------------------------------------------------------------------------------------Northern Region Western Region Southern Region Eastern Region North-eastern Region

6.3 Capital for next 10 years (2003-2012) as regards Mumbai Airport.

The existing site measures around 2000 acres is already encroached by slum areas. Particularly, the growth of infrastructure and encroachment at the existing Mumbai Airport is restricting the further expansion without compromising operational efficiency. The existing infrastructure of terminals, runways, taxiways, maintenance and logistic support etc have been so developed/ expanded at very high investing may reach saturation by 2010, if the growth of air traffic continues in the Asia Pacific Region. It is also feared that by 2010 the access road connecting to Mumbai Sahar Airport will become a bottleneck due to traffic. It is therefore, technologically and Commercially imperative that while existing infrastructure usage should be maximised with innovative managerial solutions, simultaneously alternate location should be explored for launching projects sufficiently ahead of building up of demands. The Tata committee Report 1986, IAAI Report 1992 also recommended Mandwa Rawas as the most feasible site in the vicinity of twin city to locate second airport. The MOH Macdonald Report once again substantiated this in 1995 confirming the alternate site for new Mumbai Airport. The approximate cost of new airport may be around Rs.2000 Crores.

6.4 IGI Airport:

The next busiest airport immediately needs additional passengers and cargo terminals and parking bays as the available capacity are nearing saturation. The airport, because of its land resources has excellent scope for expansion. It can also accommodate the socalled cargo village being proposed near Gurgaon.

6.5 Goa Airport :

It has 11250 long runway and is equipped with NDB, DVORs, ILS facilities. It is capable of handling A300 type of aircraft operation. Goa Airport is fast becoming a popular tourist charter destination. The civil enclave at the naval airport has limited potential for expansion. Therefore, new airport project should be cleared on priority and authority should claim its first right on it. The cost of new airport project may be approximately Rs.5000 crores.

6.6 Bangalore Airport:

Bangalore is showing excellent growth potential. Last year the number of domestic passengers handled at Bangalore Airport was comparable with Chennai Airport. Its passengers terminal is totally inadequate to meet the present day demand. The International flights are being handled with make shift arrangements. The work of expansion of passenger terminal has since been completed but it may not be able to serve the growing traffic as it may saturate by the time added facilities are opened to traffic. Bangalore is a HAL airport. There is a proposal to construct another airport in the private sector. The proposal of Tata to construct the new airport has not been cleared by the Government. The work as the new airport is yet to start and it may take another 5-6 years before it became operational. Therefore, in the interim period to serve the need of growing industrial city, there is urgent need to clearly define the role of HAL, AAI and new airport so that the growth of air traffic is not hampered and authority is able to work out returns on its investments made/planned at the existing airport. The cost of new airport if constructed by AAI shall be approximately Rs.1700 crores.

6.7 Green field Airports:

Govt. of India in its policy on Airport infrastructure has checked that there are already a sufficient number of airports, many of which are not viable. Therefore, these will normally not be taken up either in the public or private sector without the prior approval of the Govt. In the case of the other airport category run by private operators, the approval of the DGCA would suffice at present. Where Govt. decides to set up a greenfield airport through the AAI as social consideration even though the same is not economically viable, suitable grant in aid will be provided to AAI to cover both initial capital cost as well as recurring losses.

6.8 Development of infrastructure facilities Prime Ministers initiatives scheme:

During 1996, Honble Prime Minister of India had announced for providing budgetary support for improvement/upgradation of infrastructure facilities at the airports of world-class standards. AAI has identified new schemes, costing about Rs.220 crores for upgradation of infrastructure facilities at Agartala, Shillong, Dimapur, Guwahati, Lilabari and construction of a new airport at Itanagar in addition to schemes costing about Rs.142 crores already in progress which are funded by NEC and Ministry of Civil Aviation in 60:40 ratio. AAI has made a total budget provision of Rs.362 crores for the 9th plan period to gear up and complete the upgradation and development works at the airports in the North East Region. On the clear understanding that NEC will be providing 60% share as Grant in Aid for the schemes approved and agreed by NEC. Ministry of Civil Aviation as budgetary support will provide balance 40% share.

Ministry of Home Affairs has intimated that the financing of schemes under Prime Ministers initiatives, will be in the form of 100% grand-in-aid, i.e. 60% through NEC and 40% through Ministry of Civil Aviation. Under the PM New initiative schemes, Guwahati Airport has been planned to be developed as International Airport. At other airports, all the modern facilities will be provided for the comfort of passengers and safety of aircraft operations.

Table 6.2- Summing up of Capital needs for next 10 to 15 years:

----------------------------------------------------------------------------------------------Rs. In Crores
4300 15000 10000 1700 1500 ---------Total 32500 Green Field Airports 20000 ----------52500 ======= --------------------------------------------------------------------------------------------------------Above requirement of capital does not include the huge capital required for making international hubs. Govt. of India in its policy on airport Infrastructure have decided to develop the capacity of airports in accordance with the future projections and proposed to reclassify the airports as: International Hubs Regional Hubs Other Operational Hubs. 9th Plan Expenditure (1997-2002) 10th & 11th Plan Expenditure (2002-2012) approx Construction of New Airport at Mumbai Construction of New Intl Airport at Bangalore Construction of New Airport at Goa

6.9 International Hub:

A modern internal hub should necessarily provide elaborate infrastructure and facilities like hotels, restaurants, shopping conferencing and entertainment, aircraft maintenance, besides aircrafts related handling infrastructure and space in order to maximize the non aeronautical revenue generation at the airports and returns to compensate for massive investment on such capital intensive projection. In terms of complexity and magnitude, the pair of runways, taxiways, a tower and terminal blocks for passengers/ cargo handling not merely constitute the airport but much more such as airport ancillary and support service etc. Airports in the next millennium as integrated transport communication hub will play increasingly and important role as gateway to Technology/ Industrial Parks/ amusement/ Tourist/ Commercial complexes and local urban community. It is therefore technologically and commercially imperative that while existing infrastructure usage should be maximised with innovative managerial scrutiny: simultaneously alternate

location should be explored to initiate planning activities and launching of project sufficiently ahead of building up of demand. Initially Delhi, Mumbai, Chennai, Calcutta, Thiruvananthapuram airports can be upgraded to qualify for international hubs and subsequently Bangalore, Hyderabad, Ahmedabad, Amritsar, Guwahati can be included.

6.10

Regional Hubs:

Regional Hubs will have to act as operational bases for regional airlines and also have all the facilities currently postulated for model airports including the capacity to handle limited international traffic. The identification of Regional hubs will be made on the basis of origin destination survey, traffic demand and the requirements of the airline. State Govt. can be closely associated as co-promoting of regional airlines.

6.11 Other operational airports:

These will be developed so as to be cost effective on the basis of individual need to meet the requirement of traffic handled by them. Airports serving state capital will be given priority.

CHAPTER 7

7.0 SOURCES OF CAPITAL

7.1 SOURCE OF CAPITAL
There are 449 airports/airstrips in the country. Among these, the AAI owns and manages 82 airports and 28 civil enclaves at defence airfields and provides air traffic services over the entire Indian subcontinent and adjoining economic area. It has to be appreciated at the outset that financing of airport infrastructure has some inherent problems. These projects have a large element of sunk cost, a very long gestation period and highly uncertain returns on investment based on several assumptions of traffic growth that may fail to materialise. Airport Authority is a profitable organisation and its current pattern of financing is predominantly based on internal resources generated plus allocation of budgetary support, which is almost negligible. Considering the astronomical sum needed for modernisation and upgradation of existing airports and creation of new airports, Airport Authority cannot bank upon only on internal generated resources or meager budgetary support but have to tap funding through external assistance, external commercial borrowings, loan equity etc. We shall now be discussing the various long-term sources of capital/ financing both domestic and international, in view of long gestation period of airport infrastructure development, low rate of return etc.

7.2 Domestic sources of long term financing:

There are alternate approaches to what constitutes the best package of financing airport infrastructure, which is discussed in Chapter 10. Following can be the major long-term sources of finance: a. Domestic long term financing b. International long term financing

7.3
A)

DOMESTIC LONG TERM FINANCING :

Financing by Govt.

7.3.1 Internal Resources:

Provision of depreciation , which is not a cash expenditure and the Profit, retained after payment of dividend are the main source of internally generated fund. The internal resources of the organisation may be generated to its optimum potential, which can be done by adopting the steps. This source of finance is the cheapest one.

Optimization of revenue from aeronautical charges, through negotiation with IATA and keeping Govt. approvals in view. A revolutionary thrush towards raising of revenue from non-aeronautical commercial resources. Non-aeronautical revenue earned by AAI during 1999-2000 was 748.76 which includes cargo Revenue and therefore represents 44.27% of total revenue whereas non aeronautical at Changis, Heathrow, Gatwick and number of other airports is reported around 60-70% of the total airport revenue.

Following new sources of revenue are suggested: Recovery of security cost by imposing security charges as levied in many countries. Increase passenger service fee, user development charges, and aerobridges charges. Create additional shopping areas at airports based on market research. Encourage direct transit passengers to visit shopping areas in transit lounges. Encourage visitors to the airports. Massive economy in expenditure by manpower optimisation, cost reduction carrying out Q&M studies, savings, elimination of duplication, increased productivity, contracting and services adopting new technology, automation, computerisation. Replacing inefficient system and procedure with efficient one and avoid delayed decision making.

