Investment Highlights

he Republic of is calling for the The Development could be of interest to investors by Tdevelopment of Airport, a former military virtue of the following favourable conditions: air base, whose attributes and location make it one of • Geographical location of the Development: the best development opportunities in the country. 175 km from and at the gateway to In the first stage of the project the objective is to the Balkan region, close to Adriatic ports and create an intercontinental cargo airport of European other Eastern and Central European countries, significance in order to stimulate the economic which are EU accession candidates; development of the Southern Transdanubian region, • Transport infrastructure at the location of the especially and the city of Kaposvár. Development project: its position within 45-60 minutes of three Trans-European Network (TEN) According to the preliminary development concept, a transport corridors, direct connections to Hungary's complex logistical services and production platform major road network (with sections to be completed with cargo airport functions (hereinafter, between 2011 and 2015), and connection through "Development") is proposed on the present site of the a dedicated freight line to a main international Taszár Airport and the adjoining vacant land that can rail network line, make possible the development be incorporated into the development project. of a tri-modal logistics centre; The driving force behind the concept is to build upon • Airport infrastructure: a 2,500 metre runway, the possible synergies between the various potential in need of renovation but in structurally sound functions entailed in the project. Airport, logistical condition, which can be extended to 3,500 and production capacities complement each other and metres, rendering it suitable for intercontinental the services they provide can create a market in which freight aircraft; they contribute to each other's individual success. • Favourable natural geographical conditions, optimal orientation: the airport can be In consideration of the outstanding importance of this operational on average 359 days of the year, development, the Prime Minister of Hungary has i.e. it has a corrected usability factor (F ) appointed a Prime Ministerial Commissioner uc of 98.4 per cent; responsible for the Development in 2006. The • Favourable noise tolerance: results of Preliminary Development Concept was accepted in preliminary noise level calculations indicate March 2006, and in August 2006 a technical and that the airport is suitable for an annual cargo environmental feasibility study was completed in throughput of 650,000 tonnes without the connection with the Development. implementation of noise reduction measures; On the basis of the results of the Preliminary • Large area of land for development, possibility Development Concept and the Feasibility Study, the of expansion: the airport area consists of 530 capital expenditure of constructing the airport hectares, which is in exclusive state ownership component would be HUF 25-30 billion (approx. EUR and can be expanded by a further 371 hectares 90-110 million) - assuming a maximum air cargo of surrounding land; handling capacity of 650 thousand tonnes per year (a • Favourable investment environment at a theoretical maximum taking into account noise limits). national level: within the framework of an EU cohesion policy, Hungary will be entitled The Republic of Hungary - in order to achieve these to development funds of EUR 22.4 billion objectives - is seeking an investor (or investors) who: between 2007 and 2013, which is expected • is willing to participate as a strategic partner to significantly boost economic development; in the Development Project, which includes the • Favourable investment climate at a regional implementation of the intercontinental cargo level: the Southern Transdanubian region, airport and other components of the development including the Taszár area, has been earmarked concept, as a priority target for allocation of EU funds; • has experience of implementing large-scale economic development projects of similar dimension, • is willing to accept a leading role in arranging the financing of the Development. 1 • Low-cost, qualified labour force available in the A definite decision on the structure of the relationship immediate vicinity of the Development: some with the investor(s) and the local authorities involved in 300 former employees of Taszár Airport are the Development, will be made based on the results of available for re-employment, and the universities discussions with potential investors. Similarly, the final and institutions of vocational training in concept and components of the Development will be Kaposvár and Pécs (a regional centre located finalised after consideration of proposals from 60km from the Development Project site) can interested investors. provide a continuous supply of qualified labour; Therefore, the Hungarian state is posing the following • National development priority and support of questions to potentially interested parties: local authorities: the Development will contribute to achieving the objectives of the • Is there any interest for developing and/or state in the region and the fulfilment of local operating a complex economic development development interests. The Development is in project, which includes a civil cargo airport line with sectoral and regional development in Taszár? policies and concepts; • What is the optimal combination of functions • Possibility of significant public financial support in order to ensure acceptable returns for the towards infrastructural development: this could investor(s) while fulfilling the objectives of the include connection to the utilities network, as Hungarian state? well as to the network of major roads which is • What relationship structures between the currently under construction; Hungarian state and investors (e.g. PPP, • Possibility of significant public financial support real estate sales, rental, concessions) and what in the preparatory phase of the project: this forms of state involvement in the Development could include reclassification and standardisation (e.g. incentives for investment, utilities and road of the land targeted for development, and development) are potentially attractive from an providing the investor "single point of contact" investor's point of view? assistance; • Possibility of significant public financial support The answers to these questions and other proposals after realisation of the Development, in the deemed feasible will influence the decision making operational phase: considering the size of the process, contributing to finalisation of the Development and its effect on generating Development Concept and the future tendering employment, a significant state subsidy of process. employment support may become available; • Opportunity to enter the market: an opportunity to enter the dynamically developing Hungarian and international airfreight market at the present southern gateway to the EU.

