Cochin International Airport Limited

Multi Year Tariff Proposal FY 2016-17 to FY 2020-21

December 2015

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Table of Contents 1. Preamble ...... 6 2. Background ...... 6 3. Traffic ...... 11 Passenger Traffic ...... 11 Air Traffic Movements ...... 12 Air Cargo ...... 14 4. Capital expenditure ...... 15 Need for the new International terminal and modification of existing terminals ...... 15 Parking bays, runway, taxiways and roads...... 16 Cargo Facilities ...... 17 IT Systems ...... 17 CISF residential building ...... 18 Other Capital Projects ...... 18 Financing of the new international terminal ...... 19 Summary of total capital expenditure ...... 19 Capital expenditure for the second control period ...... 19 5. Allocation of Fixed Assets ...... 21 6. Regulatory Asset Base (RAB) for the Control Period ...... 23 7. Fair Rate of Return (FRoR) ...... 24 Debt ...... 24 Equity ...... 24 Weighted average gearing ...... 25 Fair Rate of Return (FRoR) ...... 25 8. Operations and Maintenance Cost ...... 25 Employees’ Cost ...... 27 Operational Expenses ...... 28 Repairs and Maintenance expenses ...... 28 Power, Water and Fuel charges ...... 29 Safety & Security expenses...... 29 Vehicle running and maintenance expenses ...... 30 Housekeeping expenses ...... 30 Consumables expenses ...... 31

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Other operational expenses ...... 31 CUTE operating expenses ...... 32 Administration and General Cost ...... 32 Summary of Operations and Maintenance expenses ...... 33 9. Depreciation ...... 34 10. Tax on income ...... 36 11. Non-aeronautical revenues ...... 36 Non-aeronautical royalties, license fees and lease rentals ...... 37 Duty free revenue ...... 38 Utility service charges ...... 39 Interest Income ...... 39 Other Income ...... 39 12. Additional Issues ...... 40 Contingent liabilities ...... 40 Cargo tariff filing ...... 41 Fuel throughput royalty ...... 41 Ground handling royalty ...... 41 13. Aggregate Revenue Requirement ...... 41 14. Yield Calculation and escalation factor ...... 42 15. Conclusion ...... 43 16. Annexures ...... 43

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 List of Tables Table 1: Ownership structure of CIAL as on 30 November 2015 ...... 7 Table 2: Passenger Traffic at Cochin Airport (million pax) ...... 12 Table 3: Projected passenger traffic at Cochin International Airport (million) ...... 12 Table 4: Growth in Air Traffic Movements at Cochin Airport ...... 13 Table 5: Forecasted number of passengers per ATM at Cochin International Airport ...... 13 Table 6: Projected air traffic movement at Cochin International Airport ...... 13 Table 7: Growth in Domestic Air Cargo handled at Cochin Airport ...... 14 Table 8: Growth in International Air Cargo handled at Cochin Airport ...... 15 Table 9: Projected cargo traffic at Cochin International Airport (MT) ...... 15 Table 10: Total capital expenditure for new international terminal and related works ...... 16 Table 11: Capital expenditure for roads, runways and culverts ...... 17 Table 12: Major capital expenditure in the second control period ...... 19 Table 13: Estimated Capital expenditure under Single Till ...... 20 Table 14: Estimated Capital expenditure under Shared Till ...... 20 Table 15: Aeronautical and non-aeronautical assets allocation basis for existing assets ...... 21 Table 16: Aeronautical and non-aeronautical assets allocation basis for new assets ...... 22 Table 17: Aeronautical assets proportion- existing assets ...... 22 Table 18: Aeronautical assets proportion- new assets ...... 22 Table 19: Aeronautical assets proportion- total assets ...... 23 Table 20: Computation of RAB for the control period – Single Till ...... 23 Table 21: Computation of RAB for the control period – Shared Till ...... 23 Table 22: Debt and Cost of debt under Single Till ...... 24 Table 23: Debt and Cost of debt under Shared Till ...... 24 Table 24: Calculation of weighted average gearing – Single Till ...... 25 Table 25: Calculation of weighted average gearing – Shared Till...... 25 Table 26: FRoR computed under various scenario ...... 25 Table 27: Proportion of aeronautical expenses ...... 26 Table 28: Basis of segregation of O&M cost among aeronautical and non-aeronautical services ...... 27 Table 29: Historical CAGR for employees' cost ...... 27 Table 30: Employees’ cost considered under Single Till ...... 28 Table 31: Employees’ cost for Aeronautical services – Shared Till ...... 28 Table 32: Historical CAGR for Repairs & Maintenance expenditure ...... 28 Table 33: Repairs and maintenance expenses under Single Till ...... 28 Table 34: Repairs and maintenance expenses for Aeronautical services – Shared Till ...... 28 Table 35: Historical CAGR for power, water and fuel charges ...... 29 Table 36: Power, water and fuel charges under Single Till ...... 29 Table 37: Power, water and fuel charges for Aeronautical services – Shared Till ...... 29 Table 38: Historical CAGR for safety & security expenses ...... 29 Table 39: Safety & security expenses under Single Till ...... 30 Table 40: Safety & security expenses for Aeronautical service – Shared Till ...... 30 Table 41: Historical CAGR for vehicle running & maintenance expenditure ...... 30 Table 42: Vehicle running and maintenance expenses under Single Till ...... 30

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Table 43: Vehicle running and maintenance expenses for Aeronautical services – Shared Till ...... 30 Table 44: Historical CAGR for housekeeping expenses...... 30 Table 45: Housekeeping expenses under Single Till ...... 31 Table 46: Housekeeping expenses for Aeronautical services – Shared Till ...... 31 Table 47: Historical CAGR for consumables expenses ...... 31 Table 48: Consumables expenses under Single Till ...... 31 Table 49: Consumables expenses for Aeronautical services – Shared Till ...... 31 Table 50: Historical CAGR for other operational expenses ...... 31 Table 51: Other operational expenses under Single Till ...... 32 Table 52: Other operational expenses for Aeronautical services – Shared Till ...... 32 Table 53: CUTE operating expenses ...... 32 Table 54: Historical CAGR for administration expenses ...... 32 Table 55: Forecast basis for various components of administration expenses ...... 33 Table 56: Administrative and general expenses under Single Till ...... 33 Table 57: Administrative and general expenses for Aeronautical services under Shared Till ...... 33 Table 58: Summary of total O&M expenses under Single Till ...... 33 Table 59: Summary of total O&M expenses for Aeronautical services – Shared Till ...... 34 Table 60: Useful life for certain assets ...... 34 Table 61: Depreciation under Single Till ...... 35 Table 62: Depreciation under Shared Till ...... 35 Table 63: Tax on income under Single Till ...... 36 Table 64: Tax on income under Shared Till ...... 36 Table 65: Non aeronautical revenue forecast basis ...... 36 Table 66: Non-aeronautical royalties, licensee fees and lease rentals ...... 38 Table 67: Duty free revenues ...... 38 Table 68: Utility service charges ...... 39 Table 69: Interest income under Single Till ...... 39 Table 70: Interest income under Shared Till ...... 39 Table 71: Other income ...... 39 Table 72: Revenue forecast for golf course and other commercial activities ...... 40 Table 73: Total Non-aeronautical revenue forecast under Single Till...... 40 Table 74: Total Non-aeronautical revenue forecast under Shared Till ...... 40 Table 75: Aggregate Revenue Requirement under Single Till ...... 41 Table 76: Aggregate Revenue Requirement under Shared Till ...... 42 Table 77: ARR and estimated yield per pax for Single Till ...... 42 Table 78: ARR and estimated yield per pax for Shared Till ...... 42