7.4 Govt. Budgetary Support:

The initial capital investment to the Central Public Sector Under taking is usually in the form of Budgetary support from Govt. This is given partly in the form of equity and partly as loan. Subsequently supports are also given in the same form. The undertaking pays interest on the loan component and dividend on the equity component. The loan has to be repaid to the Govt. within a period of 15 years including a period of moratorium, which covers the period of construction and stabilisation . Interest of this capital is capitalised and added to loan. The foreign exchange component of budgetary support is given form bilateral and or multilateral and available in foreign currency and free foreign exchange resources. Plan allocations to AAI airport infrastructure need heavy increase. A general policy decision that AAI will only invest in project, which is economically viable, Investment in non-viable projects based on social and political needs and losses incurred thereon shall be reimbursed to AAI. There is at present, some money flowing to the AAI for construction of airports in remote and inaccessible areas. This money, which was available till recently as grant, is now sought to be given as Grant-in-aid.

Raising of funds by selling Juhu & Safdarjung airport to the private operators and using this money for the construction of new airports and modification of the existing airports.

7.5 Inter corporate financing:

Public Sector Undertaking under the same administrative Ministry can give inter corporate loans with the approval of the Govt. However , considering the week financial position of I.A., A.I, Pawan Hans, HCI etc, it is not possible.

7.6 Equity/Preference share capital and Debentures (Public Funds):

Raising of finance form public by issue of equity, preference share capital or debentures both convertible or non convertible is allowed to those Private/ Public/ Govt. companies which are registered under Indian Company Act 1956. The amount of equity or loan depends on the pattern of financing determined following the guideline laid down by the Securities Exchange Board of India (SEBI). Airport Authority of India have been established under an Act of parliament and is not allowed to be registered under Indian Company Act 1956 and therefore do not entitle for raising public funds.

7.7 Public Sector Bonds:

Public Sector enterprises are allowed to issue bonds to raise funds for expansion, diversification, modernisation etc. The bonds issued by PSE are similar to debentures. These bonds are of two types Taxable Bonds and Tax-free Bonds. The amount of issue of bonds for project financing has to be approved by Ministry of Finance. The rates of interest for both taxable and tax free bonds should be within the Govt.'s regulated rates. The investors therefore get the interest promptly on the due date. The public sector under taking can buy back these bonds after a lock in period of 3 years from the date of allotment. The bonds can be placed with investment institution and listed as stock exchange. These bonds can be transferred by endorsement and delivery.

7.8 Lease Financing:

A number of non-banking financial companies and even some banks are engaged in the business of lease finance. Considering the enormous amount of fund required, advantages and disadvantages, lease financing is not considered as viable proposals.

7.9 Long term loans by financial institutions:

The largest single source of major project financing is the long-term institutional assistance. There are several national and international financing institutions which either lend their fund directly or act as agents for channeling funds flowing from Govt. bigger lending or foreign Govt. The main developments and infrastructure development financing institutions are the Industrial Development Bank of India (IDBI), The Industrial Finance Corporation of India (IFCI), Industrial Credit & Investment Corporation of India (ICICI), Indian Reconstruction Bank of India (IRBI), Unit Trust of India, national small Industries Corporation India Ltd (NSIC, State Financial Corporations.

7.10 Private Sector:

Mainly the industrial houses in private sector with good trackrecord and sound financial condition can also finance the entire airport infrastructure at agreed terms and conditions with Govt. However, a major set back to construct a new Bangalore Airport by a leading Industrial Company i.e. Tata could not materialise with the Govt. Tata has withdrawn the proposal recently.

7.11 International Long term financing:

External Commercial Borrowings(ECB) External Commercial Borrowings are the amounts borrowed by Govt. through designated agents for All India Financial Institutions(AIFI). The lender includes Asian Development Bank (AOB) and International Monetary Fund. Any existing undertaking is permitted to make direct commercial borrowing if the Department of Economic Affairs is satisfied with the proposal submitted to it. Direct external commercial borrowing of the total foreign exchange requirements may be permitted which the other part should be financial through rupee payment under bilateral aid or free foreign exchange release. In general, the Govt. policy is to discourage individual undertaking directly making external commercial borrowings but if the project is 100% Export Oriented Limit(EOL) the entire foreign exchange components is allowed to be met through direct external commercial borrowings. There are two main sources of commercial borrowings: Mobilisation of funds in the international money market; Export Credit: All borrowings in the international markets are handled by All India Financial Institutions. They borrow in their names and lend them at a higher rate in India. Undertakings with good track record and capable of getting good credit rating by a reputed credit rating company. International borrowing can be done directly from international market. External Aid External aid, available only through the govt. is two types bilateral aid and multilateral aid. Bilateral aid as the name implies, is an aid from one govt. to another Govt., Generally the donor is an industrially affluent one, and the recipient or beneficiary belongs to developing or underdeveloped country. The donor countries established their own agencies, which administer the aid. The overseas Economic Co-operation Fund of Japan and Overseas Development Administration of UK are examples of this nature. The Assistance form the developed countries are conditional, tied to buying their equipment and know-how. They are project specific, designed to finance particular projects of interest to them. There is special financial aid extended by Foreign Governments on a product-sharing basis. An example is the assistance form Iran govt., for the kundermukh iron ore, which provided for sharing of iron ore with Iran for a certain number of years at an agreed price until the assistance is paid back. A third category is the special assistance offered by rich Gulf countries (Saudi Arabia, Kuwait, UAE) to developing countries at concessional interest rates and on easy repayment terms.

Multilateral aid is available form international financial institutions like the World Bank group, consisting of International Bank for Reconstruction and development (IBRD), International Development Association (IDA), International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA); and Asian Development Bank (ADB). The member countries of these institutions subscribe huge sums of money. They lend to member countries that wish to invest in development projects. ADB is relatively small with only 47 member countries, concentrating on the economic and social development of IBRD raises funds through the scale of AAA-credit-rated bonds in international capital markets. It lends funds to the credit worthy developing countries with relatively high per capita income. The rate of interest varies and set at half percent higher than its average borrowing rate, The repayment period is 12 to 15 years with a grace period of 3 to 5 years. Loans are given to govts. Or to agencies which produce a guarantee from the govt. IDA provides assistance on concessional terms to the poor developing countries that are not sufficiently creditworthy to deserve aid form IBRD . IDA receives its funding form contributions made by wealthier member countries. The IDA assistance is for longer periods of 35 to 40 years. It does not charge any interest by collects 0.75% annual service charge. IDA is also made only to govts. MIGA encourages foreign investment in developing countries by providing guarantee to foreign investors against losses caused by non-commercial risks. It provides advisory services to developing member- countries on how to improved their environment for foreign investment. Investments from oil exporting developing countries: An important source of foreign assistance is the investments from institutions and individuals from oil exporting countries in Africa and Persian Gulf, which are not industrially advanced. Such investments can be in equity, loans, debentures, bonds, etc subject to certain limits and restricted to new enterprises, hotels and hospitals clearance form RBI is needed for such investments. Equity participation by collaborators is the widely accepted form of foreign investment. Until 1991, Foreign collaborations are not encouraged and there was a limit on the extent of equity participation for foreign collaborators. After the Govts. Liberalisation policy in 1991, collaboration is allowed in more areas and the limit for equity participation by foreign collaborator is increased, even allowing the foreign collaborator to have a majority shareholding. During the last 2 to 3 years the number of foreign collaborations approved by the Govt. increased substantially and the direct foreign investment reached 10 billion US dollars. This is considered very small when compared with the direct foreign investment in China.

Share Subscription by Overseas Investors: Individual and institutional investors in the developed countries evinced considerable interest in equity participation in large Indian Industrial houses with good track record, EuroConvertible bonds and Global Depository shares (GDS) of prominent Indian Companies have become popular instruments abroad. Euro convertible bonds are convertible latter into

stock. GDS is an instrument issued by the managers of the offering and the represent company shares lifted on Mumbai stock Exchange. The Indian Govt. allowed several large companies- Reliance Industries , TISCO, Grassy Industries, Essay Gujarat- to raise equity abroad, and they decided to make private placement offerings of their shares. Morgan Stanley International and Lehman brothers managed the public placement offering of Reliance Industries. They raised 175 million US dollars: the issue in the form of GDR was over subscribed five times. ICICI acted as the custodian of shares and the Bank of New York as the depository. The investors consisted of mutual funds, pension funds, and some wealthy individuals for USA and countries in Far East. 7.10.12 This is also a good way of generating finance in which the promoters with excellent background capable of generating investor confidence in new projects can consider. The foreign exchange cost will only be the dividends on those equity shares. Share subscription of Non Resident Indians: 7.10.13 One of the long-term sources of foreign exchange to meet the projects foreign exchange component of cost is the share subscription by NRIs in foreign exchange. Depending on the mix of financing and the total number of requirements, the NRI equity may be sufficient to meet the entire foreign currency requirement.

Assistance from International Finance Corporation: The IFC provides financial assistance to the private sector in the developing member countries. The assistance takes the form of equity participation and loan, usually in collaboration with other investors. The DEAs clearance is necessary for any under taking in the private sector to approach IFC for financial assistance. It can grant loans in the currency of the member country or Switzerland for meeting foreign currency of the member country. Normally, the amount of assistance is between 5 to 50 million US dollars subject to maximum of 25 percent of the project cost loans are repayable in 7 to 12 years with normal interest and usual commitment charges on undisbursed amount of sanctioned loans. IFC does not require any guarantee from the govt.

CHAPTER 8

8.0 CARGO HANDLING INFRASTRUCTURE

To provide improved facilities for the handling of import and export cargo where the facilities were inadequate and to cater for the growing volume of air cargo. The Authority embarked upon a programme to develop multiple occupancy international cargo complexes at all airports in 1974-75 and made a significant headway by providing a fund of RS.5 crores in 1975-76 for crash programme for construction of multiple occupancy cargo terminals.

8.1 Integrated Cargo Terminals:

The first integrated Air cargo Terminal was set up in 1975 at Calcutta Airport followed by those at Mumbai and Chennai.

