Submitted To:Indian Institute of Management

S e c t i o n B G r o u p - 1 1

S i d h u

Indira Gandhi International Airport Development Project

AcknowledgementThe special thanks go to our helpful supervisor, Mr. Rupesh Kumar Pati. The

supervision and support that he gave truly helped the progression and

smoothness of the project. The co-operation is much indeed appreciated.

Our grateful thanks also go to management and authority of airport employees,

for their timely help and suggestions, may it be by e-mails or telephone

conversations, to help complete our project. The project would be nothing

without the guidance of them.

Besides, this project in ‘Project Management’ made us realize the value of

working together as a team and the to effectively manage our roles in the team.

Not to forget, great appreciation goes to our fellow classmates for their keen

insights and help.

Last but not least we would like to thank and bless the Internet, which is the best

and fastest source to receive information.

- SIDHU

IntroductionIndira Gandhi International Airport is the primary international airport of the

National Capital Region of Delhi, India, situated in South-West Delhi, 16 km (10

mi) southwest of New Delhi city center. Named after Indira Gandhi, the former

Prime Minister of India, it is the busiest airport in India. With the commencement

of operations at the new Terminal 3, Delhi's Indira Gandhi International Airport

has become India's and South Asia's largest and one of the most important

aviation hub, with a current capacity of handling more than 46 million passengers

and aimed at handling more than 100 million passengers by 2030. Along with

Mumbai's Chhatrapati Shivaji International Airport, it handles more than half of

the air traffic in South Asia. Spread over an area of 5,016 acres of land, Delhi

airport serves as the primary civilian aviation hub for the National Capital Region

of India. The Indian Air Force previously operated it until its management was

transferred to the Airport Authority of India. In May 2006, the management of the

airport was passed over to Delhi International Airport Limited (DIAL), a joint

venture led by the GMR Group, which also has the responsibility for the airport's

ongoing expansion and modernization.1

DIAL is a joint venture consortium of GMR Group (54%), Airports Authority

of India (26%), Fraport & Eraman Malaysia (10% each).

GMR is the lead member of the consortium; Fraport AG is the airport

operator, Eraman Malaysia - the retail advisors.

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

T3 has state- of- the- art complex that features Common Use Terminal

Equipment (CUTE) and an advanced 5 level in-line baggage handling 1 http://en.wikipedia.org/wiki/Indira_Gandhi_International_Airport

system with explosive detection technology,168 check-in counters & 78

aerobridges.

Designed by HOK International in consultation with Mott McDonald and is

being constructed by L&T and Meinhardt Engineering

GMR group

GMR Group is one of the fastest growing infrastructure enterprises in the country

with interest’s in Airports, Energy, Highways and Urban Infrastructure sectors.

Employing the Public Private Partnership model, the Group has successfully

implemented several iconic infrastructure projects in India. The Group also has a

global presence with infrastructure operating assets and projects in several

countries including Turkey, South Africa, Indonesia, Singapore and the Maldives.

GMR Infrastructure Limited is the infrastructure holding company formed to fund

the capital requirements of various infrastructure projects across the sectors. It

undertakes the development of the infrastructure projects through its various

subsidiaries.

Scope of Project

ACI’s forecasts for the next fifteen years indicate that passenger traffic will grow

at the rate of 4.1%, effectively doubling the number of passengers served at

airports by 2020. For airports worldwide this means providing quality services to

7.4 billion passengers worldwide. Freight traffic will increase by 5.4% and aircraft

movements by 3.5% over the same period. The Asia/Pacific and Middle East

regions project the highest rates of growth for all three parameters.

For the first time, ACI has collected data that estimates future travel demand on a

dual basis, taking into account both unconstrained demand, which is based on

anticipated demand for air transport by the traveling public, and constrained

demand, which takes into account airport and airspace capacity issues. Now,

more than ever, airport operators need economic incentives and a flexible

regulatory environment to expand capacity in order to deliver a high quality of

airport service. When the participating airports took into account anticipated

regulatory constraints to building new facilities, they estimated that capacity to

accommodate demand would fall short by nearly one billion passengers, resulting

in severe congestion. It is clearly time for governments to enable airports to build

capacity on a fast-track basis, or risk a re-emergence of the hassle factor, which

dampens demand for air travel and causes diversion to other modes of transport.