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 1. Preamble Cochin International Airport (also referred as “Cochin airport” or “CIA”) is one of the major airports notified by Airports Economic Regulatory Authority of India (“AERA” or the “Authority”) under the provisions of the AERA Act 2008. Pursuant to AERA Act 2008, AERA issued guidelines for the purpose of determination of aeronautical tariffs for major airports through its orders1 (“Guidelines”) which are applicable to:

 Airport Operators  Service providers for cargo, ground handling, and supply of fuel Cochin International Airport Limited (CIAL) submitted Multi Year Tariff Proposal (MYTP) for the first control period from FY2011 to FY2016. Our earlier MYTP submission was made in two parts. The initial MYTP submission was made in 2011. With elapse of time, AERA had requested CIAL to update the MYTP submission made in 2011. CIAL submitted the updated MYTP and ATP in 2014, pursuant to carrying out consultations with airport users in February 2013, on the proposed new terminal development project. The revised MYTP was submitted along with the Project Investment File and AUCC report which were prepared in accordance with the provisions of the AERA Guidelines. CIAL is now submitting the MYTP for the second control period from FY2017 to FY2021. 2. Background Cochin International Airport is widely recognized as a low-cost functionally efficient airport. The airport was operationalized in 1999 and is considered as a pioneering project in India’s aviation sector. Passenger traffic grew from 0.2 million in FY 2000 to 6.4 million in FY 2015. In the past 5 years, traffic has grown at a compounded annual growth rate of 10.2%. Cochin International Airport is the busiest airport in Kerala and estimated to handle about 12.4 million passengers by FY 2021. A significant part of air traffic is driven by strong state-domiciled Non-Resident Indian (NRI) community residing in the Middle East and attractiveness of the state as an international and domestic tourist destination. Cochin International Airport is owned and managed by Cochin International Airport Limited (CIAL) which has a unique ownership structure involving equity contributions from Government of Kerala, financial institutions, and more than 16,000 individual investors who are mostly non- resident Keralites (NRKs). The airport is widely recognized as a low-cost functionally efficient airport in the country. The shareholding pattern of equity investors is shown in the table below –

1 Airports Economic Regulatory Authority of India “Terms and Conditions for Determination of Tariff for Airport Operators” – Guidelines, Feb 2011; Airports Economic Regulatory Authority of India (Terms and Conditions for Determination of Tariff for Services Provided for Cargo Facility, Ground Handling and Supply of Fuel to the Aircraft) Guidelines, January 2011 6

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Table 1: Ownership structure of CIAL as on 30 November 2015

Equity Partner % Share Government of Kerala 32.4% Directors, their relatives and associates 31.7% BPCL 3.4% National Aviation Company Limited 3.3% HUDCO 3.3% State Bank of Travancore 3.3% KSIDC, Plantation, KTDFC, KAMCO 1.7% Federal Bank Limited 2.0% Indian Overseas Bank 0.3% Others 18.7% Total 100%

Rights Issue In June 2015, CIAL raised about INR 382.6 crore through a rights issue to existing equity shareholders. About 765 lakh shares of INR 10 face value were offered at a premium of INR 40 per share (issue price of INR 50 per share) in the ratio of 1:4 to the shareholders for raising this amount. The objects of the Issue are as follow – 1. CIAL is expanding its terminal capacity by constructing a state-of-the-art 15 lakh square feet International Terminal building with an anticipated capital outlay of approximately INR 1000 crore, which will be met from internal accruals, proceeds from rights issue and debt finance. 2. The object of the issue is to part finance the construction cost of the new International Terminal Building, other ongoing projects and also for the future expansion & diversification projects of CIAL. The Government of Kerala has also subscribed to this rights issues and hence, it would need to be utilized towards the stated objective. The company is also bound to ensure adequate returns to its shareholders subscribing to the rights issue including the Government of Kerala. Pioneering low-cost airport CIAL has been successful in developing a low cost airport with a relatively low capital expenditure. This has been made possible through:

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21  Modular expansion philosophy  Award of multiple contracts competitively tendered as opposed to a single large turnkey contract  Simple and no-frills development model  Use of locally available materials  Prudent financial management The said modular approach has led to Cochin International Airport being one of the lowest cost airports among the major airports in India. The management of Cochin International Airport has focused on making the airport affordable by keeping a strict control on costs. Cochin International Airport was developed with a capital expenditure of approximately INR 300 crore, one of the lowest in the country among comparable airports with similar capacity. The entire land area of 1,275 acres was acquired at market value, which is unlike any other privately operated airport in India. In keeping with its philosophy of being cost efficient in airport development and operations, CIAL has been able to develop the airport with a comparatively smaller quantum of land as compared to other major airports. Any major future expansion would require additional land involving significant expenditure. It is to be noted that aeronautical tariffs at Cochin Airport have remained unchanged since 2001. The management has also stuck to its commitment to users to keep the aeronautical charges unchanged until the commissioning of the new international terminal. CIAL has clearly demonstrated that it is ahead of its peers in controlling capital costs, and delivering a functional, no-frills and operationally efficient airport. CIAL believes in efficient management of resources and expenses. The philosophy of effective cost management can be seen in Cochin International Airport’s operations as well. The operational expenditure per passenger is among the lowest at Cochin airport, despite it not having benefits of economies of scale as compared to other private airports in the country. Notwithstanding the low operational expenditure, CIAL has ensured high standards of customer service and planned development of infrastructure facilities in line with this objective. In August 2015, CIAL became the first airport in the world to be completely operated on solar power. The 12 MW solar power plant set up on the eastern side of the airport supplies upto 52,000 units per day against an estimated daily consumption of 48,000 per day currently. The solar plant consists of 46,150 photovoltaic panels spread over 45 acres of land. Two additional plants with aggregate capacity of 12.4 MW are planned to be set up and are expected to be operational within the next 12 months. The plant is also the first megawatt scale installation of a solar PV system in the State of Kerala. The power plant assets are owned and managed by CIAL’s subsidiary, CIAL Infrastructures Limited (CIL). CIAL has three wholly-owned subsidiary companies (i) Cochin International Aviation Services Limited (CIASL)

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 (ii) CIAL Infrastructures Limited (iii) Air Kerala International Services Limited

Cochin International Aviation Services Limited (CIASL) Cochin International Aviation Services Limited (CIASL) is a wholly owned subsidiary of Cochin International Airport Limited (CIAL), established in 2006 to create a world-class Maintenance Repair and Overhaul (MRO) facility in Cochin, India.

CIASL envisions developing this in to a full-fledged Aircraft Maintenance, Repair and Overhaul facility and is looking for a long-term association with reputed technical partners to provide high quality services at most competitive cost.

CIASL’s Aircraft Maintenance Organization is presently approved by the DGCA2 to undertake up to 'A' Checks on Airbus A 320 family aircraft. The AMO is also approved by UAE GCAA and Sri Lankan CAA and the approval from European Aviation Safety Agency (EASA) is under process.

Presently, line maintenance services of CIASL is confined to Cochin International Airport. The Company is proposing to expand its services to Trivandrum and Calicut International Airports very shortly.

CIASL’s clients include Etihad Airlines, Air Arabia, Sri Lankan Airlines, Emirates, Tiger Airways and Qatar Airways.