8.2 Phased development of Carg

After completing the crash programme for setting up of cargo handling facilities at the four airports during 1977-78, AAI took up a phased programme for the expansion of cargo facilities for 1978-79 onwards and has so far constructed various modules of cargo complexes both for import and export cargo. An integrated and semi mechanised cargo terminal was commissioned at IGI Airport on 1.5.1986. In addition these many more blocks have been added to Delhi and Mumbai Airport in different phases such as Foreign Airlines Cargo Terminals, ETV warehouse, Perishable Cargo shed, Air India ETV warehouse, Import & Export Courier Express terminal. With the introduction of many cargo handling equipments like ETV which ensures swift and efficient vertical and lateral transfer of cargo, other equipments used are hard trolleys, four wheel trolleys, power pallet trucks, forklift, tow tractor, tractor trailer, lazy bed rollers, Car off loading ramp, folding ladder, weighing scales, trucks, X-ray machines, Automatic strapping machines.

8.3 Cargo Statistics:

Cargo handling for 1976-77 to 1999-2000 is a follows: Cargo International Domestic 1976-77 84 34 In tonnes (000) 1996-1997 479 202 1999-2000 532 266

Projection for next 15 years i.e. 2015.16 Cargo International Domestic At international airports 2755 319 Domestic airports 156 166

8.4 Cargo Revenue:

Cargo revenue generated has risen tremendously from RS.18,22,876 in 1976-77 to RS.135.77 crores in 1996-97 and 250.44 crores in 1999-2000.

8.5 Computerisation of Cargo handling:

IGI Airport has introduced integrated cargo Management system whereby entire range of cargo operation and functions has been computerised and offer scope for interface with EDI (Electronic Data Interchange)

8.6 Infrastructure investment:

Delhi Airport alone have invested so far RS.85 crores (excluding land) in buildings, equipments etc. similarly, Mumbai Airports have invested so far RS.65 crores.

8.7 Infrastructure development for future:

The increasing trend of cargo as projected for the future years 2015 to 2016 have necessitated for perspective planning for creation of cargo infrastructure. Currently, Mumbai serves as the main transshipment point for international air cargo. However, due to acute scarcity of land for further expansion of cargo terminals etc, Delhi Airport is considered to be well placed to serve as transshipment point for international air cargo destined for Kabul, Kathmandu, Karachi, Dacca and even sectors like Singapore, Dubai etc.

Airports Authority of India have been working as establishing Satellite Freight City near IGI Airport i.e. Gurgaon in association with Indian Trade Promotion Organisation. Investment in future Cargo handling infrastructure is estimated around RS.400 crores.

CHAPTER 9

9.0 INFRASTRUCTURE FINANCING IN OTHER COUNTRIES

From: Anil Kapoor Private Sector Development specialists report on Airport Infrastructure The emerging role of private sector and other presentation papers. ICAO estimates that about US $ 250-350 billion will be needed in airport infrastructures during the next 10-15 years to meet the demand and modernise existing facilities. If the cost of new ATC services, environmental regulations, inter-modal linkages and unreported capacity constraints are included, total airport infrastructure investment could exceed US $ 500 billions. The problem of inadequate airport capacity will become increasingly serious since only a few new airports are planned or under construction. Based on industry estimates and existing data, the average cost of a new primary airport is nearly US $ 7 billions. New Airport construction primarily has occurred in East Asia with New Airport facility in Kansai (Japan), Macao, Hong kong, Seoul, Kuala Lumpur and Bangkok. The new Hong Kong Airport will have a maximum capacity of 87 million passengers per year, which would be by far is the largest airport in the world. In Europe, North America, airport construction has been limited. New Airports have been developed in Munich, Athens, and Oslo. Municipal Authorities and Govt. officials are reviewing options of third airport in Chicago and a new airport in Berlin. New airports are under study for San Jose, Costa Rica, Onito and Guayaquil, Equador, Bangalore, Goa in India, Islambad in Pakistan, Harare in Zimbabwe. Also noteworthy is Denver International Airport (DIA) in USA; a new airport built has three parallel runways that allow the simultaneous movement of three aircraft even during inclement weather. The following table summarizes the sources of airport funding in over 60 countries. Majority of the airports (66%) receives some sort of governmental assistance for airport infrastructural projects. This percentage does not include airports financing in developing countries where airports are completely dependent on Govt. fundings. Considering astronomical requirement of funds, Govt. responsibility towards other sector like health, education, debt financing being more expensive is forcing that new financing sources mainly from the private sector, need to be explore. Increased private sector participation through BOOT and share flotation will amount greater importance. Table 9.1 - Trends in infrastructure servicing

Funding Sources
National Government Internally generated funds Commercial Loans Foreign Govt. loans & aids. International Devt. Banks Region/Municipal Govt. Other (i/c private sectors)

No. of countries
44 40 25 24 15 10 06 Sources:ICAO

9.1 Financing to promote China Civil Airport Construction:

There are 5 main financing methods/sources of civil Airport Construction: 1. 2. 3. 4. 5. Civil Aviation Infrastructure construction fund; Domestic bank loans including favourable loans from National business banks; The self raised funds by airports; The self raised funds by the local govt. Foreign funds including using foreign loans and attracting foreign firms to invest in civil airport.

Constrained by repayment ability, China has mainly used foreign favourable loans such as Govt. loans from Kuwait, UK, USA etc and Export credit.

9.2 British Airports Authority:

BAA was a Govt. Public Corporation and was privatised in 1987 with sale of 240 million pound shares to public and 260 million pound to institutional investors. The BAA experience after privatisation shows that the massive need for investment in airport infrastructure which is seen in Asia today need not necessarily be a drain on the scarce resources of national economics; it is fact that airports can be run as profitable business and all its financial requirement cab be met through internally generated own resources by running the organisation in the most successful way. That is possible only when we have clear focus on our core business, airport management, retail property and project management. From 1986 onwards BAA has been investing more than a million pounds a day in new facilities to meet demand and improve sources. This is being a achieved by; Commercial approach to provision of new capacity on time and at the right price to meet airline needs as opposed to the traditional approach of building a huge showcase facility in the hope it will attract. Commercial approach brings incentive and ability to increase non-aeronautical revenue;

9.3 Changi Airport (Singapore)

Changi Airport of Singapore is managed by Changi Airports Authority of Singapore in the most efficient way. Changi airport is considered as the best airport. Its policy of meeting the capacity well ahead of demand has received international acclaim. Its all capital/infrastructure financing is done by the following sources. Internally generated fund; Deferred capital grants by the Govt. Deferred capital grants by non-govt.

9.3.1 Changi Airport enjoys a sound financial position with capital and accumulated reserve of Singapore $ M 6155 as on 31.3.98.

9.4 Airports in Australia:

Airports in Australia are managed under effective privatisation strategy by adopting policy of leasing of an airport. In the phase I airports leased are Melbourne, Brisbane and Perth. Australia's leasing and Regulatory strategy is: Lease each airport individually (except Sydney & Sydney West) Sell 50 years leases (With our without 49 years options to renew) Limit foreign ownership and airline ownership of airport operators. Ensure diversity of airport ownership by cross ownership limits. Impose a price cap on aeronautical charges with no obligation for operators to use a `single tile' approach to airport pricing in future. Monitor quality of service. Require approval of master plan and major developmental plans. Require approval of airport operators environment strategy Ensure access to airports on commercial lines, subject to demand management.

Infrastructure financing of all the airports is done by both Private, Public and internally generated resources.

CHAPTER 10

10.0 EXECUTIVE SUMMARY AND RECOMMENDATION

Future development of the airports both international and domestic have become the necessity so as to keep pace with the development of airports in other countries as well as economic development. The projected demand for next 10 to 15 years have necessitated investment estimated RS.52,500 crores for existing airports as well as green field airports and therefore various alternatives of raising such astronomical funds have been studied i.e. private, public and foreign sources of financing in Chapter 7. My criteria for the best financing package therefore is guided by the following conditions and assumptions: Optimum use of given and potential domestic resources should have the priority so long as it does not mean a higher avoidable cost. The question of public versus private investment arises only within this framework and the answer lies in relative cost, administrative/managerial efficiency . In my concept of cost and efficiency there is an optimum mix of a desideration of both domestic and international sources of finances and of course political and social feasibility. Our pricing policy is to be so structured coupled with administrative and cost efficiency to generate optimum internal resources and less dependence on other domestic and international resources of capital. So long as one restricts one self to the question of foreign capital as a source of financing, the balance of payments (bop) is the first set to be kept in view. FDI is of course not borrowing but a non-debt inflow but that does not mean it has no bop implications. Repatriation of profits and guarantee against exchange rate fluctuation has a direct bearing on current account. Public investment shall be better compared to private in the sense that it provides a feeling of ownership of the company in the hands of the investors instead of few people in case of private participation. It sends a signal of security of the job of approximately 21000 workers. Public investment in the form of shares, bonds, debentures etc. from the capital market, is possible only when airport authority is placed under the purview of Company Act 1956. Private participation of investment shall ask for higher rates of return, higher depreciation rates etc. apart from theses the ownership of the organisation shall pose many questions. Financial Institution like IDBI, ICICI and IDFC etc. has recently raised crores of rupees from the public through their different infrastructure bonds based on their AAA ratings. Similarly, considering the 25 years of record profit trend of Airport Authority either IDBI, ICICI can invest their public raised funds in the airport infrastructure development safely at a reasonable rate of interest along with their representative in the Board of Directors to ensure effective utilisation of the resources. Alternatively, a mix of public and domestic private investment at best with small proportion of foreign equity without any guarantee for repatriation of dividends etc can also be considered. Govt. equity participation may vary in between 30 to 40%.