FOR FURTHER INFORMATION ON THE DEVELOPMENT, PLEASE CONTACT: Dr. István Kolber, MP, Member of the Development Policy Supervisory Body and Prime Ministerial Commissioner for Taszár Airport Development. Tel: +36 1 4413570 • Fax: +36 1 441 3572 • e-mail: [email protected]

Mr. Sándor Zelles Managing Director, Treasury Property Directorate Tel: +36 1 3315746, +36 1 3317148 • Fax: +36 1 3121828 • e-mail: [email protected]

2 History

aszár airport started serving regular air traffic in 1930. The basic infrastructure of the present airport was Tbuilt between 1949 and 1950. At the beginning of the 1980s, extensive modernisation work was completed and the present runway was constructed. From 1950, the airport was used for military purposes, and provided defence for the airspace of southwest Hungary. At the end of 1995, US peacekeeping forces took over the airport from the Hungarian air force. Thus, one of the country's largest airports became one of the most important bases for the US peacekeeping forces that participated in helping to resolve the conflicts in the Balkans. From 1996 the extended supplies base provided temporary accommodation to the troops taking part in the Bosnian peacekeeping mission. In 1999, fighter planes were brought to the airport to support the NATO bombing campaign against Serb targets. Between 1999 and spring of 2001, with the base providing logistics services, 5,000 aircraft landed, 55,000 tonnes of freight were handled, and more than 50,000 troops were stationed there. In 2001 the airbase was reorganised into a reserve base, and at the end of the Balkan crisis in 2004 the US military left after a nearly nine year stay in Hungary, with the USA having spent a total of more than USD 10 million on the modernisation of the airport and its facilities. After the US forces left, Taszár Airport was not reclaimed by the Hungarian Army, and it was closed down on 1 September 2005. The legal rights to administer the base are currently being transferred to the Treasury Property Directorate (KVI).

3 Preliminary Development Concept

The central idea of the development concepts that The current site of Taszár Airport can be significantly have been drawn up prior to concrete negotiations expanded according to the needs of development, with investors is that a complex logistics service and providing an exceptional opportunity for the creation production centre based on freight transport should of a 901 hectare enterprise zone. The existing railway be constructed on the site of Taszár Airport. This and the rail connections that are currently under complex development should attract non-EU further development will facilitate that Taszár, investors who are interested in component assembly beyond its bimodal function (road/air), could operate activities and the manufacture of pre-fabricated as a tri-modal logistics centre. sections to create 20-50 per cent added value in an Preliminary studies indicate that under normally EU country. These companies providing, amongst provided technical conditions the airport is other things, manufacturing, development, and operational for 99.8 per cent of the year thanks to the packaging services could be located in the immediate optimal orientation of the runway. The results of a vicinity of the Taszár Airport, which is scheduled for noise analysis study indicate that in the airport and its development to enable it to handle intercontinental environs - including the settlements in the freight transport. surrounding area - an annual air cargo throughput of According to the preliminary development concept, it 650,000 tonnes can be realised without exceeding is justified and reasonable for the airport to provide noise level limits according to health and safety the following functions in the framework of the legislation. After the reinforcement and lengthening development of the airport and its environs: of the runway, the airport will not be subject to the present restrictions on handled aircraft types. • Intercontinental cargo hub airport; • Air freight terminals (for the handling of both In summary, it can be stated that the airport's normal and dangerous goods); attributes from a technical and environmental • Aircraft technical service centre; viewpoint make possible the combination of functions • Industrial park (added value park); envisaged in the preliminary concept, and the • Multimodal logistics platform; necessary areas of vacant land are available for use in • Container terminal; the implementation of the Development. • Road transport vehicle service and repair centre; • Service sector (hotels, restaurants and other services); • Enterprise zone for small and medium-sized companies.