CIAL Infrastructures Limited (CIL)

CIAL Infrastructures Limited (CIL) was incorporated for venturing into power and other infrastructure projects. CIL has already commissioned a 13 MW solar power plant at the Airport premises. CIL has also taken steps to implement eight Small Hydro Electric Power (SHEP) Projects in different locations in the State aggregating to approximately 50 MW, which are in various stages of progress.

Air Kerala International Services Limited

Air Kerala International Services Limited (AKISL) was set up with the primary objective of establishing a low cost airline based at Cochin International Airport, to benefit the huge population of non-resident Keralites in the Middle East. The current policy restriction of Government of India, requiring Indian carriers to have a fleet of at least 20 aircraft and 5 years of operations in the domestic market has constrained AKISL from taking the initiative forward. The new draft civil aviation policy released in October 2015 has proposed easing of restrictions for Indian carriers to

2 Directorate General of Civil Aviation, Government of India 9

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 operate international operations by linking it to domestic flying credits. Once the policy is approved, AKISL will be able to take this initiative forward.

Need for an appropriate regulatory framework CIAL has incurred significant capital expenditure for expansion of the airport including construction of a new international terminal building. Additional capital expenditure is planned to be incurred during the forthcoming control period in line with the forecasted growth in traffic at the airport. While AERA’s Guidelines for tariff determination prescribe a single-till regulatory framework, it is our humble view that application of the single till tariff regulatory framework as per the Guidelines would penalize Cochin airport, albeit unintentionally, for being a low-cost, functionally efficient airport, which has kept aeronautical tariffs unchanged for a continuous period of nearly 15 years. Other private airports such as Delhi, Mumbai, Bangalore and Hyderabad are either regulated or have got favorable orders/decisions under a shared till framework. The Ministry of Civil Aviation (MoCA), Government of India has also released the draft National Civil Aviation Policy which indicates hybrid till framework with 30% cross-subsidy of aeronautical tariffs, as the way forward. We would, therefore, like to reiterate that the single-till approach is not the most appropriate for CIAL and request the Authority to consider Shared Till Regulatory approach as proposed in this MYTP in the right earnest, which does not compromise the ultimate intent of the purpose of regulation. This MYTP presents tariff calculations under Single Till and Shared Till regulatory approaches.

We would like to humbly submit to AERA to adopt Shared Till approach for Cochin International Airport for the next control period, by reiterating the reasons mentioned earlier: 1. Cochin airport operates in a highly competitive environment with the presence of multiple international airports, viz. Trivandrum Airport (230 km), Calicut Airport (160 km), proposed Kannur Airport (270 km), and Coimbatore Airport (170 km) in the vicinity. Competitive market dynamics and focus on growth would continue to ensure reasonable tariffs for airport users. 2. CIAL has demonstrated its commitment to keep air travel affordable, without compromising on timely capacity creation or service quality. With the new international terminal expected to be commissioned next year, airlines, passengers and other service providers at the airport will continue to enjoy the high quality of infrastructure and conveniences at the airport at affordable charges. 3. CIAL has been a pioneer in developing airport infrastructure in Kerala and actively strives to improve the air travel penetration in the region by keeping the tariffs affordable. CIAL’s commitment to promote the industry is evidenced by the fact that it has not increased

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 aeronautical tariffs since 2001 but has focused on increasing its non-aeronautical revenues and subsidizing aeronautical tariffs even before the setting up of AERA. 4. It is pertinent to mention that the Government of Kerala holds significant equity in CIAL (32%). The chairman of the board of directors is the Chief Minister of Kerala while the executive functions are headed by a senior IAS officer. Thus, on account of the government’s active involvement in the airport development and operations, safeguarding public interest would continue to remain a key priority for CIAL. 5. CIAL has been constantly engaging with its users and stakeholders at the airport in all operational and commercial matters. All commercial contracts with airlines and other service providers have been negotiated and finalized on a consensual basis, on terms and conditions that address the concerns and interests of either party. 6. Aeronautical charges at the airport could not have remained low without a conscious effort by the management to balance the interest of all stakeholders and voluntarily cross-subsidize airport charges from other aero-related income sources. This is a philosophy that has been consistently demonstrated by the CIAL management with support from the Government of Kerala and has stood the test of time. 7. However, we are constrained to seek an increase in tariffs because of the substantial capital expenditure being incurred towards the new international terminal and other modernization and capacity enhancement works. 8. We have already completed a formal user consultation process with the AUCC in February 2013 on the new terminal development project and the estimated capital expenditure. Assets and expenses pertaining to cargo operations have been included as part of this MYTP for the purposes of aeronautical tariff determination, since cargo assets and operations currently are currently managed by CIAL.

3. Traffic Passenger Traffic Domestic and international passenger traffic has shown a consistent growth since FY 2007 except for FY 2009, when air traffic demand was impacted by the global financial crisis. Historical growth in domestic traffic has been driven by a period of sustained increase in per capita incomes, low air fares, active promotion of Kerala’s tourism industry and increasing business travel given Kochi’s importance as a business center in Kerala. Growth in international traffic at Kerala has been primarily driven by NRKs and tourists.

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 In FY 2015, Cochin airport was the seventh largest Indian airport in terms of passengers handled. Passenger traffic has grown at a CAGR of 10.2% for FY 2010-FY 2015. The airport is only behind Delhi, Mumbai and Chennai by international traffic volumes. International passenger traffic at Cochin International Airport has increased significantly in FY 2016. During the first half of FY 2016 (April – September), the total passenger traffic has increased to 3.8 million as compared to 3.1 million during the previous year. Passenger traffic during the full year FY 2016 is expected to reach 7.9 million. This sudden increase in traffic is as a result of diversion of traffic from Kozhikode Airport which has been partially closed for renovation. We expect this increase in traffic, due to diversion from Kozhikode Airport, to be a short-term phenomenon, and have excluded this increase in our traffic projections for the control period Table 2: Passenger Traffic at Cochin Airport (million pax)

2011 2012 2013 2014 2015 2016 (estimated) CAGR Domestic 1.99 2.14 1.97 2.11 2.66 3.23 10.2% 4.11 1 International 2.36 2.59 2.93 3.27 3.74 11.7%1 4.642 7.341 Total 4.35 4.73 4.90 5.39 6.40 11.0%1 7.872 1. Excluding Kozhikode airport diversions 2. Including Kozhikode airport diversions Passenger traffic is estimated to reach 12.4 million by FY2021. This forecast is based on a growth rate of 10.2% per annum for domestic passenger and growth rate of 11.7% for international passenger after adjusting for diversions from Kozhikode. Passenger traffic for FY 2016 is forecasted based on extrapolation of the half year traffic numbers after accounting for traffic diversion from Kozhikode. Traffic projections for FY 2017 onwards is based on historical Compounded Annual Growth Rate (CAGR) for domestic and international traffic. The international traffic during first half of FY 2017 has been adjusted to account for diversion from Kozhikode as it is expected that the phenomena will continue during the first half of FY 2017 as well. Table 3: Projected passenger traffic at Cochin International Airport (million)

2016 2017 2018 2019 2020 2021 CAGR Domestic 3.23 3.56 3.92 4.32 4.76 5.25 10.2% International 4.64 4.85 5.13 5.73 6.40 7.15 11.7%1 Total 7.87 8.41 9.05 10.05 11.16 12.39 11.0%1 1. Excluding Kozhikode diversions Air Traffic Movements Domestic ATMs at Cochin International Airport have increased from 23,476 in 2010 to 26,823 in 2015 while international ATMs at the airport have increased from 18,068 movements in 2010 to 25,970 movements in 2015. The ATMs during this period is shown below.