10.1 Govt. of India decision:

Govt. of India has taken a decision for privatisation of Delhi, Mumbai, Calcutta and Chennai Airports through long-term lease. The present status is that the Govt. of India had in Jan.2000 accorded in principal approval to restructure the airports of AAI as and when necessary through long-term lease. Subsequently, technical and cost proposals were invited from financial consultants to advise the Ministry of Civil Aviation and AAI on all aspects of long-term lease of airports located at Delhi, Mumbai, Chennai and Calcutta. Based on the evaluation of the technical and cost proposals, the consortium led by M/s KPMG have been appointed as Financial Consultants. M/s KPMG commenced their work in April, 2000 and have since completed their Phase-I part of their assignment and submitted their report in October, 2000. The report is currently under scrutiny and it is expected that M/s KPMG will commence their Phase-II of their assignment i.e. Sales Memorandum and Marketing Plan shortly. After the completion of Second Phase, bids will be invited from prospective investors for the long term leasing of these airports. Based on the laid down selection criteria, the prospective airport operators(s) shall be selected and after obtaining all necessary approvals of the Govt. of India the airports shall be leased out to prospective airport operator(s). To made, modalities and extent of private sector participation in the existing airports of AAI. The feasibility and desirability of corporatisation of AAI and the existing airports (as individual or group basis); Commercial exploitation of land and other assets of AAI so as to increase nonaeronautical revenues.

10.2 Opposition by AAI workers & officers:

Fearing job insecurity due to privatisation of airports, workers and officers have started expressing their strong resentment. Since privatisation of airports is not my subject of report, no comments are being offered.

BIBLIOGRAPHY

Books Airport Management Airport Administration and Management S.Ramanathan John R. Wiley

Reports International Airports Authority of India Review of Traffic at AAI Airports 1995-96 to 2000-01 Annual Reports from 1995-96 to 1999-2000 Airport Infrastructure- The emerging role of private sector - Anil Kapoor, Private Sector Development Specialist. Strategic Plan to handle growing air traffic and earn additional revenue-Department of Planning, A.A.I. Ninth five-year annual Plan of A.A.I. Annual Review on cargo activities - Cargo Department, A.A.I. BAA, Changi Airports Annual Report Brief on A.A.I. for Parliament Consultative Committee

Articles and Presentation Paper CII Concept paper on building the sub-continent Hub of the next millennium at Delhi and Mumbai Policy on Airport Infrastructure. Presentation paper on `Asian Airport Meet' at Bangalore by Delegates of BAA, China, Australia. Articles in newspaper on privatisation of airports. Airports and Economic liberalisation - V.K.Mathur

ANNEXURE I

Years Int'l 1996-97 (Actual) IX Plan 2001-02 X Plan 2006-07 XI Plan 2011-12 XII Plan 2016-17

Passenger Traffic (in lac) Dom Total 242.80 @10.5% 400.00 @8.5%' 601.46 @7.0%' 843.58 @6.0%' 1128.91 364.90 @9.3%' 569.06 @7.8%' 327.15 @6.5%' 1134.55 @5.7%' 1498.13

Cargo Traffic (in '000 tons) Int'l Dom Total 479.10 @12%' 844.34 @10.5% 1391.00 @9%' 2140.23 @8%' 3144.70 200.99 @4% 244.54 @4.5%' 304.73 @6%' 407.8 @6%' 545.73 680.09 @9.9% 1088.83 @9.3%' 1695.73 @8.5%' 2548.03 @7.7%' 3690.4

122.10 @6.7% 169.06 @5.9% 225.69 @5.2%' 290.97 @4.9%' 369.22

ANNEXURE II
INTERNAL RESOURCES AND BUDGETARY SUPPORT
Fig. in crores

Year 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000

Internal Resources 3.24 3.69 3.59 2.85 4.79 5.23 6.51 8.85 11.18 13.96 15.35 17.57 22.59 38.97 52.23 71.75 89.07 93.72 86.43 86.92 91.75 95.62 145.82=976.14 228.52 222.93 267.52 375.46 404.07 3989.81

Budgetary support (Loan & Equity) 6.00 0.88 0.00 0.10 1.47 1.98 4.56 7.79 9.50 11.86 15.86 17.16 16.56 20.00 110.17

25.00

NAD

Year 1992-93 1993-94 1994-95 1995-96 1996-97

Budgetary Support 75.38 253.54 275.67 262.03 189.25

Budgetary Grant

26.97 29.02

ANNEXURE III
Annual Plan Outlay & Capital Expenditure
1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 (IAD & NAD) 1996-97 (IAD & NAD) 1997-98 1998-99 1999-2000 3.16 4.00 6.16 5.05 2.73 5.70 10.24 9.67 15.23 20.33 26.00 30.25 35.70 38.00 48.00=260.22 31.20 32.00 48.00 59.00 65.00 97.00 77.72 116.55 119.60=906.10 515.16 501.89 510.25 575.00 625.04 3633.63 2.90 3.10 5.88 3.59 2.49 6.26 10.43 9.67 15.65 20.76 19.89 31.21 34.73 39.16 50.67=256.39 34.08 32.02 49.08 50.70 51.18 71.21 58.23 79.31 71.56=753.76 362.44 320.37 331.25 340.23 360.63 2468.68

ANNEXURE IV(A)
PAX TRAFFIC PROJECTION ANALYSIS BY INTERNATIONAL & DOMESTIC AIRPORTS
YEAR 5 INT'L INT'L PAX TRAFFIC DOM TOTAL AIRPORTS (2) 106.70 114.57 @6.5% 122.00 129.91 138.35 147.34 156.93 @5.6% 165.72 175.01 184.83 195.20 206.16 @4.9% 216.30 226.96 238.16 249.91 262.27 @4.6% 274.41 287.13 300.44 314.38 328.97 (3) 7.80 7.53 @10.0% 8.28 9.11 10.02 11.02 12.13 @10.0% 13.34 14.67 16.14 17.76 19.53 @8.0% 21.09 22.78 24.60 26.57 28.70 @7.0% 30.71 32.86 35.16 37.62 40.25 5 INT'L DOM PAX TRAFFIC 115 DOM TOTAL AIRPORTS (5) 149.74 148.25 @10.5% 161.58 178.55 197.30 218.01 240.91 @8.5% 281.38 283.6 307.71 333.86 382.24 @7.0% 387.60 414.73 773.76 474.82 508.06 @6.0% 538.54 570.86 605.11 641.41 679.90 (6) 105.90 96.55 @10.5% 106.71 117.91 130.29 143.98 159.09 @8.5% 172.62 187.29 203.21 220.48 239.22 @7.0% @ 255.97 273.89 293.06 313.57 335.52 @6.0% 355.55 376.99 399.61 423.59 449.01 TOTAL PAX TRAFFIC 5 INT'L 115 DOM TOTAL AIRPORTS (8) 256.40 260.82 @8.8% 283.58 308.46 335.65 365.35 397.84 @7.4% 427.10 458.61 492.54 329.06 568.40 @6.3% 803.90 641.69 681.92 724.73 770.33 @5.5% 812.95 857.99 205.55 955.79 1008.87 (9) 113.70 104.00 @10.5% 114.99 127.03 140.31 155.00 171.22 @8.6% 185.96 201.96 219.35 238.24 258.75 @7.1% 277.06 296.67 317.66 340.14 364.22 @6.1% 386.36 409.85 434.77 461.21 489.26 (10) 370.14 364.90 @9.3% 386.57 435.46 475.95 520.35 569.06 @7.8% 513.05 650.57 711.89 767.30 827.15 @6.5% 880.96 938.36 939.35 1064.87 1134.55 @5.7% 1199.31 1267.81 1340.32 1617.06 1493.13

(1) 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

(4) 114.50 122.10 @6.7% 130.28 139.02 148.37 158.36 169.06 @5.9% 179.06 189.68 200.97 212.96 225.69 @5.2% 237.39 249.74 262.76 276.48 290.97 @4.9% 305.12 319.99 335.6 352.00 369.22

(7) 255.64 242.80 @10.5% 268.29 296.46 327.59 361.99 400.00 @8.5% 434.00 470.89 510.92 554.34 501.46 @7.0% 643.57 688.62 736.82 788.39 843.58 @6.0% 894.19 947.85 1004.72 1065.00 1128.91

ANNEXURE IV (B)
AIRCRAFT MOVEMENT TRAFFIC PROJECTS ANALYSIS BY INTERNATIONAL & DOMESTIC AIRPORT
YEAR 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 INT'L MOVEMENT TRAFFIC 89930 9681 10233 10816 11433 12084 @5.4% 12737 13425 14150 14914 15719 @4.5% 16426 17166 17938 18745 19589 @4.0% 20372 21187 22035 22916 23833 99611 103642 107847 112236 116816 @3.5% 120935 125207 129638 134235 139003 @3.4% 143675 148510 153511 158685 164039 @3.3% 169480 175106 180922 186935 193152 DOM A/CMOVEMENT TRAFFIC 164263 173696 183685 194263 205466 @4.8% 215238 225488 236239 247517 259347 @4.1% 269997 281089 292644 304681 317220 @3.6% 328700 340603 352945 385742 379012 171324 181090 191412 202322 213854 @5.4% 225422 237574 250403 263925 278177 @4.5% 290695 303776 317448 331731 345559 @4.0% 360625 374945 389944 405542 421763 335587 354786 375097 396585 419320 @5.0% 440640 463062 486642 511442 537524 @4.3% 560692 584865 610090 636412 563879 @3.8% 689225 715549 742889 771284 800775 TOTAL A/C MOVEMENT TRAF 254193 267105 280716 295068 310198 @4.3% 323436 337278 351727 366838 382631 @3.8% 397246 412433 428217 444621 461670 @3.5% 477808 494522 511832 529761 548331 181005 191323 202228 213755 225938 @5.4% 238139 250999 264553 276839 293898 @4.5% 307121 320942 335354 350476 368248 @4.0% 380897 396133 411979 428458 445596 435198 458428 482944 568821 536136 @4.8% 551575 568269 616280 545677 576527 @4.1% 704367 733375 763501 795097 827916 @3.7% 858705 890655 923801 956219 993927