4 Asset base available for development

The Development area Other assets According to the preliminary concept, in order to The current runway system is illustrated in the diagram complete the cargo airport component of the below, and consists of a runway (marked RWY 16-34) Development as a first step 530 hectares of state-owned and six taxiways (marked TWY A, B, C, D, E, and F). land from the old airbase with an additional 51 The runway is 2,500m long and 60m wide oriented on hectares of predominantly agricultural land, currently a 162/342 degree. The airport reference point in private ownership, will be involved in the project. coordinates are φ = 462336 N, λ = 0175506 E. For the creation of the complex logistics services and Elevation of the reference point: Z = 156m ABSL. production base, a further 320 hectares of land - at The elevation of runway threshold 16 above sea level present predominantly used for agriculture and in is 159m, and that of runway threshold 34 can be private ownership - are available for purchase and rounded up to 150m. Taking into account the could be incorporated into the Development. The area elevation of the airport reference point (ARP) above in question is registered under numerous land registry sea level (156m ABSL), reference temperature classifications and belongs to the administrative area (26.7°C), and the average gradient of the runway of five separate settlements. (0.36%), applying the defined correction factor The current runway system of Taszár Airport (n = 1.17) gives the reference length of the runway as ref LRWY = 2,139 m. There are several aspects to note with respect to the condition of the runway: • the surface is intact, surface pealing and faults are not typical; • the roughness of the surface is suitable; • transverse and longitudinal joints are sharp and their edges and corners are not damaged; • maintenance and filling of joints has been performed correctly and in accordance with industry standards; • the surface - particularly the most frequently used central track - displays some defects, but serious cracks have been filled and maintained as joints, and repairs have been performed correctly; • there are no rubber deposits on the touchdown zones (TDZ); • painted markings are in relatively good condition. Source: Airport Consulting Ltd. Surface faults are probably the result of insufficient From a spatial planning point of view, the planned load-bearing capabilities and not foundation issues, Development can be realised without major probably caused by the runway being subjected to difficulties in the area of the existing airport. larger loads than those for which it was designed. The However, a need has been identified in the official load rating of the runway is PCN 74/R/B/Y/T. preliminary concept to extend the runway, and additional land plots should be included whose land registry classification must be changed through the modification of relevant land use maps. In the preparatory stage of the project within the framework of the contract with the investor, the Hungarian state will provide assistance concerning the purchase, reclassification, and the standardisation of plots of land to be incorporated in the project. 5 Parallel to the runway to the west, there is a The entire territory of the airport is connected to 2,500m-long, 70m-wide older runway that was last utilities, but the site's internal network will be used as a taxiway (TWY E). The centre of the runway renovated during the course of the Development is 220m from the former runway (currently taxiway), project. which exceeds the minimum value given by the ICAO The other buildings and facilities are not suitable for for the distance between the centres of 4F class cargo transport and logistical purposes, but can be precision runways and parallel taxiways. As a result, used on a temporary basis during the investment the former runway can function as a parallel taxiway. period. The former runway is constructed from 21cm thick concrete and was surfaced during the period when The environs of the Development has significant spare American forces were stationed at Taszár. capacity with respect to utilities (water, sewage, electricity and gas), and as such the external The TWY A, B, C, D and F taxiways are 18-20m wide infrastructure can be adapted to support the airport and their surface structure consists of 24cm thick and connected complex logistical services and basalt concrete with steel reinforcements in the industrial facilities. construction joints. On the basis of preliminary studies, there is no The current configuration of the airport's runway and existing significant environmental damage on the site taxiway system is only partly suitable for civilian use. of the airbase. If measures to reduce environmental This means that, taxiways and aprons should be damage become necessary at any stage, the repaired and partly rebuilt according to the Hungarian state (the owner of the site) may be Preliminary Development Concept. responsible for any such action, subject to the The Preliminary Development Concept anticipates the contract concluded with the investor. extension of the runway to 3,500m and reinforcement In summary, the total area of the site is large and of the concrete surface, as well as the construction of further expansion is possible. There is a system of a new taxiway system, which will eliminate the runways and taxiways that can be adapted to suit civil current restrictions on aircraft type. aviation, as well as a freight railway track and The internal functional zones of the airbase are network of access roads that are suitable for logistical connected by a full network of access roads with a and production facilities. Following extension and total length exceeding 10km. The network of access maintenance of the runway, the current restrictions roads links to the minor road running through the on aircraft type authorised to use the airport will be village of Taszár and provides local access. The lifted. The spare capacity of the existing external condition of the roads varies, but in general they are infrastructure serving the Development facilitates the in need of repair. future availability of utilities. The freight railway line enters the site at its south- western corner, runs almost parallel to the runway and serves the various functional zones of the airport via a number of branches. A 2km branch line connects to the Budapest - main line.