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Table 4: Growth in Air Traffic Movements at Cochin Airport

2010 2011 2012 2013 2014 2015 CAGR Domestic 23,476 22,600 22,817 21,252 24,082 26,823 2.7% International 18,068 18,481 18,324 20,286 23,134 25,970 7.5% Total 41,544 41,081 41,141 41,538 47,216 52,793 4.9%

ATMs at Cochin International Airport has increased significantly in FY 2016. During the first half of FY 2016 (April - September), the total air traffic movements have increased to 28,334 as compared to 25,990 during the first half of previous year. ATM traffic during the full year FY 2016 is expected to reach 58,795. This sudden increase in air traffic movements is partially as a result of diversion of traffic from Kozhikode Airport which has been partially closed for renovation. We expect this increase in traffic, due to diversion from Kozhikode Airport, to be a short-term phenomenon, and have excluded this increase in our traffic projections. ATMs at Cochin International Airport have been forecasted using the forecasts for passenger traffic (as detailed in the previous section) and forecast of Pax per ATM for domestic and international airports. Pax/ ATM at Cochin International Airport presently for domestic operations is 111.3 and for international operations in 155.5. We expect the Pax/ ATM at Cochin International Airport to increase to 120.3 for domestic operations and to 163.1 for international operations by FY2021. These estimates of Pax/ ATM have been benchmarked to comparable airports at Bengaluru and Hyderabad. The passengers per ATM estimated for the next 5 years at Cochin International Airport is as follows – Table 5: Forecasted number of passengers per ATM at Cochin International Airport

FY Domestic International Passengers/ATM Passengers/ATM 2016 111.3 155.5 2017 113.1 157.0 2018 114.9 158.5 2019 116.7 160.0 2020 118.5 161.5 2021 120.3 163.1

Based on number of passengers per ATM and forecasted traffic numbers, the CAGR over FY 2016 to FY 2021 for domestic ATMs is 8.5% and for international ATMs is 9.2% (after adjusting for diversions from Kozhikode). The projected ATMs at Cochin International Airport for the control period is shown below. Table 6: Projected air traffic movement at Cochin International Airport

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 2016 2017 2018 2019 2020 2021 CAGR Domestic 29,011 31,461 34,126 37,027 40,184 43,620 8.5% International 29,784 30,896 32,336 35,781 39,598 43,825 8.0% Total 58,795 62,356 66,462 72,808 79,782 87,445 8.3%

The growth in air-traffic and ATMs would require Cochin International Airport to invest in a secondary runway in the medium to long term. As a low-cost airport operating without government subsidy or land, Cochin International Airport requires sufficient funds to finance the acquisition of land and development of secondary-runway. Cochin International Airport needs to plan in advance for this expansion given the challenges around land acquisition and financing. Air Cargo Cochin International Airport handles international and domestic cargo including perishables, valuables and general cargo. Air cargo traffic has increased from 5,951 Metric Tons (MT) in FY 2002 to 64,940 MT in FY 2015. In the past 5 years, cargo traffic at Cochin International Airport has grown at a CAGR of 9.4%. Cargo traffic is dominated by exports to Middle East and Europe. Out of the 64,940 MT of cargo handled in FY 2015, approximately 54,633 MT was Export-Import (EXIM) cargo. Air cargo handled at Cochin airport has grown from 41,394 MT to 64,940 MT during FY 2010 – FY 2015. Table 7: Growth in Domestic Air Cargo handled at Cochin Airport

MT 2011 2012 2013 2014 2015 2016 CAGR Outbound 1,921 2,205 2,162 2,150 2,630 2,693 7.0% Inbound 5,018 5,099 5,196 5,825 7,677 8,346 10.7% Total Domestic 6,939 7,303 7,358 7,975 10,307 11,039 9.7%

Domestic outbound cargo has been forecasted to grow at a CAGR of 7.0% per annum over base year FY2016 based on historical CAGR of FY2011 to FY2016. Domestic inbound cargo has been forecasted to grow at a CAGR of 10.7% per annum over base year FY2016 based on historical CAGR from FY2011 to FY2016. Total domestic cargo is expected to reach to 17,658 MT by FY 2021. Cargo traffic at Cochin International Airport has increased significantly in FY 2016. During the first half of FY 2016 (April - September), the cargo traffic has increased to 38,932 MT as compared to 34,137 MT during the first half of previous year. Cargo traffic during the full year FY 2016 is expected to reach 76,876 MT. This sudden increase in cargo traffic, specifically export cargo, is as a result of diversion of traffic from Kozhikode Airport which has been partially closed for renovation. We expect this increase in traffic, due to diversion from Kozhikode Airport, to be a short-term phenomenon, and have excluded this increase in our export cargo traffic projections.

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Additionally, import cargo traffic at Cochin International Airport has fallen from 12,239 MT in FY 2015 to 4,209 MT (estimated) in FY 2016 due to restrictions imposed on import cargo and couriers. It is expected that such restrictions would continue and as a result, import cargo would remain at a lower level as compared to historical levels. Growth in international cargo is based on the historical CAGR for the period FY2010 – FY2015 as international cargo in FY2016 has increased due to diversions from Kozhikode. Export cargo has been forecasted to grow at a rate of 10.6% per annum while import cargo has been forecasted to grow at a CAGR of 4.4% per annum. The total international cargo is expected to reach to 82,775 MT by FY2021. Table 8: Growth in International Air Cargo handled at Cochin Airport

MT 2010 2011 2012 2013 2014 2015 2016 CAGR1 Export 25,628 24,867 26,183 28,818 33,277 42,394 61,628 10.6% Import 9,872 9,286 9,358 10,355 13,189 12,239 4,209 4.4% Total International 35,500 34,154 35,541 39,172 46,465 54,633 65,837 9.0% 1. From FY2010 – FY2015 due to sudden change in FY2016 as a result of diversions from Kozhikode and restrictions on import cargo Total cargo at Cochin International Airport is expected to reach to 100,433 MT by 2021. Table 9: Projected cargo traffic at Cochin International Airport (MT)

2016 2017 2018 2019 2020 2021 CAGR Domestic Departure 2,693 2,881 3,082 3,297 3,528 3,774 7.0% Arrival 8,346 9,241 10,231 11,327 12,540 13,884 10.7% Total Domestic 11,039 12,122 13,312 14,624 16,068 17,658 9.9% International Export 61,628 51,849 57,341 63,413 70,129 77,557 10.6%1 Import 4,209 4,394 4,587 4,789 4,999 5,219 4.4% Total International 65,837 56,244 61,928 68,202 75,128 82,775 7.2%1 Total 76,876 68,365 75,240 82,826 91,196 100,433 7.5%1 1. CAGR is calculated over a base year FY 2015

4. Capital expenditure Traffic at Cochin International Airport has increased beyond a level supported by existing infrastructure. In order to handle increased traffic at the airport, CIAL is developing a new international terminal and has also planned for additional capacity expansion. Need for the new International terminal and modification of existing terminals The existing domestic terminal at Cochin International Airport was constructed in 1999 and has a design capacity of 800 peak hour passengers (400 embarking and 400 disembarking passengers). The international terminal has a maximum peak hour handling capacity of 2,400 passenger