ACI’s projections are based on forecasts reported in early 2005 by 273 airports,

which represent approximately 60% of the total passenger traffic handled by ACI

member airports worldwide. The sample is therefore significant and includes

most of the world’s largest airports, with a good representation from all six ACI

regions. ACI collates the forecasts of its members after carefully checking the

data to ensure that it is reliable and consistent. All figures in this document are

extrapolations from the sample and represent regional and global totals.

ACI began forecasting trends in air passenger and freight volumes in 1997 in the

belief that airports themselves are in the best position to recognize the

constraints on their growth, including physical and infrastructure limitations and

regulatory obstacles to future expansion. In contrast, with a view to projecting

future trends in air travel, many industry forecasters, using sophisticated models

of the global economy, confine themselves to assessing trends in demand,

without adequately assessing the supply side constraints faced by airports in

meeting this demand.

Another innovation in this edition is the addition of short-term forecasts to the

survey, covering the period 2005-2007. Growth over the next 3 years will be

unprecedented, creating short-term capacity issues at many hubs. Indeed the

pinch is being felt already at a number of hubs in North America and in Europe as

of this writing in August 2005.2

Submission:

Given the strong market fundamentals, the robust rate of growth is expected to

continue. IATA forecasts that the Indian civil aviation market will register a

compound annual growth rate (CAGR) of more than 16% during the period 2010-

2013. Looking further ahead, the Indian Ministry of Civil Aviation’s Vision 2020

statement envisages a compound annual growth rate of around 15% in the next

five years. Investment opportunities of USD120 billion are envisaged up to 2020

with USD80 billion on new aircraft.

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

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

Source: IATA Air Transport Market Analysis

Project Definition:

DIAL to operate, manage and develop the IGI airport for initial term of 30 years

extendable by a period of further 30 years.

Project Milestone:

DIAL entered to the Operation, Management and Development Agreement

(OMDA) on 4th April 2006. The scope of the project was defined as safeguarding

future unconstrained development by means of a coherent and comprehensive 5-

stage phasing strategy up to 2026. Upgrading of existing terminal s and

development of new domestic terminal 1D in phase 1A development of state-of-

the-art integrated terminal (T3) in Phase 1B development of terminal T4, T5, T6

in the subsequent phases develop the terminal envelope, aprons and landside

pavements in a manner, which provides maximum flexibility, in terms of a

response to the fluctuating market, as well as an under-one-roof terminal

environment.

Enhancement of the existing cargo facilities within their current location, relying

on both the provision of additional gross floor areas and operational

improvements (mechanization and control processes) to meet the demand

forecast within the initial three phases.

Project Plan:

DIAL appointed UK based Mott MacDonald Limited as their Lead Technical

Advisors for preparation of Master plan as well as major development plans. As

part of this, LTA has carried out traffic forecast, Site survey, Obstacle study,

environmental audit and geotechnical investigations. The Master Plan was

developed keeping in mind the following consideration -

Optimum utilization of airport land resources and already existing

facilities

Minimum impact on existing operational areas and physical

encumbrances 

Maintaining a balanced airfield system at every stage, whereby the

available capacity of each constituent part fits with the capability of

the system as a whole

Balancing landside and airside demand and capacity at every phase

of the development

The entire project timeline is divided into 5 phases. The development of the first

phase is already completed with the inauguration of Terminal T3 on 3rd July

2010. The development plan of each phase is as follows:-

Project Phases Status Key Activities

Phase 1A (2006-2009) Finished Up gradation Works of Terminal 2 Development of Third Runway New Domestic Departure Terminal 1D

Phase 1B (2007-2010) Finished Development of Integrated Terminal T3 Metro connectivity through Airport Express Line

Phase 2 (2010-2012) In Process Additional Remote stands near T3 New Central Transportation Corridor T1B to be razed – New terminal for general

aviation and parking lot

Phase 3 (2012-2016) Planning New International Terminal- T4 Expansion of T3 including piers New ATC Tower Fourth Runway

Phase 4 (2016-2021) Planning New Terminal - T5 New pier for T5 and Contact Stands

Phase 5 (2021-2026) Planning New Terminal for LCCs – T6 Expansion of T3 and T4 piers Remote stands for T6 New strengthened runway

