Bangalore International Airport: Late on arrival

Late on arrival

BLOOMBERG

JULY 1 : The construction of a new airport at Bangalore, India's largest technology hub, is scheduled to begin tomorrow, three years late and exceeding its original budget by 3.1 billion rupees ($71 million).

The proposed airport, a $320 million project after the cost escalation, will be able to handle five million people a year and is expected to start operations in April 2008, Bangalore

International Airport Ltd. Chief Executive Albert Brunner said in an interview on June 28.

Bangalore, which accounts for almost a third of India's $17 billion in software exports and hosts companies such as Intel Corp. and General Electric Co., needs a new airport to handle an increasing number of travelers as the city wins more business. At least two ceremonies have been held at the airport site in the past four years to mark the beginning of construction.

``The climate would improve significantly for doing business in Bangalore'' with the construction of the new airport, Sunil Mehta, vice president of the National Association of Software and Service Companies, said in an interview from New Delhi yesterday.

``There has been significant strain on the infrastructure of Bangalore.''

The airport has been under development since at least 1999.

A similar plan by India's Tata Group and Singapore Changi Airport was withdrawn in 1998 after approval was delayed. Partners in the current project have threatened at least twice to withdraw, and Microsoft Corp. and Bangalore's Infosys Technologies Ltd. have set up offices in other cities.

Siemens, Unique Zurich

Siemens AG, Unique Zurich Airport and Larsen & Toubro Ltd. won the bid in October 2001 to build the airport, beating a competing offer from Hochtief and Dusseldorf Airport. Siemens has a 40 per cent stake in the project, Zurich and Larsen both own 17 per cent, and the state government of Karnataka and the Indian federal government have 13 per cent each.

The new airport will be constructed on 3,900 acres (1,578 hectares) in Devanahalli. The 5 million annual passenger handling capacity, based on a 2002 estimate, may be raised in the next few months because of the increased number of air travelers in the country in recent years, Brunner said.

As many as 10 new Indian airlines have been set up in the world's second-most populous country in the past two years. A record 59.3 million people flew in India and overseas in the year ended March. Air travel rose 22 per cent in the period and may expand at an average annual pace of 20 per cent in the next five years, according to government figures.

First-Time Collaboration

India's government is collaborating with non-state companies for the first time to build an airport.

The shareholders in the project, who reached an agreement in January 2002, had sought to begin construction in nine months, said Brunner, a Swiss who had previously overseen the $1.8 billion expansion of the Zurich Airport. It took the group two and a half years to get permission from the Indian government to own and operate the airport.

``None of the shareholders had really expected that it would take so much time to conclude,'' Brunner said. On at least two occasions, he faced a possible withdrawal by Zurich or Siemens because of the delays. ``They were all convinced by one or two of the other partners to remain in the game, and finally it has paid off.''

Finance Ministry

Among the roadblocks, were discussions with India's finance ministry, Brunner said. Bangalore International ultimately agreed to pay 4 per cent of the airport's revenue over a 60-year period to get the ministry's backing for the project.

The defense ministry also had to agree to close Bangalore's current airport, which would otherwise have crippled the new facility's finances by offering lower rates.

The protracted negotiations for the Indian government's approval added more than $3 million in legal fees to the cost of the project, Brunner said.

Loans from ICICI Ltd. account for about 52 per cent of the project's financing, Brunner said. The shareholders are investing 23 per cent, and the Karnataka government has agreed to provide an interest-free loan for the remaining 25 per cent.

In the meantime, at least two ground-breaking ceremonies had been held at the Devanahalli site, by India's then Prime Minister Atal Bihari Vajpayee in January 2001, and by former Karnataka Chief Minister S.M. Krishna in January 2004, according to reports in local newspapers at that time.

Construction will start tomorrow without a third such ceremony, Brunner said.