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 movements. Currently the peak hour throughput at Cochin International Airport is more than 1,000 passenger movements for domestic operations. The domestic terminal at Cochin Airport is significantly congested in terms of available area per peak hour passenger when compared to other major airport terminals in India. In order to address the capacity constraint at the domestic terminal as well as cater to future growth in international traffic, CIAL is under process of developing a new international terminal at the airport. The construction of the new terminal is underway and is expected to be commissioned in FY 2016-17. The existing international terminal would thereafter be converted to a domestic terminal, thus enhancing both the domestic and international passenger handling capacity at the airport. Post expansion, the peak hour passenger handling capacity of the airport is expected to increase to 3,200 passenger movements for domestic operations and 4,000 passenger movements for international operations. The estimated cost of developing the new international terminal at CIA has been benchmarked with similar airport projects undertaken in India in the last five years. The estimated cost for development at Cochin Airport is observed to be among the lowest as compared to other airport expansion/ development projects. CIAL has conducted consultations with the Airport Users Consultative Committee (AUCC) on the proposed project as per guidelines of AERA and the report has been duly forwarded to AERA and thereafter the construction of new terminal was commenced on 1st February 2014. The total capital expenditure envisaged for the new terminal development is INR 1101.3 Cr (including related infrastructure and costs already incurred in FY15 which amounts to INR 195.6 Cr). Capital expenditure on modification of existing terminals is estimated at INR 54.7. CIAL has maintained strict control on capital expenditure for the terminal. The capital expenditure of the new terminal is the lowest among comparable airports in the country. Table 10: Total capital expenditure for new international terminal and related works

Particulars FY 15 WIP 2016 2017 2018 2019 2020 2021 Buildings & Civil Works 169.8 299.9 58.0 0.0 0.0 0.0 0.0 Runway, Roads and 16.7 130.0 32.2 0.0 0.0 0.0 0.0 Culverts Plant and Equipment 6.0 205.4 124.2 18.1 18.5 0.3 0.3 Computers and 3.0 13.5 4.3 0.0 0.0 0.0 0.0 Accessories Office Equipment 0.0 0.0 1.1 0.0 0.0 0.0 0.0 Total 195.6 648.8 219.8 18.1 18.5 0.3 0.3

Parking bays, runway, taxiways and roads In line with airport expansion and new terminal development, the corresponding air-side infrastructure is being augmented to support increased traffic at Cochin International Airport. The major projects during FY2017 – 21 include development of approach roads, railway over bridge,

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 ring road, flood control measures, 0-9 CAT approach, service road, parking bays reconfiguration works, runway re-carpeting & code F correction, rapid exit & vertical link and construction of additional parking bays. The total capital expenditure on parking bays, taxiways, runway and roads is estimated at INR 508.1 Cr from FY2016 to FY2021. Table 11: Capital expenditure for roads, runways and culverts

Particulars 2016 2017 2018 2019 2020 2021 Construction of Approach road 31.8 22.2 0.0 0.0 0.0 0.0 Construction of ROB 8.2 5.8 0.0 0.0 0.0 0.0 Service road 0.0 8.6 7.8 0.0 0.0 0.0 0-9 ILS 0.0 7.5 0.0 0.0 0.0 0.0 Ring road, Chengal Thodu bridge 0.0 5.4 0.0 0.0 0.0 0.0 Ring road phase II 0.0 0.0 0.0 5.8 0.0 0.0 Flood Control Measures 0.0 0.0 4.4 0.0 0.0 0.0 Reconfiguration works of bay 1,2,3 0.0 0.0 0.0 40.3 0.0 0.0 Recarpeting and Code F Correction 0.0 0.0 0.0 111.7 89.5 0.0 Rapid Exit & Vertical Link 0.0 0.0 16.7 17.3 0.0 0.0 Construction of parking bays phase II 0.0 0.0 0.0 0.0 25.1 100.1 Total 40.0 49.41 28.9 175.1 114.6 100.1 1. Difference is due to rounding off Cargo Facilities Total cargo at Cochin International Airport is expected to reach to 100,433 MT by 2021. A new integrated export warehouse is planned to process export cargo which would expedite cargo handling and increase efficiency. CIAL is also planning investments in automation of the new integrated export warehouse. New integrated export warehouse will have following facilities - handling area of 15,000 Sq m, truck docks with dock levelers, parking area, work stations with ULD weighing arrangement, ULD Racking system with ETV to store loaded ULDs, DG handling room for storage and Handling, Radio Active room which will be certified by BARC, Staff Rooms and Document Storage Area, Information Centre, TSP counters, strong room, customs, PQ and CIAL offices. The total capital expenditure for new integrated export warehouse is estimated at INR 68 cr and on automation of export warehouse is INR 57 cr. Other cargo related capital expenditure is estimated at INR 6 Cr. IT Systems At Cochin International Airport, till FY2016, SITA was the service provider for CUTE related services. CUTE, CUSS, BRS Systems have reached End-of-Life as well as End-of Support and have to be replaced with new systems (hardware and software application) in line with the technology trends and hence required additional capital expenditure. Under a revised business

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 model CIAL has decided to incur capital expenditure and handle CUTE operations at Cochin International Airport. CUTE, CUSS and BRS CIAL had so far outsourced the activities of Common User Terminal facilities (CUTE), Baggage Reconciliation Service (BRS) and Common User Self Services (CUSS) to M/s SITA, which pays a royalty of USD .41 per departing passenger to CIAL. M/s SITA has agreements with all airlines for rendering these service at a rate of USD 1.25 per departing passenger. The current contract between CIAL and M/s SITA will expire on 31.12.2015. CIAL proposes to render CUTE, CUSS and BRS directly to airlines with effect from 01-01-2016. The capital and operating expenditure for provision of these services will be incurred by CIAL. M/s SITA has been awarded the contract through a competitive tendering process for supply, installation and commissioning of the hardware, software and equipment for remote connectivity services. M/s SITA will also provide operations and maintenance of the CUTE, CUSS and BRS facilities. (Copy of agreement 26-06-2015 marked in Annexure 2) CIAL will enter into agreements with various airlines for providing CUTE, CUSS and BRS services from 01-01-2016. A draft agreement has been shared with various airlines.

The total capital expenditure envisaged for CUTE services provisioning is INR 27 Cr. Other IT systems related capital expenditure includes computers, servers, hardware, software, renovation of existing international terminal IT infrastructure, E-Gate, Data center revamping, replacement of existing FIDS and PAS, Parking management system, networking systems and replacement of arrival conveyor. The total IT systems capital expenditure including CUTE from FY 2016 to FY 2021 is estimated at INR 96 Cr. CISF residential building CISF has requested for development of residential building for staff working at Cochin International Airport. The total capital expenditure for CISF residential building is estimated at around INR 74 Cr. Other Capital Projects Capital expenditure on family entertainment center is estimated at INR 282 Cr and capital expenditure for commercial complex is estimated at INR 41 Cr. The maintenance capital expenditure for the second control period is estimated at INR 207 Cr. Other capital projects at Cochin International Airport during FY2016 – 21 include ground handling equipment, alternate water source for airport, office building for regulatory agency, ground support building, GSE building, furniture, office equipment and commercial buildings. The total capital expenditure on these projects is estimated at INR 389 Cr from FY 2016 to FY 2021.