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

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

Upgradation Works of Terminal 2 (International Terminal) commenced

New Domestic Departure Terminal 1D inaugurated

New Integrated Passenger Terminal 3 (T3) Inaugurated at IGIA

Jan 31, 2006

Nov 01, 2006

Feb 26, 2009

Jul 03, 2010

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

Project Appraisal

The stakeholders appraised the project on various levels to test the feasibility of the same. The various aspects of Project appraisal are as follows:

1. Market appraisal – For the sustainable flow and growth of revenues, the availability of a consumer market in place is an imperative. The market analysis shows that the average expected traffic growth for years 2010-2015 is 10%. During the same period, domestic passengers are expected to grow from 17.55mn to 25.4mn. Similarly, the international are expected to grow from 7.43mn to 11.94mn. So the figures indicate the availability of a market in place to take care of cash flows.

2. Economic Appraisal – In this case, we analyze the impact of the project on the national economy and the benefits that obtained from the project.

The project is supposed to be an identity of international prestige for the world. Also, it is a green project, which means that it is adding to the government effort to push more and more Green Field projects into the economy. Also, the project is supposed to generate huge employment of the order of 516000 jobs. Undoubtedly, the project is going to benefit the Indian economy in many ways.

3. Technical Appraisal – To implement a project of such a huge size, the availability of technology to implement the project must exist. 2 vendors were ready to provide the technology for the project. Finally, the contract for execution of structural steel work was given to L&T. Also, few preliminary tests like official testing of operational readiness and ground handling capacity were carried out.

4. Financial Appraisal – The financial viability of the project is tested in this appraisal. There were many stakeholders. And GMR group had a revenue sharing of 50.1%. All the demand forecasts were used to calculate the cash flows, and all the financial decisions were based on these cash flows. The initial estimated cost of the project after the first revision was envisaged to be nearly 9000cr. The cost of capital for the same was 11%. The planning horizon was taken into account and accordingly the payback period was calculated.

5. Environmental Appraisal - The effect of the project on the environment was estimated and accordingly, appropriate measures were taken to minimize these effects. So it was decided to reutilize wastewater through sewage treatment plant. Similarly, wastes were recycled wherever possible. An air quality monitoring system was installed to monitor the emissions from the project. Also, efforts were made to construct energy efficient buildings wherever possible to reduce the detrimental effect on the ecosystem.

Stakeholders:

DIAL is a joint venture consortium of GMR Group (54%), Airports Authority of India (26%), Fraport & Eraman Malaysia (10% each). GMR is the lead member of the consortium; Fraport AG is the airport operator, Eraman Malaysia - the retail advisors. So the main stakeholders are:

Airport Authority of India Government of India GMR group Delhi International Airport Limited Fraport AG MAHB Malaysia Share holders Lenders & Stakeholders Customers

Project Cost:

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

Project cost as per approved MDP Project Cost at the time of Financial Closure

Final Project Cost as per Dial 0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

Project cost ( In Rs. Crore)

Project cost

Benchmarking of cost

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

(Bangkok) (Kualalumpur) (Beijing) (Heathrow) (Madrid)Delhi (IGIA)

Total actual cost (In Million USD) 2800 1600 3800 4100 2948.2 1789Actual cost per mppa (In Million USD) 62.2 64 88.4 146.4 70.2 52.6Actual cost/m2 of GFA (In USD) 4973.4 3337.5 4222.2 11614.1 3894.6 3563.8

(Bangkok) (Kualalumpur) (Beijing) (Heathrow) (Madrid) Delhi(IGIA Estimate)0

50010001500200025003000350040004500

0

2000

4000

6000

8000

10000

12000

14000

2800

1600

38004100

2948.2

17894973.43337.5

4222.2

11614.1

3894.6 3563.8

Cost Benchmarking : Delhi IGI

(Bangkok)

(Kuala

lum

pur)

(Beiji

ng)

(Heat

hrow

)

(Mad

rid)

Delhi(I

GIA Estim

ate)

0

20

40

60

80

100

120

140

160

62.2 64

88.4

146.4

70.2

52.6

Actual cost per mppa(In Million USD)

Actual cost per mppa(In Million USD)

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

Cost Overrun

Reasons

Corrective Measures

Combining local make with foreign make for electrical high end fittings resulted in cost saving

Various optimization measures including change of cable to aluminum from copper for HT

In fire detection and protection works, the cost has been reduced by adapting ductile iron pipes

Rationalization of specification of finishing items to contain cost overrun

Project Control:

A project management consultant, M/s Parsons Brinkerhoff International Inc. was hired for the purpose. The consultant advised on design review, contract management, project control and co-ordination and provided valuable insights.