YEAR

INT'L CARGO TRAFFIC 5 INT'L DOM TOTAL AIRPORTS 3.53 25.67 @12% 28.75 32.20 36.09 438.74 479.10 @12% 536.59 600.98 673.13

DOM CARGO TRAFFIC 5 INT'L 115 DOM TOTAL AIRPORTS 128.37 132.27 @4% 137.56 143.06 148.79 154.74 160.93 84.28 68.72 @4% 71.47 74.33 77.30 212.85 200.99 @4% 209.03 217.39 226.09

TOTAL CARGO TRAFFIC 5 INT'L 115 DOM TOTAL AIRPORTS

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01

433.21 453.43 @12% 507.84 568.78 637.04

@12%

@12%

@12%

ANNEXURE IV (C)
CARGO TRAFFIC PROJECTION FROM 2001-01 TO 2016-17
YEAR INT'L PAX TRAFFIC DOM PAX TRAFFIC TOTAL PAX TRAFFIC

5 INT'L

DOM TOTAL AIRPORTS (2) 433.21 453.43 @12% 507.84 568.78 637.04 713.48 799.10 @10.5% 883.00 975.72 1078.17 1191.38 1316.47 @9% 1434.95 1564.10 1704.87 1858.31 2025.56 @8% 2187.60 2362.61 2551.62 2755.75 2976.21 (3) 3.53 25.67 @12% 28.75 32.20 36.09 40.39 45.24 @10.5% 49.99 55.24 61.04 67.45 74.53 @9% 81.24 88.55 96.52 105.20 114.67 @8% 123.85 133.75 144.45 158.01 188.49

5 INT'L

115 DOM TOTAL AIRPORTS (5) 128.37 132.27 @4% 137.56 143.06 143.79 154.74 160.93 @4.5% 168.17 175.74 183.64 191.91 200.54 @8% 212.58 225.33 238.85 253.18 268.37 @6% 284.48 301.54 319.64 338.81 359.14 (6) 84.28 68.72 @4% 71.47 74.33 77.30 80.39 83.61 @4.5% 87.37 91.30 95.41 99.71 104.19 @6% 110.44 117.07 124.09 131.54 139.43 @6% 147.80 156.67 166.07 176.03 186.59

5 INT'L

115 DOM TOTAL AIRPORTS (8) 561.58 585.70 @10.42% 645.40 711.84 785.83 1868.22 960.03 @9.04% 1051.17 1151.46 1261.81 1383.29 1517.01 @8.6% 1647.53 1789.43 1943.72 2111.49 2239.93 @7.8% 2472.08 2664.15 2871.26 3094.56 3335.35 (9) 87.81 9439 @6.4% 100.22 108.53 113.39 120.78 128.85 @6.8% 137.36 146.54 158.45 167.16 178.72 @7.5% 191.68 205.62 220.61 236.74 254.10 @6.9% 271.65 290.42 310.52 332.04 355.08 (10) 549.39 680.09 @9.9% 745.62 818.37 899.22 989.00 1088.88 @9.3% 1188.53 1208.00 1418.26 1550.45 1695.73 @8.5% 1839.21 1995.05 2164.33 2348.23 2548.03 @7.7% 2743.73 2954.57 3181.78 3426.60 3698.43

(1) 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

(4) 438.74 479.10 @12% 536.59 600.98 673.13 753.87 844.34 @10.5% 932.99 1030.96 1139.21 1258.83 1391.00 @9% 1516.19 1652.65 1801.39 1963.51 2140.23 @8% 2311.45 2496.36 2696.07 2911.76 3144.70

(7) 212.65 200.99 @4% 209.03 217.39 226.09 235.13 244.54 @4.5% 255.54 267.04 279.05 291.62 304.73 @6% 323.02 342.40 36294 384.72 407.80 @6% 432.28 458.21 485.71 514.84 545.73

Note : Growth Rates are as per Corporate Plan prepared by FAST * MUMBAI,CALCUTTA,DELHI,CHENNAI & TEVENDRUM. * 6 SIGNIFICANT AIRPORTS ARE: BANGALORE,HYDERABAD,AHEMDABAD,COCHINCALICUT,GOA

PART- II CASE STUDY : 2 ABC PAPER MILLS LIMITED (APL)

11.0 BACKGROUND
APL was incorporated in January, 1992 and started with paper business in 1995. It started with an installed capacity of 5940 MTPA of kraft paper, which was enhanced, to 8250 MTPA by minor technological upgradation. Having achieved experience of running a paper mill, and looking at demand and supply position and also looking at the growth and future prospects of Newsprint industry, the promoters decided to add another plant for the manufacturing of Newsprint having capacity of 19800 MTPA at the same site. APL, currently, produces newsprint of 47 grams per square meter (gsm) variety. It has installed capacity of 19800 MTPA of newsprint & 8250 MTPA of Kraft paper. APLs clientele comprises of leading publishing houses of the region such as Lokmat, Dainik Jagran, Sakal, Nav Bharat, Loksatta, Gujarat Samachar, Phulchab etc.

The production process is waste paper recycle based and uses both Indian as well as imported raw materials. This plant is running successfully since its inception. The plant has generated cash profits right from the first year of its commercial commencement of its operations. The newsprint plant is running at 93% capacity utilization.

During FY 2004-05, APL produced 26,116 MT (i.e. a capacity utilization of 91.6%) and recorded a sales turnover of Rs. 48.76 crores and net profit of Rs. 4.08 crores. APLs networth as on March 31, 2005 stood at Rs. 10.05 crores The business operations of APL have however been a little constrained due to the limited capacity. Further, the present facilities in the mill do not allow APL to produce premium quality newsprint. With a view to tiding over these challenges, APL proposes to embark on an Expansion Project envisaging expansion of capacity by development of 49,500 MTPA to produce premium quality newsprint, which will fetch more prices in the market. Expansion project is estimated to be set up at a cost of Rs. 70 Cr. The project would have following key features:

New land site of 125 acres New paper machine capacity of producing 49,500 MTPA of premium quality newsprint Stock Preparation Equipment Captive Power Plant with a capacity of 6 MW

The cost of implementing Expansion project is proposed to be met by way of raising fresh equity through IPO worth Rs 20 crores, promoters equity of Rs. 5 crores and term debt to the extent of Rs. 45 crores. The project is expected to be completed within a period of 18 months and the expanded capacity commissioned by April 1, 2007. The implementation of Expansion project will result in increase of both the scope and scale of APLs operations and changing capability to produce value added products and flexibility to take charge of market requirements in various newsprint quality segments.

62

11.1 Past Operational & Financial Performance Newsprint / Writing Printing Paper
Particulars Installed capacity Production (in MT) Capacity utilization Sales (in MT) Average realization (in Rs./Mt) Raw material Cost (in Rs./Mt) Chemical Cost (in Rs./Mt) Power Cost (in Rs./Mt) 2002-03 19800 MTPA 14771.233 74.60% 15089.827 17465.54 7490.44 864.59 2161.70 2003-04 19800 MTPA 18605.762 93.97% 18435.333 18911.46 8321.78 1090.52 1780.09 2004-05 19800 MTPA 18766.399 97.78% 18750.788 20287.04 6989.95 1297.16 1911.92

Kraft Paper
Particulars Installed capacity Production (in MT) Capacity utilization Sales (in MT) Average realization (in Rs./Mt) Raw material Cost (in Rs./Mt) Chemical Cost (in Rs./Mt) Power Cost (in Rs./Mt) 2002-03 8250 MTPA 7001.817 84.85% 6989.334 13531 5435.53 904.75 1949.47 2003-04 8250 MTPA 7670.898 92.98% 7660.898 14530 6320.44 1189.47 1921.08 2004-05 8250 MTPA 7340.461 88.98% 7343.915 14602 5933.55 1177.99 1659.30

Financial Performance:
Particulars Sales Turnover Total Income Raw Material Cost Power & Fuel Other Manufacturing Expenses Staff Cost Other Expenses Gross Profit Gross Profit Margin Interest Depreciation & Misc. Write Offs PBT Tax Payment Deferred Tax PAT Gross Cash Accruals

2001-02 24.32 24.39 11.20 3.46 5.51 0.28 1.85 2.08 11.69% 1.23 1.37 (0.51) 0.003 ----(0.52) 0.85

2002-03 35.81 35.88 16.78 4.56 8.06 0.39 2.26 3.83 9.35% 1.76 1.98 0.09 0.007 0.034 0.05 2.03

2003-04 45.92 46.51 23.27 6.93 7.95 0.46 3.17 4.73 10.30% 1.56 1.90 1.27 0.098 0.46 0.713 2.61

(Rs. in Crore) 2004-05 48.68 48.78 20.78 7.09 9.21 0.50 3.49 7.70 15.82% 1.47 1.80 4.44 0.35 1.52 2.57 4.37

APL has achieved capacity utilization levels of 85 90% over last 3 years in Kraft Paper, whereas in newsprint it has shown a significant improvement from 75% to 97%. Raw material expenses of APL have decreased in FY 2004 05 as compared to FY 03- 04, along with increase in sales, which has resulted in improved profit margins. Gross cash accruals of APL over the four year period have been positive and were of the order of Rs. 4.37 crores for FY 2004-05

63

APL has improved its financial performance over last 4 years from net loss of Rs. 0.52 crores to net profit of Rs.2.57 crores, due to improved capacity utilization, as well as improved sales realization and control on raw material costs.
As on March 31 Gross Block Net Block Capital Work in Progress Current Assets Current Liabilities Secured Term Debt Unsecured Term Debt Equity Capital Reserves & Surplus Misc. Exp. not written off Net Worth Deferred Tax Liability Debt: Equity Ratio Current Ratio Asset Coverage Ratio 2002 19.36 15.53 0 7.68 3.50 10.90 2.25 6.98 0 0.41 6.57 0 2003 20.55 14.74 0.04 9.27 3.28 10.20 3.89 6.98 0.13 0.35 6.76 0.09 2004 21.04 13.32 0.15 11.10 3.39 9.91 3.43 6.98 0.51 0.018 7.47 0.36 (Rs. in crores) 2005 22.70 13.20 0 14.34 3.05 8.42 4.13 6.98 3.08 0.01 10.05 1.88

1.20
2.19 1.97

1.04
2.83 2.07

0.81
3.26 2.13

0.47
4.69 2.35

APLs networth stood at a level of Rs. 10.05 crores as on March 31, 2005. APL has a current debt: equity ratio of 0.47, which has come down over last 4 years. APLs current ratio as on March 31, 2005 stood at 4.69. APLs Asset coverage ratio has increased from 1.97 to 2.35 over last four years.