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Financing of the new international terminal Altogether 37 work packages are awarded towards this project. So far project works amounting INR 345 crore (as on 17.11.2015) is completed and the balance will works/packages are expected to be completed within the schedule completion date of May 2016. The total value of packages so awarded for new international terminal is 762 crore and apart from that other allied infrastructure development for new terminal such as elevated road, new road, ulility, Apron, Car park etc are also awarded for an amount of INR 280 crore. CIAL has entered into an agreement with M/s Federal Bank for a term loan of INR 500 crore at a floating rate equivalent to the Bank’s Base Rate. The current Base Rate of Federal bank 9.95%. The moratorium period as per the loan agreement is three (3) years from the date of the first disbursement of the loan, which is March 2015. The repayment of the loan will be made in forty (40) equal quarterly instalments commencing from January 2018. The details are given in the loan agreement attached in Annexure 1. As on date, CIAL has availed INR 146.56 crore of debt from this term loan facility towards capital expenditure for the new international terminal. Remaining capital expenditure related to new international terminal to be financed through rights issues and internal accruals. Summary of total capital expenditure Capital expenditure on aeronautical assets has been considered under the shared till approach. The maintenance capital expenditure to be incurred for the maintenance and enhancement works is apportioned to various assets heads (Buildings & civil works, Runway, roads and culverts, plant & Equipment, office equipment, furniture and fixtures, vehicles and intangible assets based on the gross block ratio. Capital expenditure for the second control period Total Capital Expenditure planned for the next control period (FY2017 – 21) is around 1954 cr. Major capital expenditure projects planned/ underway at Cochin International Airport are –

 New terminal for international operations  Modification of existing terminals  Parking bays, runway, taxiways and roads  Planning for Secondary runway  Cargo facilities  IT Systems  CISF Residential Building  Other capital projects Table 12: Major capital expenditure in the second control period

2017 2018 2019 2020 2021 Total New International 219.8 18.1 18.5 0.3 0.3 257.0 Terminal

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 2017 2018 2019 2020 2021 Total Modification of 54.7 0.0 0.0 0.0 0.0 54.7 existing terminals Parking bays, runway, 49.4 28.9 175.1 114.6 100.1 468.1 taxiways and roads Cargo Facilities 0.3 47.0 84.1 0.0 0.0 131.3 IT Systems 30.3 8.3 13.2 13.7 1.9 67.4 CISF Residential 0.0 0.0 0.0 0.0 74.4 74.4 Building Other Capital Projects 124.8 124.8 36.8 188.0 219.8 694.2 Maintenance Capital 0.0 0.0 0.0 95.5 111.3 206.8 expenditure Total 479.2 227.2 327.8 412.0 507.8 1954.0

The capital expenditure on ongoing-projects in FY 2016 is around INR 735 Cr. The estimated year-wise capital expenditure under single till and shared till for FY2017 – 21 has been set out in the following tables – Table 13: Estimated Capital expenditure under Single Till

Particulars 2017 2018 2019 2020 2021 Buildings & Civil Works 139.3 89.0 58.3 119.3 169.6 Golf Course Development 0.0 0.0 0.0 0.0 0.0 Runway, Roads and Culverts 76.2 28.9 138.2 113.4 98.9 Plant and Equipment 202.3 93.3 122.5 79.2 117.7 Office Equipment 13.1 0.7 0.8 0.8 0.9 Computers and Accessories 38.3 11.9 5.4 1.3 5.3 Furniture and Fixtures 6.7 1.1 1.2 1.3 1.4 Vehicles 1.8 1.1 0.6 0.4 1.2 Intangible assets 1.4 1.2 0.8 0.9 1.5 Maintenance capital 0.0 0.0 0.0 95.5 111.3 expenditure Total Capital expenditure 479.2 227.2 327.8 412.0 507.8 1. Small differences due to rounding off Table 14: Estimated Capital expenditure under Shared Till

Particulars 2017 2018 2019 2020 2021 Buildings & Civil Works 97.8 57.8 58.3 0.0 64.5 Golf Course Development 0.0 0.0 0.0 0.0 0.0 Runway, Roads and Culverts 76.2 28.9 138.2 113.4 98.9 Plant and Equipment 193.4 86.8 122.2 58.2 79.9 Office Equipment 12.1 0.3 0.3 0.3 0.3 Computers and Accessories 37.5 11.2 5.3 1.2 5.3 Furniture and Fixtures 6.4 1.0 1.1 1.2 1.2 Vehicles 1.8 1.1 0.6 0.4 1.2

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Particulars 2017 2018 2019 2020 2021 Intangible assets 1.3 0.7 0.6 0.7 1.4 Maintenance capital 0.0 0.0 0.0 95.5 111.3 expenditure Total Capital expenditure 426.5 187.9 326.6 270.9 364.0

5. Allocation of Fixed Assets The definition of RAB in the AERA Guidelines 2011 does not require segregation of assets into aeronautical and non-aeronautical assets for the single till scenario. However, for shared till, segregation of aeronautical and non- aeronautical assets has been done. Table 15: Aeronautical and non-aeronautical assets allocation basis for existing assets

Existing Assets Basis for segregation Existing land as on FY 2015 has been segregated based on the land Land usage by aeronautical and non-aeronautical activities. The land utilization details have been mentioned in Annexure 3. Existing buildings & civil works assets as on FY 2015 have been firstly divided into terminal buildings and non-terminal buildings. Terminal building assets have been apportioned based on aeronautical and non- Buildings and civil works aeronautical area in the existing terminals. For buildings outside terminals, actual aeronautical & non-aeronautical classification has been done for each assets. Golf course development assets as on FY 2015 have been considered Golf course development as non-aeronautical assets. Runway, roads and Existing runway, roads and culverts as on FY 2015 have been culverts considered as aeronautical assets. Existing plant and equipment assets as on FY 2015 have been Plant and equipment segregated based on aeronautical and non-aeronautical area in the existing terminals. Existing office equipment assets as on FY 2015 have been segregated Office equipment based on aeronautical and non-aeronautical area in the existing terminals. Existing computers and accessories assets as on FY 2015 have been Computers and segregated based on aeronautical and non-aeronautical area in the accessories existing terminals. Existing furniture and fixtures assets as on FY 2015 have been Furniture and fixtures segregated based on aeronautical and non-aeronautical area in the existing terminals. Existing vehicles as on FY 2015 have been segregated based on Vehicles aeronautical and non-aeronautical area in the existing terminals. Existing intangible assets as on FY 2015 have been segregated based Intangible assets on aeronautical and non-aeronautical area in the existing terminals.

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Table 16: Aeronautical and non-aeronautical assets allocation basis for new assets New Assets Basis for segregation New international terminal assets (Buildings & civil work, runway, roads & culverts, plant & equipment, office equipment, computers New International Terminal & accessories, furniture & fixtures, vehicles and intangible assets) have been apportioned based on average aeronautical and non- aeronautical area in the new international terminal. Actual asset wise aeronautical and non-aeronautical classification has been carried out for assets other than new international terminal Other than new international (Buildings & civil work, runway, roads & culverts, plant & terminal assets equipment, office equipment, computers & accessories, furniture & fixtures, vehicles and intangible assets).