6 The meteorological and natural geographical conditions of the Development

The findings of the meteorological examination of the Taszár and its surroundings bear no significance from site from an airport operational point of view can be an environmental protection point of view. The area summarised as follows: does not consist of any National Parks or landscape protection areas. • The orientation of the airport's runway is optimal, the SSE - NNW direction of the With regard to bird flight, Taszár is well situated. It runway satisfies the regulations concerning is not directly affected by any bird flight paths, and wind coverage. The existing runway has a there are no wetland areas that birds might usability factor (Fu) of 99.85%, which congregate in. Over the past 10 years of the airport's complies with ICAO regulations. operation no collisions with birds have been observed. • Besides measurements of wind conditions, with On the basis of the investigation of the noise caused regard to other measured weather factors (fog and by aircrafts, it was found that up to 650,000 tonnes snow), it was concluded that on approximately per year of cargo could be handled without the need 120 days on a yearly average, the airport would to take measures to limit noise pollution, as long as be able to operate only with the use of no more than 13 per cent of the total cargo is carried navigational equipment and the clearing of snow. at night. Up to this limit, the towns and villages surrounding the airport will not be exposed to noise For these reasons the Preliminary Concept includes levels over the permitted limit. the installation of NavAids equipment, and ensuring that the runway is kept free of snow. The landscape surrounding Taszár Airport has favourable relief characteristics, the runway is easily accessible, take-off and landing are not impeded by landscape features or man-made constructions such as radio towers, electric power lines, or buildings.