11.2 Working Capital

The present working capital arrangements of APL as on 30th September 2005 are as under.
(Rs. in crores) S.No 1 Bank's Name Indian Bank, Kanpur Particulars Cash Credit LC Stand by LC Amount 4.50 2.50 0.67 Utilization / Outstanding 2.34 1.38 0.00 Interest Rate 13.08%

11.3 Term Loan

The present term loan arrangements of APL are as on 30th September 2005 are as under.

Name of Lender : XYZ Bank Particulars : Secured by fixed assets

S.No. 1. 2. Unit Kraft Unit Newsprint Unit Sanctioned 2.00 7.25 Availed 1.75 7.25 As on 30/09/2005 Nil 4.35 Rate of Interest Nil 13.08% (Rs. in crores) Repayment Terms Quarterly

12.0 COST OF PROJECT & MEANS OF FINANCE

64

The cost of the Project is estimated at Rs. 70 crores. The head-wise breakup of the project cost is tabulated as under: (Rs. in crores)
S. No. a.) b.) c.) d.) e.) f.) g.) h.) i.) j.) k.) Add: Add: Particulars Land Site Development Buildings Paper Machine Stock Preparation Equipments Captive Power Plant Electrical Equipment & Installation Effluent Treatment Plant Preliminary & Preoperative Expenses Other Fixed Assets Contingency Sub Total IDC Margin Money for Working Capital Total Investment Amount 1.25 0.63 5.00 13.05 12.30 18.00 4.70 1.62 2.65 3.65 1.58 64.43 2.02 3.55 70.00

The details in respect of major heads of the project cost are given at Annexure III.

[The cost of the scheme has been considered on the basis of the total project cost as provided by the Company largely on the basis of quotations received by them from various equipment suppliers & contractors.]
The total Project Cost of Rs. 70 crores is proposed to be funded by Debt : Equity mix of 64:36 in the following manner:
S. No. Particulars 1. Term Debt 2. Promoters Equity 3. Subscription to fresh equity through IPO Total Amount (Rs. crores) 45 5 20 70 Proportion of Total Forward Cost for the Project 64.28% 7.14% 28.57% 100.0%

Promoters equity should not be a problem, as Rs. 0.97 crore has already been received. Disbursement of loan will take place after IPO. Current Status Of Project

Land
The company has made an application to MIDC for allotment of land at Industrial area at Chandrapur Growth Center, Chandrapur for the proposed project. The meeting of Land allotment committee is scheduled on 27th Oct. at Mumbai. The final decision is likely to be taken in this meeting.

Paper Machine
A letter of intent has been signed with Stora Enso and final draft of sale agreement shall be ready in a week time. The likely date of signing the Sale agreement is third week of November05.

65

Stock Preparation Equipment The negotiations with the suppliers has started are in advanced stage. The likely date for finalization of order is first week of December. Captive Power Project The discussions with the suppliers have started. The verification of technical data is going on and the commercial discussion will start in the month of December. The likely date for finalization of order is third week of December. Status of IPO
Authorized Capital has been increased to Rs. 20 crores. Microsec India, has been appointed as Lead Managers for the IPO. Preparation of draft prospectus for IPO is in advanced stage, likely date of completion is 15th Nov., 2005.

Promoters contribution
The promoters have brought in Rs. 97 lakhs, as on date as promoters contribution. The major expenses include payment of ROC fees Rs. 8.76 lakhs, fees to UTI bank Rs. 5 lakhs, fees to lead manager to issue Rs. 5 lakhs. foreign traveling about Rs. 3 lakhs. Total expenditure on the project to date is Rs. 22.43 lakhs.

13.0 PROJECTED FINANCIAL INDICATORS

The assumptions underlying preparation of financial projections for APL are detailed at Annexure V. The detailed profitability statement for Expansion project, profitability statement for Company as a whole, cash flow statement and balance sheet projections for APL are enclosed as Annexure VI, VII, VIII & IX respectively. A summary of the same is mentioned below:

13.1 Projected Financials

(Rs. Crores)

FY Capacity (MTPA) Newsprint Kraft Paper Newsprint Expansion Capacity Utilization Newsprint Kraft Paper Newsprint Expansion INCOME Newsprint Kraft Paper Newsprint Expansion TOTAL SALES

-1 19,800 8,250 93% 88% 38 10 0 48

0 19,800 8,250 93% 88% 38 10 0 48

1 19,800 8,250 49,500 93% 88% 70% 39 10 80 129

2 19,800 8,250 49,500 93% 88% 80% 39 10 92 141

3 19,800 8,250 49,500 93% 88% 90% 39 10 105 154

4 19,800 8,250 49,500 93% 88% 93% 40 10 109 159

5 19,800 8,250 49,500 93% 88% 93% 40 10 109 160

6 19,800 8,250 49,500 93% 88% 93% 40 11 110 161

7 19,800 8,250 49,500 93% 88% 93% 41 11 110 162

EXPENDITURE Raw Material Variable Cost - Newsprint Variable Cost Kraft Paper Variable Cost NP Expans. Employee Expenses

29 9 0 1

29 9 0 1

30 9 55 3

30 9 64 3

30 9 73 3

31 9 76 4

31 10 76 4

31 10 77 4

31 10 78 4

66

Other Manuf Exp

10

11

Total Operating Costs 43 43 103 113 PBDIT 5 5 26 29 PBDIT Margin (%) 10.5% 9.8% 20.0% 20.2% Less: Interest Expenses 1.12 0.91 4.85 4.66 PBDT 4 4 21 24 Less: Depreciation 2 1 10 9 Less: Write off Prel Exp 0.41 0.41 PBT (Loss) 1.41 1.43 10 10 Less: Tax 1 1 1 4 PAT (Loss)* 1.44 1.46 9.90 9.91 Cash Accruals 3 3 20 19 Principal Repayment 1.50 1.65 1.90 6.75 DSCR 1.77 1.61 4.21 2.24 * The decrease in PAT in 2005-06 compared to 2004-05 is due variAPLe cost being considered for the projections.

123 127 31 31 20.3% 19.7% 4.08 3.39 27 28 6 5 0.41 0.41 14 15 7 8 13.73 15.03 20 20 9.00 9.00 1.93 2.00 to lower utilization

129 132 134 30 29 28 18.9% 18.0% 17.1% 2.69 1.98 1.40 27 27 26 4 3 3 0.43 15 16 15 8 8 8 15.24 15.58 15.42 20 19 18 9.00 9.00 2.25 2.02 2.03 8.00 levels and higher

Key Financial Indicators

The following are some of the key financial indicators of APL:
Min DSCR Average DSCR Max DSCR IRR (Pre-tax) IRR (Post-tax) 1.61 2.42 8.00 47.5% 39.3%

13.2 Sensitivity Analysis

Sensitivity analysis to analyze the impact of changes in various aspects relating to the operations of the project like capacity utilization, sales price and variable costs has been carried out. Results of the same are presented hereunder:
Particulars Base Case Capacity Utilization lower by 10% compared to base case Sales Price lower by 5% VariAPLe Costs higher by 5% Rupee depreciates against dollar by 5% Average DSCR Project IRR Post Tax IRR 2.42 47.5% 39.26% 2.21 42.5% 35.59% 2.06 38.1% 32.12% 2.17 41.0% 34.33% 2.21 43.8% 36.5%

14.0 INDICATIVE TERMS & CONDITIONS OF THE TERM DEBTOR

Issuer / Borrower Object Instrument ABC Paper Mills Ltd Capital Expenditure Rupee Term Loan

67

Tenure of Term Debt Amount Rate of interest Interest Reset Upfront Fee Interest Payment Security Documentation Other Terms Conditions

Repayment in 20 quarterly instalments after two years of moratorium. Rs 450 million 8.50% p.a., payable monthly. The interest rate would be reset after two years from the date of first disbursement. Processing Payable to the lender on actual basis, as stipulated, if any. Monthly First Pari passu charge on the fixed assets of the company. Term Loan Agreement Other documents, including those related to security creation, as applicable. & Funds shall be utilized only for purchase of new plant and machinery as envisaged and for the renovation and upgradation of the existing facilities. APL shall not lend any short, medium or long-term debt or make advances to, or execute corporate guarantees or by any other means secure the obligations of, any company/ unincorporated body (ies) other than in the ordinary course of business without the prior written approval of the lenders. APL shall not, without the prior written approval of the lenders, make any investment in companies/ unincorporated bodies other than the statutory investments during the currency of the various facilities availed from the lenders. The lenders shall have the right to conduct periodical reviews of the performance of APL, during the currency of the assistance. APL shall furnish to the lenders periodic reports giving such details as may be required by the lenders, including but not limited to details of sales, working capital, loans and other borrowings and cash flow statements, to the satisfaction of the lenders. APL shall keep the lenders informed of any legal proceeding, the outcome of which could have a material impact on the debt servicing capability of APL. All documentation including Board resolution etc. to be completed by the Issuer. In addition to the terms and conditions contained in this Term Sheet, the final documentation will contain other customary clauses including but not limited to Representation & Warranties from the Borrower, Conditions Precedent to the effectiveness of the Facility and condition precedents to each disbursement, Affirmative covenants by Borrower, Negative Covenants, Additional Covenants, Information Covenants, Events of Defaults by the Borrower and the Consequences of the Event of Default, RBI disclosure norms, as applicable to the facilities of this nature.