Table 17: Aeronautical assets proportion- existing assets

Existing Assets as on FY 2015 Amount Aeronautical Non-aeronautical Land 125.0 89.1% 10.9% Buildings & Civil Works 176.8 76.0% 24.0% Golf Course Development 26.6 0.0% 100.0% Runway, Roads and Culverts 213.9 100.0% 0.0% Plant and Equipment 161.6 92.4% 7.6% Office Equipment 0.5 92.4% 7.6% Computers and Accessories 6.1 92.4% 7.6% Furniture and Fixtures 6.2 92.4% 7.6% Vehicles 6.3 92.4% 7.6% Intangible assets 9.2 92.4% 7.6% Total Gross Block 732.1 86.7% 13.3%

Table 18: Aeronautical assets proportion- new assets

New Assets capitalized from FY 2016 Amount Aeronautical Non-aeronautical to FY 2021 Land 0.0 0.0% 0.0% Buildings & Civil Works 1073.6 67.1% 32.9% Golf Course Development 0.0 0.0% 0.0% Runway, Roads and Culverts 704.5 100.0% 0.0% Plant and Equipment 885.5 89.4% 10.6% Office Equipment 18.3 80.4% 19.6% Computers and Accessories 111.5 97.5% 2.5% Furniture and Fixtures 13.7 93.1% 6.9% Vehicles 6.6 100.0% 0.0% Intangible assets 8.0 85.8% 14.2% Total Capitalization 2821.8 83.8% 16.2%

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Table 19: Aeronautical assets proportion- total assets

Total assets as on FY 2021 Amount Aeronautical Non-aeronautical Land 125.0 89.1% 10.9% Buildings & Civil Works 1250.4 68.3% 31.7% Golf Course Development 26.6 0.0% 100.0% Runway, Roads and Culverts 918.5 100.0% 0.0% Plant and Equipment 1047.0 89.9% 10.1% Office Equipment 18.9 80.8% 19.2% Computers and Accessories 117.6 97.2% 2.8% Furniture and Fixtures 19.9 92.9% 7.1% Vehicles 13.0 96.3% 3.7% Intangible assets 17.2 89.4% 10.6% Total Capitalization 3553.9 84.4% 15.6%

6. Regulatory Asset Base (RAB) for the Control Period Estimated closing book value of net block for FY 2016 forms the opening RAB for the first year of the control period i.e. FY 2017. The assets capitalized during the year have been added to the opening RAB and adjusted for depreciation charged during the year to arrive at closing value of RAB. Average of opening and closing RAB has been considered for computation of tariffs. The details of RAB for the control period are as follows: Table 20: Computation of RAB for the control period – Single Till

INR crore FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Opening RAB 437.9 1846.2 1889.6 2059.1 2272.6 Less: Depreciation during year 78.1 128.1 141.9 156.7 172.1 Add: Capitalization during the year 1486.4 171.4 311.4 370.2 614.5 Sales/transfer 0 0 0 0 0 Closing RAB 1846.2 1889.6 2059.1 2272.6 2714.9 Average RAB 1142.1 1867.9 1974.3 2165.8 2493.8

Table 21: Computation of RAB for the control period – Shared Till

INR crore FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Opening RAB 366.9 1518.4 1549.0 1684.3 1887.4 Less: Depreciation during year 69.1 114.4 126.9 140.5 155.0 Add: Capitalization during the year 1220.6 145.0 262.2 343.6 505.4 Sales/transfer 0 0 0 0 0 Closing RAB 1518.4 1549.0 1684.3 1887.4 2237.8 Average RAB 942.7 1533.7 1616.6 1785.9 2062.6

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

7. Fair Rate of Return (FRoR) Fair Rate of Return (FRoR) has been calculated as per Tariff Guidelines. The computation of FRoR has been done as below

FRoR = g*Rd + (1-g)*Re Where: g = Weighted Average Gearing for the control period

Rd = Weighted Average Pre-Tax Cost of Debt for the control period T= Corporate Tax Rate

Re = Post-Tax Cost of Equity. Debt To fund the capital expenditure in the second control period, CIAL is raising debt year on year from the banks. The weighted average cost of debt (Rd) for the control period is 9.95%, computed from the outstanding debt and yearly average cost of debt as given below: Table 22: Debt and Cost of debt under Single Till

Particulars FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Outstanding debt (INR crore) 547.7 586.5 705.3 868.1 1074.6 Cost of Debt - % 9.95% 9.95% 9.95% 9.95% 9.95%

Table 23: Debt and Cost of debt under Shared Till

Particulars FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Outstanding debt (INR crore) 513.9 513.9 588.4 692.2 828.2 Cost of Debt - % 9.95% 9.95% 9.95% 9.95% 9.95%

Equity Cost of equity for CIAL has been considered to be 16% as is considered by AERA for other major airports. AERA is requested to consider higher cost of equity in case of CIAL because of following reasons: a. During the initial years, the returns to CIAL’s investors have not matched the expected RoE because of perpetual low tariffs that have benefited the users b. CIAL will also need to acquire additional land and fund the same which is not provided for under the guidelines for tariff determination. Cochin International Airport needs to plan in advance for the airport expansion given the challenges around land acquisition and financing. It is requested that at least 20% Cost of Equity must be considered in case of CIAL.

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Weighted average gearing Capital Expenditure during the second control period would be financed through existing cash with CIAL, funds generated through business operations and fresh debt. Weighted average gearing as calculated below is 35.0% (Single Till), and 28.8% (Shared Till). Future capital expenditure is expected to be funded through debt given the challenge for CIAL to raise fresh equity due to large number of shareholders. Table 24: Calculation of weighted average gearing – Single Till

Particulars FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Debt 547.7 586.5 705.3 868.1 1074.6 Equity Share Capital 688.6 688.6 688.6 688.6 688.6 Reserves and Surplus 538.3 605.0 690.6 802.1 946.5 Total 1774.7 1880.2 2084.6 2358.9 2709.6 Gearing 30.9% 31.2% 33.8% 36.8% 39.7% Weighted average gearing 35.0%

Table 25: Calculation of weighted average gearing – Shared Till

Particulars FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Debt 513.9 513.9 588.4 692.2 828.2 Equity Share Capital 688.6 688.6 688.6 688.6 688.6 Reserves and Surplus 581.3 693.8 819.3 991.4 1208.2 Total 1783.8 1896.3 2096.3 2372.2 2725.0 Gearing 28.8% 27.1% 28.1% 29.2% 30.4% Weighted average gearing 28.8%

Fair Rate of Return (FRoR) The Fair Rate of Return for the control period is estimated at 13.9% (single till) and at 14.3% (shared till) as shown in the following table. Table 26: FRoR computed under various scenario

Particulars Single till Shared till Weighted average cost of debt 9.95% 9.95% Cost of Equity 16.0% 16.0% Weighted average gearing 35.0% 28.8% FRoR 13.9% 14.3%

8. Operations and Maintenance Cost CIAL has been cost effective in managing the airport. Its operational expenditure per passenger is relatively lower as compared to some other major airports. Notwithstanding the low operational

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 expenditure, CIAL has always ensured that customer service is always of high standards and has planned airport development in line with this objective. As a no-frills airport, Cochin International Airport has maintained consistent levels of service quality. The Operation and Maintenance (O&M) cost mainly consists of the employee costs, repairs & maintenance cost, utilities costs, other operational expenditure costs, administration and general costs. Actual half year figures for FY2016 has been used to forecast the Operations and maintenance cost for the second control period (FY 2017 to FY 2021). While estimating future operations and maintenance costs, the relevant costs drivers such as inflation, increase in terminal area, increase in manpower and increased passenger traffic have been taken into account. In the single till, since all the assets are part of the RAB, entire O&M cost is considered while calculating ARR. However, in case of shared till, O&M cost has been apportioned towards aeronautical and non-aeronautical categories based on the cost incidence. The proportion of aeronautical O&M expenses for the period FY 2016-17 to FY 2020-21 is presented in table below – Table 27: Proportion of aeronautical expenses