7 Geographical location of and accessibility to the development area

Connections to Trans-European Network • The motorway connecting to Belgrade transport corridors is located to the south of Somogy County and One of the most important factors to consider when the southern border of Hungary, in transport evaluating the geographical location of the village of corridor X. It runs south from and almost Taszár and of Somogy County is the planned parallel to Trans-European Network corridor investment connection to the major international road IV in Hungary, giving it an important role in network. connecting Western Europe, the Balkan states and EU member country Greece. • The runs along the northern boundary of the county in the V. and V/B Trans- These significant connections outlined above show European Network (TEN) transport corridors (a that road corridors directly or indirectly connected to section of the Helsinki corridor). The corridor Somogy County are not just important nationally, but from the district of Taszár is best accessed via also play a crucial role in central and eastern the northbound-southbound main road 67. European terms. As a result, their development is a • The planned will run along the high priority. Taszár is located in a range of 45 to 60 eastern border of the Southern Transdanubian minutes from major European transport routes, thus region in the V/C corridor. This corridor will enjoys a favourable position in Central Europe. The be connected to the Development by the location of the Development is optimal in terms of M9 motorway, which will open up access to transport connections to the direction of the EU the area from the east. Currently, the 61, candidate countries of the Balkans, as well as to the 63 and 65 main roads link to the planned road network extending to the Adriatic. This is route of the corridor. demonstrated by the fact that the international Stabilisation Force (SFOR) was stationed in Taszár during the Balkan conflict.

The geographical location of Taszár and connections to international transport corridors

Source: Terra Stúdió Ltd. 8 Connections to Hungary's expressway network The Taszár Development can be accessed via main road 61 from the east and west and the north-south main road 67 connecting to and the M7 motorway. The major road system to the west incorporates , which connects to the international road network via the M7 motorway. Motorway, expressway and road development plans for the programming period of 2007-2013 include the construction of the M9 expressway, as well as several road bypasses along main road 67 connecting Kaposvár to the M7 motorway. The M9 expressway is expected to be completed between 2010 and 2015, which would mean direct connection of Taszár to the expressway network. Development of main road 67 in the direction of the M7 motorway will consist of a 2×1 lane with express road sections providing connection with M7 motorway forming part of Helsinki Corridor V.

Source: Alappont Ltd. 9 Road network proposed for 2015

Source: Ministry of Economy and Transport, National Area Regulatory Plan, Transport Operational Programme

Rail access The airport is well connected to eastern Hungary as Rail connections in the environs of the Development well as to other Balkan countries via Budapest, where are already adequate. The trans-European rail freight the network of international rail corridors converges. network is already connected to Taszár via the E71 The airport is connected to this international main international main line, of which the Somogy County line via a dedicated sidetrack. The airport's internal section is a single electrified track. The significance of railway system and the sidetrack directly connected to this rail link is that it connects Taszár Airport to the the international main line provide the necessary international rail network, providing excellent rail infrastructure for the development of logistics access to , and Italy. The Dombóvár services, including production facilities. rail junction some 20 km away provides a connection to the line towards the southern town of Pécs, which links to Sarajevo, the capital city of Bosnia- Herzegovina.

10 The airfreight industry and legal environment

Hungary's airfreight traffic needs are currently served Hungary is already a leading manufacturer of exclusively by the Budapest Airport. The airfreight electrical components and holds a strong position in traffic services provided by Budapest Airport and the Central European region - electronics account for state carrier Malév are currently operating at full some 20 per cent of Budapest Airport's freight traffic. capacity. The airport's storage capacity is currently at Based on the number of multinational IT companies 4,000 m2 and 6,500 m2 for Budapest Airport and as well as suppliers of electrical components and Malév respectively. Logistical capacity in 2004 automotive electronics already present in Hungary, exceeded 60,000 tonnes in air cargo and growth in this sector is expected to continue to develop in the this area represented 9 per cent per annum for the future. period between 1994 and 2005. Domestic air traffic is in transition. A network of Airfreight is forecast to continue to grow rapidly in regional airports is expected to be completed by 2008 Hungary and this will be driven by two factors: and will result in considerable growth in traffic. However, Hungary's provincial airports are not • Export of companies in Far East to the EU, currently equipped to serve airfreight needs and they • Airfreight of electronics products manufactured will not be capable of this in the future, at least not in and/or transported via Hungary. without considerable investment. The Taszár Airport is one of the few in Hungary that can support the level Asia will continue to be the world's fastest growing of service required of an international cargo hub. economic region. This dynamic growth is reflected in the volume of international trade, including Hungary's air traffic regulations are harmonised with airfreight. Air cargo statistics also support this and the European Union's and conform to international suggest that growth in this area is driven by the requirements. The key consideration in the expansion of the Asian economy and markets. Development is the process of authorising the airport. The Taszár Airport is not currently available for use Global economic trends also indicate that Far East by the private sector, and is only registered for enterprises are prepared to transfer some phases of governmental use. In order for the Development to go manufacturing to Central and Eastern European EU ahead, the airport must be reclassified as a private countries to facilitate access to the European Union sector, commercial airport. market. The Development Concept is partly designed to attract significant production capacity from the Far East to the area by providing a hub for airfreight and sophisticated logistical services in Central Europe.