15.0 RISK ANALYSIS AND MITIGATION MECHANISMS

Risk Description
Construction Risk Project is still to take-off on the ground thereby carries implementation risk. APL plans to award three contracts namely, dismantling of machine, erection contract, and civil construction contract.

Risk Mitigation

68

Technology Risk

Paper industry is a mature industry in itself and no major technological changes have taken place in the recent past. The proposed machine for the project is a second hand imported machine, which was closed down in 1995. A similar sister machine is running at a capacity of 950 MPM at the existing site. This machine was test run on every sunday since then and has been running fine. The technology used in the machine has been tried and tested across the world in the industry. 1

Marketing, Logistics Distribution Network

&

Newsprint The products of the company are well accepted in the market and the company has received an encouraging response from its clients. The company has already become regular supplier to some of leading publishing house of the region such as Lokmat, Dainik Jagran, Sakal, Nav Bharat, and Hitvada Prabhat Khabar etc. Kraft Paper The market for Kraft Paper Machine is local market and in the southern states of Karnataka, Andhra Pradesh and Tamilnadu. Substantial quantity of finished products are sold locally, as Kanpur is a big market having number of large industrial consumers like DCL Polyesters, Indo-Rama Synthetics, Haldiram Food International etc. for Kraft paper, apart from several manufacturers of corrugated boxes.

Raw Material Availability

Existing operations APL does not foresee any problem in respect of sourcing raw material requirement for its existing operations from various suppliers both domestic and international. New plant For a plant capacity of 150 TPD based on waste paper as raw material, procurement of raw material from the international or domestic market is not a problem. More over the plant will be located in Kanpur. There is an Inland Cargo Depot (ICD) at Kanpur therefore all the formalities of Customs clearance, Clearing and forwarding etc. are done at Kanpur.

Financing Risk

The project cost of 70 crores is proposed to be funded through term debt of Rs. 45 crores, promoters contribution to the tune of Rs. 5 crores and Rs. 20 crores through fresh equity. Promoters contribution has already started flowing in. APL is also expected to be in a position to provide the envisaged level of equity support for the Project through IPO.

Selling Prices

Price realisations for newsprint for domestic producers are in line with the international prices. Against the average price of Rs. 20,063 (last one year) and prevailing price of Rs. 20,750, a price of

69

Rs. 20,000 per ton for existing newsprint (regular type) and price of Rs. 23000/ ton has been considered for the premium quality of newsprint produced under the expansion project for the purpose of financial projections. Average newsprint prices during 2004/05: (in Rs.) April'04 - March April'05 Type '05 Dec'05 Regular 20063 20667 Premiu m 21938 23917 Newsprint prices are expected to remain stAPLe in the medium term. Environmental Risk The new plant will be using waste paper recycle paper technology for manufacturing of paper. This itself caters to environmental conservation more that any other industry. It will be recycling the waste generated by the modern society and also saving on the precious forest reserves or the green cover, as other wise the pulp generated from the forest wood would have been used as raw material.

16.0 CONCLUSION
ABC Paper Mills Limited (APL) is one of the established newsprint & paper manufacturing company in Kanpur region. The business operations of APL have been constrained in the past by capacity. In order to tide over these problems and capture a share of the fast growing newsprint market, APL has decided to undertake an Expansion Project. The implementation of Expansion project will result in increase of both the scope and scale of APLs operations and provide capability to produce value added newsprint cater to requirements in various newsprint quality segments. Moreover the new machine will also be capable of making Writing and Printing Paper, besides Newsprint, which is an added advantage for the company and gives flexibility to take change of market. The said project will aid to the key strengths of APL viz. established presence in the newsprint segment, paper manufacturing know how, location advantage in terms of deliveries to any corner of India and low reliance on purchased power, which reduce the operating costs. The project is technically feasible & commercially viable. The project will help APL to sustain its operations and improve its profitability in the present competitive environment.

***********

70

17.0 ANNEXURES

71

17.1 CHEMICAL BACK WATER

PROCESS FLOW DIAGRAM OF WASTE PAPER PULPING (DE-INKING DOUBLE LOOP)

SORTED WASTE PAPER

PULPER

POIRE

STORAGE CHEST - 1

HD CLEANER

S.R. BOX HOLDING CHEST - 4 DI CELL CHEST - 2 M.C. SCREEN

BACK WATER

INK COLLECTION TO DRAIN L.C SCREEN PRI. 3 STAGE C.C. SYSTEM

REJECT TO DRAIN

DIABOLO

POLY DISC FILTER

HOT DISPERSING SYSTEM

PER-OXIDE BLEACHING TOWER

L.C. SCR. SECONDARY REJECT

BACK WATER TO REUSE

72

DILUTION BACK WATER HOLDING CHEST - 5 POST FLOATATION CELL THICKENER /P. FILTER STORAGE CHEST 6 STOCK PRE. STORAGE CHEST 7

DRAIN

INK STORAGE TANK

BACK WATER FOR RE-USE

FAN PUMP

S.R. BOX

MACHINE CHEST 10

MIXING CHEST 9

BLENDING CHEST 8

C.C. L.T. STAGE

PRESSURE SCREEN

PAPER MACHINE

SLITTER REWINDER

DESPATCH 73

B.S.R

FINISHING HOUSE

DETAILS OF THE ESTIMATED PROJECT COST (at constant cost)

SR. NO. 1 COST OF PROJECT LAND 125 acres @ Rs. 1 lakh per acre SITE DEVELOPMENT Boundary wall Leveling Internal Roads Main gate Internal drain/ sewerage BUILDINGS Waste Paper Godown Pulp Mill Pulp Mill Building Foundation Stock Chest Back Water Tank Stock preparation Building Paper machine Building Shed & Foundation Broke pulper foundation & Shed Vacuum Pump Foundation & Shed Air compressor foundation Electrical Control Panel room Lab & others Finished Paper Godown Workshop General stores Effluent Treatment Plant Equalization Tank, Clarifiers, Laggon, Storage tank Board Mill, Deacanter Platform, Internal road, pump pit Admin building Security Block, Weigh bridge and Control Room PLANT & MACHINERY (INCLUDING TRANSPORTATION, ERECTION ETC.) Pulp Mill / Stock Preparation Section Pulp Mill / Stock Preparation equipment Process pumps, chest agitators Process pipes & pipes fittings for pulp mill Process control valves & valve fittings COST OF PROJECT Paper Machine Section Paper Machine Paper machine vacuum system Process pipes & pipes fittings for paper machine section Chemical Preparation plant Mill Automation Machine clothings (in Rs. Lakhs) AMOUNT AMOUNT 125.00

2 a b c d e 3 A B a b c d C D a b c d e f E F G H

63.00 13.50 27.00 6.30 1.00 15.20 500.00 108.00 74.00

22.00 145.00

25.00 22.00 2.00 85.50

I J 3 A a b c d S. NO. B a b c d e f

13.50 3.00

1230.00 1080.00 72.00 45.00 33.00 AMOUNT

AMOUNT

1000.00 35.00 18.00 30.00 90.00 60.00

1305.00

74

Synthetic Wire Press felt Dryer Screen Pulp Mill / Paper Machine Erection & Commissioning

72.00

4 A B C D E F G H I J K L M N O P 5 A B C D E F G H I J K L S. NO. M N 6 A B C D a b c d e f g

CAPTIVE POWER PLANT Boiler Turbine ESP Coal handling plant with bunker Dense phase ash handling plant Water softening plant Dearerator, feed water storage tank, DM Plant Cooling tower recirculation pumps Valve Piping, PRS etc. Compressor & EOT crane(15 ton) Fire fighting equipment & Piping etc. Mild Steel Chimney Civil Construction Erection & commissioning DCS system Misc. items ELECTRICAL EQUIPMENT & INSTALLATION Transformer PCC MCC with Switch gear HT & LT cAPLe Electric Motors HT switch gears Earthings CAPLe jointing material Lightening arrestors Mill lighting CAPLe supports, ducts, trays Paper machine drives COST OF PROJECT Misc items Erection & commissioning OTHER FIXED ASSETS FRESH WATER COLLECTION & DISTRIBUTION COMPRESSORS STEAM Steam distribution systems from power plant to paper machine MATERIAL HANDLING SYSTEM EOT crane 15 mt x 2 no. 2.5 mt electric hoist x 4 no. Weigh Bribge 40 ton Capacity Fork lifts 4 no. Pay loaders Misc tools & tackles Workshop (Mechanical, Electric & Instruments)

1800.00 628.00 420.00 130.00 55.00 50.00 23.00 30.00 65.00 110.00 37.00 7.50 23.00 75.00 65.00 45.00 36.50 470.00 34.00 40.00 35.00 63.00 67.50 63.00 13.50 13.50 4.50 13.50 10.00 72.00 AMOUNT 18.00 22.50 365.00 34.00 31.50 76.50

AMOUNT

27.00 14.50 18.00 33.00 18.00 18.00 27.00

75

h E F 7

Misc. Weighing System LABORATORY & QC Various testing equipment FIRE FIGHTING SYSTEM EFFLUENT TREATMENT PLANT Saveall, Krofta, Decanter etc. TECHNICAL KNOW HOW & ENGINEERING FEES

4.50 27.00 36.00 162.00

9 10 a b c d e f h

PRELIMINARY, PREOPERATIVE EXPENSES PROVISION FOR CONTINGENCIES Building & Site Dev. Plant & Machinery Captive Power Plant Electrical Equipment & Installation Other Fixed Assets Effluent Treatment Plant Preoperative Expenses CAPITAL COST OF PROJECT

467.00 158.00 14.07 63.38 45.00 11.75 8.07 4.05 11.68 6645.00 355.00 7000.00

11

MARGIN MONEY FOR WORKING CAPITAL TOTAL COST OF PROJECT

Indirect Costs:
The following indirect costs are estimated based on information collected in respect of similar projects as a typical percentage of the direct project costs: -Temporary facilities and services -Basic and detailed engineering -Site supervision and management -Preoperational expenses (training, studies, permitting procedures, etc. other owners costs) In respect of the same, consideration has also been provided in respect of various elements like the detailed engineering (which can largely be done locally, implying much lower cost) and minor foreign support / supervision is needed in the basic engineering part. Contingency allowance to the extent of 10% of the direct cost has been considered while arriving at the estimated project cost.