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

Increase in area/volume of the facilities:

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

Increase in cost of reinforcement material:

Also, Engineers India Ltd was appointed as Independent Engineer by AAI. EIL reviewed design, drawing and specifications to assess compliance with finalized Development Plan, Development Standards and Requirements of the project.

Assessment of Control Measures:

There was no regular monitoring of cost by PMC. A separate cost consultant should have been appointed by DIAL for monitoring cost

DIAL tried to subcontract the entire IT system to single entity, which was rejected later, and IT works were given to various specialized agency. This delayed the start date of IT activities.

DIAL never made a detail estimation regarding the selection of vendors which was done by contractors

Indirect cost considered by L&T for various Contractors’ work portion (CWP) was high (11-16.5%) compared to industry average (10-12%)

No estimation done either by DIAL or L&T for the Sub-contract packages.

Evaluation of Project Success/Failure:

The main objective of DIAL was to complete the T3 terminal before the Commonwealth games and they were successful in doing so. The project was completed in record time of 37 months. This was achieved without compromising the quality and incorporating all the necessary scope changes. But in terms of cost there was 42% cost overrun, which according to DIAL was not out of limit. There we can consider the 1at phase of this project as a successful one meeting time and scope requirement with cost trade off. The basic three dimensions of project evaluation is shown in figure

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

Quality is not compromised at all

Significant change in scope leading to increased cost

ranked as 4th best airport in the world in the category of 25-40

Project is completed in scheduled

time : T3 inauguration on 3rd July ,2010 before Commonwealth Games in Delhi

Project duration crashed by adopting Design-Build approach strategy

Constructed in record time ( 37

Significant Cost overrun (42%) but not out of limit

Cost inflated by scope change and reinforcement price increase

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

Challenges:

The project called for huge investments, in the order of thousands of crores of rupees. Few of the political leaders in country questioned the need for the enormous expenditure when other aspects of national significance were falling short of funds. These political challenges were however tackled by elucidating the need for improved infrastructure for the overall development of the nation as a whole.

Also, the project required vendors from across the globe to come together and work on a common platform and fulfill the objectives of the project. This required immense efforts to coordinate among the internationally dispersed project teams and bring about their integration. Nonetheless, advanced IT technology played a very crucial role in bringing about this integration.

The land selected for the execution of the project was initially occupied by numerous encroachments. Entire village and industrial units had to be shifted before the work could begin. Similarly, protected wildlife species in the area had to be relocated.

Also, the orientation of the site posed a problem. So, the whole master plan of the project had to be re-drafted to tackle the issue.

During the execution of the project, an external financial requirement of 500crore was encountered. The arrangement of these funds also posed a serious challenge for the project.

Recommendation:

Though the 1st phase of this project is considered successful by DIAL we believe

there are few areas where the project management process can be improved.

Some of these recommendations are

Finalize the cost estimates before inviting the bids to maintain transparency

and to ensure reasonableness of the offers received

Independent Cost Consultant should be appointed, which will monitor the

following

o Give early warning to any actual and potential variance in

overall/actual project costing

o In relation to project contracts, preparation of cost reports showing

the original budget, revised outcome estimate and variance for each

budget item

o Maintain overall/individual project cost control system

Implementing agencies should cap the Project cost in future for such type

of Mega Projects so that there is no significant cost overrun

While awarding EPC contract only two final bids were received, hence

room for negotiating cost diminished. We believe a project of this size

requires much more companies to participate in the bidding process. This

can be done by allowing the JVCs to participate in the bidding

DIAL has kept the same fee structure (20.20%) for both contractors’ work

portion (CWP) and sub-contract packages (SCP). But the risk and effort

required in these two areas are quite different. The fees of the SCP should

have been lower around 10% according to the industry standard.

References:

Consultation Paper No. 2/2011-12, Review of Levy of Development Fee-IGI Airport, New Delhi, Airports Economic Regulatory Authority of India

Final Report for Technical Audit of DIAL’s Final Project Cost Estimate, August 2010, Engineers India Limited

Review of DIAL’s final project cost estimate, 15th October 2010, KPMG http://www.newdelhiairport.in/master-plan.aspx http://www.gmrgroup.in/Airports/Delhi_International_Airport__P__Limited.html