World air cargo growth in freight tonne kilometres (%) 2003-2023

World average annual freight tonne kilometer growth 2003-2023: 6,2%

Source: Boeing, World Air Cargo Forecast 2004/2005

11 National and local investment climate with respect to the Development

To boost the local economy through use The approximate share allocated to the Southern of significant EU funds Transdanubian region varies between 13 and 18 per Hungary, at the southern gateway to the European cent of the funds allocated to sector-specific Union, will be entitled to receive EUR 22.4 billion as operational programs, while 15-16 per cent of the part of the EU's cohesion policy between 2007 and funds allocated to regional development will be used 2013. This sum will be supplemented by state to finance projects in the Southern Transdanubian financing and private capital. The New Hungary region. The following development objectives of Development Plan, Hungary's current economic expected regional development interventions between development policy, will initiate cohesive state and 2007 and 2013 apply primarily to the Taszár EU development projects in six key areas between developments: 2007 and 2013. These areas are: the economy, • development of the infrastructure of local areas, transport, social reform, the environment and energy, • increasing the tourism potential of the region, regional policy and tasks related to state reform. • promotion of economic competitiveness through These developments are designed to boost economic development of local towns. growth, and further improve Hungary's attractiveness for investors. Human resources The Development is located in one of Hungary's less Some 300 former employees of Taszár Airport can be developed areas, Somogy County, in the region of reemployed, which means that if the Development Southern , but the nearby town of were to proceed, a large number of highly experienced Kaposvár is one of the most economically developed in and qualified staff are available to help ensure that the region. The Southern Transdanubian region is an the facility resumes operation effectively. Objective 1 convergence area in the upcoming programme period and this region is a major target Taszár is located in Somogy County, 8 km from the for the allocation of a significant share of municipal centre of Kaposvár, with its 70,000 development funds. inhabitants. The town has a number of schools and universities, which provide a steady flow of qualified Development objectives, planned interventions and human resources. Taszár is approximately 60 km projects eligible for support in the period of from the cultural and economic centre of the 2007-2013 are incorporated in 15 Operational Southern Transdanubian region, the city of Pécs with Programmes. Among these, the following 150,000 inhabitants. The city is one of Hungary's programmes are most apt to the Development: university centres and thousands of students complete • economic development operational programme, their studies there every year. • transport infrastructure development operational The small towns near Taszár are currently programme, experiencing an oversupply of available labour and • human resources and infrastructure development average incomes remain below the national average. operational programmes, • environmental and energy operational The human resource needs of the Development can programme, therefore be resolved on short notice, and individuals • European territorial cooperation programmes, with specialist qualifications are likely to become • operational programme for the Southern available on an ongoing basis in the mid- and long-term. Transdanubian region.

12 This document does not represent an offer, a call or a solicitation to manage or list any funding, or the sale, purchase, listing or issuing of any shares or commencing negotiations relating to this Development, nor does it constitute the basis for a contract with the Republic of Hungary. Any offer provided at a later date will be the subject of further financial and commercial analysis and internal authorisation, as well as the market conditions at that time. The contents of the document are subject to change without notice. The Republic of Hungary is not bound in any way to update, define or supplement the information contained in this document, even if inaccuracies become obvious.

Prepared by VÁTI Public Nonprofit Company, reviewed by KPMG Advisory Ltd., ordered by the prime ministerial commissioner for the development of Taszár Airport.