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ASSUMPTIONS UNDERLYING FINANCIAL PROJECTIONS GERENAL ASSUMPTIONS

Commercial Operations Date: 1st April (1st Year) Implementation Period: 18 months Installed Capacity per annum of newsprint: 49500 MTPA Corporate Tax Rate: 30% plus 10% surcharge plus 2% education cess Minimum Alternate Tax: 7.5% plus 10% surcharge plus 2% education cess Debt Draw Down begins: 1st June 2006 Tenor of Term Debt: 7 years ending 30th June 2013 Repayment: 2 years of moratorium + 20 equal quarterly installments beginning from 30th September 2008 Rate of Interest for the term loan: 8.5% p.a (payable monthly) Rate of Interest for the W/C loan: 9% p.a (payable monthly) Exchange rate: 1USD = 45 INR PRODUCTION AND SALES RELATED ASSUMPTIONS Breakup of the installed capacity (MTPA):
Newsprint Kraft Paper Newsprint Expansion TOTAL 19,800 8,250 49,500 77,550

Capacity Utilization & days of operation:

Capacity Utilization (%) Kraft Paper (existing) Newsprint (existing) Newsprint (new) Last Year 88% 93% 1 88% 93% 70% 2 88% 93% 80% 3 88% 93% 90% 4 & onwards 88% 93% 93%

Net Sales Realization:

Particulars Newsprint Kraft Paper Newsprint new Increase in Sales Price per annum Last Year 20,000 13,500 23,000 1%

(Rs. Per ton)

EXPENSES RELATED ASSUMPTIONS:

Consumption Norms per Ton of Newsprint (Existing):
Raw materials Waste Paper Imported News & Pams Mixed Waste Paper Mixed Office Waste Waste Paper Domestic Consumption (MT/MT) 0.0715 0.79 0.429 0.143

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Raw materials Chemicals Caustic Soda Sodium Hydrosulphide ETP Chemical Boiler Chemical Soap stone Powder Hydrogen Peroxide Sodium Silicate Deinking Chemical Optical Whiteners Caustic Soda

Consumption (MT/MT) Consumption (Kg/MT) 10.00 6.00 6.00 0.33 40.00 10.00 15.00 0.60 1.50 10.00

Consumption Norms per Ton of Kraft Paper(Existing):

Raw materials Waste Paper (imported) Old Corrugated Cartons Waste Paper Domestic Chemicals Alum Rosin Dyes Bonding Agents ETP Chemicals Alum Rosin Dyes Bonding Agents ETP Chemicals Consumption(MT/MT) 0.45 0.68

120 12 1.25 45 5 120 12 1.25 45 5

Consumption Norms per Ton of Newsprint (New plant):

Raw materials Waste Paper Imported News & Pams Mixed Waste Paper Mixed Office Waste Waste Paper Domestic Chemicals Caustic Soda Sodium Hydrosulphide ETP Chemical Boiler Chemical Soap stone Powder Hydrogen Peroxide Sodium Silicate Deinking Chemical Optical Whiteners Consumption (Kg/MT) 0.67 0.33 0.20 0.13

12 8 6 0.325 40 12 15 0.6 1.5

Cost of Raw material and utilities item:

Particulars News & Pams Mixed Waste Paper Mixed Office Waste Waste Paper - Domestic Old Corrugated Cartons Amount (Rs./Ton) 8,400.00 6,600.00 10,425.00 6,300.00 8,625.00

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Chemicals Caustic Soda Sodium Hydrosulphide ETP Chemical Boiler Chemical Soap stone Powder Hydrogen Peroxide Sodium Silicate Deinking Chemical Optical Whiteners Alum Rosin Dyes Bonding Agents ETP Chemicals Utilities Power Purchased Power Generated Coal (Indigenous) Increase in Raw material Price

(Rs./Kg.) 20.50 52.50 3.00 96.00 2.50 22.50 4.80 48.30 2.94 3 23.3 94 13.6 10 Amount 3.25 2.65 1,400.00 1% p.a.

Other Fixed Cost Details:

(Rs. in crores) Particulars Salary & Wages Newsprint (existing) Kraft Paper (existing) Newsprint (new) Other Manufacturing Costs Newsprint (existing) Kraft Paper (existing) Newsprint (new) 2005-06 0.54 0.30 2.00 2.56 1.1 1.28 Annual Increase

5%

10%

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Annexure - VI PROJECTED PROFIT & LOSS ACCOUNT Expansion Project (Rs. Crores)
For FY Sales Variable Cost Employee Expenses Other Manufacturing Cost Total Operating Cost PBDIT Less Interest on term loan Less Interest - Working Capital PBDT Less: Depreciation Less: Write off Prel Expenses PBT Last Current Year Year 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 80 55 2 2 59 21 4 1 17 8 0.41 8 2 92 64 2 2 68 25 3 1 20 8 0.41 12 3 105 73 2 2 77 28 3 1 24 5 0.41 19 4 109 76 3 2 80 28 2 1 25 4 0.41 21 5 109 76 3 2 81 28 1 1 26 3 0.43 22 6 110 77 3 2 83 27 1 1 26 3 0 23

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Annexure - VII PROJECTED PROFIT & LOSS ACCOUNT COMPANY AS A WHOLE (Rs. in crores)
For FY Sales Newsprint Kraft Paper Newsprint - Expansion TOTAL SALES Raw Material Variable Cost - Newsprint Variable Cost - Kraft Variable Cost NP Exp Employee Expenses Other Manuf. Expenses Total Operating Costs PBDIT PBDIT Margin (%) Less: Interest - Term Loan Less: Interest - Working Capital PBDT Less: Depreciation Less: Write off Prel Exp PBT Less: Tax PAT 38 10 0 48 29 9 0 1 4 43 5 10.5% 0.57 0.55 4 2 2 1 1.41 38 10 0 48 29 9 0 1 4 43 5 9.8% 0.36 0.55 4 1 2 1 1.43 39 10 80 129 30 9 55 3 6 103 26 20.0% 3.74 1.13 21 10 0.41 11 1 9.86 39 10 92 141 30 9 64 3 7 113 29 20.2% 3.47 1.22 24 9 0.41 14 4 9.90 39 10 105 154 30 9 73 3 7 123 31 20.3% 2.79 1.31 27 6 0.41 21 7 13.70 40 10 109 159 31 9 76 4 8 127 31 19.7% 2.07 1.34 28 5 0.41 23 8 15.00 40 10 109 160 31 10 76 4 9 129 30 18.9% 1.35 1.36 27 4 0.43 23 8 15.21 40 11 110 161 31 10 77 4 10 132 29 18.0% 0.63 1.37 27 3 24 8 15.55 -1 0 1 2 3 4 5 6

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Annexure - IX PROJECTED BALANCE SHEET STATEMENT COMPANY AS A WHOLE (Rs. in crores)

As on March , 31 ASSETS -1 0 1 2 3 4 5 6

Gross Block Accumulated Depreciation Net Block Capital Work in Progress Current Assets Newsprint Current Assets Expansion Misc Expenses Preliminary Exp Cash & Cash Equivalent Total LIABILITIES Equity - Existing Equity - Fresh Reserves & Surplus Tangible Net Worth Deferred Tax Liability Unsecured Loans Term Debt Existing Term Debt for Expansion Current Liabilities Working Capital Borrowings Total

22.71 11.19 11.52 21.45 11.24 0.01

22.71 12.64 10.07 66.45 11.36 0.01

87.09 22.38 64.71

87.09 31.52 55.57

87.09 37.37 49.72 -

87.09 42.01 45.08 11.87 17.56 0.01 0.43 62.03 136.97 6.98 8.33 71.06 86.37 5.91

87.09 45.94 41.15 12.01 17.69 0.01 72.55 143.41 6.98 8.33 86.27 101.58 5.91

87.09 49.32 37.77 12.14 17.82 0.01 82.45 150.19 6.98 8.33 101.82 117.13 5.91

11.48 3.55 0.01 1.66 37.50 118.92 6.98 8.33 32.46 47.77 5.91 45.00 7.74 12.50 118.92

11.61 14.88 0.01 1.25 40.49 123.81 6.98 8.33 42.35 57.66 5.91

11.74 16.86 0.01 0.84 51.11 130.28 6.98 8.33 56.06 71.37 5.91

10.93 55.14 6.98 8.33 21.16 36.47 5.91 3.55

12.14 100.03 6.98 8.33 22.60 37.91 5.91 1.90 45.00 3.16 6.15 100.03

3.13 6.08 55.14

38.25 8.47 13.52 123.81

29.25 9.22 14.54 130.28

20.25 9.51 14.94 136.98

11.25 9.60 15.07 143.41

2.25 9.70 15.20 150.19

Note : Fresh Equity capital of Rs. 25 crore is considered at an issue price of Rs. 30 per share
(price band is Rs. 30 Rs. 33 we have considered the lower band). Accordingly it has been shown in two different sub headings. Rs. 8.33 crore has been shown as fresh equity @ Rs. 10 per share, rest Rs. 16.67 crore (which is share premium) is shown as part of Reserves and Surplus.

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