2017 2018 2019 2020 2021 Operational Expenses Total Repairs Costs 86.1% 86.1% 86.1% 86.1% 86.1% Safety & Security expenses 96.1% 96.1% 96.1% 96.1% 96.1% Power Charges 97.7% 97.7% 97.7% 97.7% 97.7% Water Charges 97.7% 97.7% 97.7% 97.7% 97.7% Fuel Generator Sets 97.7% 97.7% 97.7% 97.7% 97.7% Vehicle R&M expenses 96.1% 96.1% 96.1% 96.1% 96.1% House Keeping expenses 96.1% 96.1% 96.1% 96.1% 96.1% Consumables 96.1% 96.1% 96.1% 96.1% 96.1% Other operational expenses 96.1% 96.1% 96.1% 96.1% 96.1% CUTE operational expenses 100.0% 100.0% 100.0% 100.0% 100.0% Total Operational expenses 94.7% 94.8% 94.6% 94.3% 94.1% Payment to employees 96.1% 96.1% 96.1% 96.1% 96.1% Admin Expenses 96.1% 96.1% 96.1% 96.1% 96.1%

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 The basis of segregation of O&M expenditure into aeronautical and non-aeronautical is given in the table below: Table 28: Basis of segregation of O&M cost among aeronautical and non-aeronautical services

O&M expense head Basis for segregation of O&M cost Total employee cost has been segregated into aeronautical and non- aeronautical in the proportion of number of employee providing Employee cost aeronautical and non-aeronautical services. Employees working in commercial department, duty free department and golf course have been considered as employees providing non-aeronautical services. Administration and Segregated into aeronautical and non-aeronautical in the proportion of General costs number of employee providing aeronautical and non-aeronautical services. Power, water and fuel charges have been prorated in the proportion of Utilities Costs actual usage by aeronautical activities and non-aeronautical activities Repair and maintenance costs have been prorated in the proportion of gross Repair and block for aeronautical and non-aeronautical assets for buildings, runway, maintenance costs roads & culverts and plant & equipment. These expenses pertain to safety & security expenses, vehicle operations & maintenance, housekeeping expenses, consumables and other Other operational miscellaneous expenses. Expenses have been segregated in the proportion expenses of number of employee providing aeronautical and non-aeronautical services. CUTE operational expenses incurred are considered to be aeronautical CUTE expenses expenses.

WPI, for the purposes of escalation, has been assumed to be 3.6% per annum as per as RBI's “Results of the Survey of Professional Forecasters on Macroeconomic Indicators” – 36th Round (Q2:2015-16). USD to INR exchange rate has been considered as an average rate exchange rate for August 2015 as per RBI data. The detailed assumptions and rationale for each element of O&M cost is described below: Employees’ Cost Employees’ cost constituted approximately 26.75 % of total O&M costs in FY 2015 The cost incurred towards employees in a year is determined by the headcount and the average compensation per employee. Historically, the CAGR for employees’ cost is shown below: Table 29: Historical CAGR for employees' cost

FY15 (INR Cr) CAGR (2010-2015) CAGR (2005-2015) Total employee cost 54.7 9.9% 24.8%

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Average compensation per employee is increased by 10% year on year and the average pay is revised every 5 years by 50%. The 5 yearly revision in salary is assumed during year 2018. The new international terminal will be commissioned in FY 2017 and the increase in employee strength on account of airport expansion has been considered for forecasting the employees’ cost. For new employees, the grade wise segregation is considered to forecast the payroll costs. Total 47 new employees are to be added in FY 2017 on account of commissioning of new international terminal. Table 30: Employees’ cost considered under Single Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Employees Cost 62.6 94.0 103.3 113.7 125.0

Table 31: Employees’ cost for Aeronautical services – Shared Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Employees Cost 60.2 90.3 99.4 109.3 120.2

Operational Expenses Operational expenses constituted approximately 27.22 % of total O&M costs in FY 2015 Repairs and Maintenance expenses Repairs and maintenance expenses for buildings, roads runways & culverts and plant & equipment have been forecasted basis % of gross block based on historical trends and technical estimates for new assets. Historically, the CAGR for repairs and maintenance expenses is shown below – Table 32: Historical CAGR for Repairs & Maintenance expenditure

FY15 (INR Cr) CAGR (2010-2015) CAGR (2005-2015) R&M expenses 11.4 16.2% 14.7%

Table 33: Repairs and maintenance expenses under Single Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Total Repairs Costs 18.2 22.9 29.1 36.6 42.9

Table 34: Repairs and maintenance expenses for Aeronautical services – Shared Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Total Repairs Costs 15.7 19.8 25.0 31.5 37.0

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Power, Water and Fuel charges

Power, water and Fuel charges have been forecasted based on growth drivers such as increase in terminal area and WPI as explained below. Historically, the CAGR for power, water and fuel charges is shown below – Table 35: Historical CAGR for power, water and fuel charges

FY15 (INR Cr) CAGR (2010-2015) CAGR (2005-2015) Power, water and fuel 16.6 15.0% 16.0% charges

Total power units consumed in the most recent audited year have been apportioned to various cost centers such as international terminal, domestic terminal, city-side & air-side facilities, cargo and other activities. Terminal power unit consumption has been increased as per increase in terminal area accounting for historical growth rate. City side & airside facilities power consumption increased proportionately as per the airport expansion on account of new international terminal. Power consumption by other cost centers has been increased by historical growth rate. Water units for FY 2017 have been increased on account of the airport expansion. FY 2018 onwards, water units have been increased by 10%. Out of total water units required, CIAL will generate 6 lakhs units per day through internal sources and remaining water units will be supplied by Kerala Water Authority. Water unit rate has been increased by 25% after every three years. Fuel generator charges have been increased by 5% year on year basis. Table 36: Power, water and fuel charges under Single Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Power, water and fuel charges 30.6 44.7 49.7 54.4 59.6

Table 37: Power, water and fuel charges for Aeronautical services – Shared Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Power, water and fuel charges 29.9 43.7 48.5 53.2 58.3

Safety & Security expenses Safety and security expenses have been forecasted based on historical growth rates and increase in terminal area. Historically, the CAGR for Safety & security expenses is shown below – Table 38: Historical CAGR for safety & security expenses

FY15 (INR Cr) CAGR (2010-2015) CAGR (2005-2015) Safety & security expenses 3.0 19.3% 37.3%

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Safety and security expenses has been increased by 100% on account of increase in terminal area due to commissioning of new international terminal. After commissioning of new international terminal, expenses have been increased by historical CAGR of FY12 to FY15. Table 39: Safety & security expenses under Single Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Safety & Security expenses 4.5 6.4 6.8 7.3 7.8

Table 40: Safety & security expenses for Aeronautical service – Shared Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Safety & Security expenses 4.3 6.1 6.6 7.0 7.5

Vehicle running and maintenance expenses

Vehicle running and maintenance expenses have been forecasted based on the historical growth rates. Historically, the CAGR for vehicle running and maintenance expenses is shown below – Table 41: Historical CAGR for vehicle running & maintenance expenditure

FY15 (INR Cr) CAGR (2010-2015) CAGR (2005-2015) Vehicle R&M expenses 1.3 4.3% 14.4%

Table 42: Vehicle running and maintenance expenses under Single Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Vehicle R&M expenses 0.9 1.0 1.1 1.3 1.4

Table 43: Vehicle running and maintenance expenses for Aeronautical services – Shared Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Vehicle R&M expenses 0.9 1.0 1.1 1.2 1.3

Housekeeping expenses Housekeeping expenses have been projected based on growth drivers such as historical trends, increase in terminal area and CPI. Historically, the CAGR for housekeeping expenses is shown below – Table 44: Historical CAGR for housekeeping expenses

FY15 (INR Cr) CAGR (2010-2015) CAGR (2005-2015) Housekeeping expenses 5.3 25.3% 38.0%

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Housekeeping expenses have been increased by 100% on account of new international terminal commissioning. After commissioning of new international terminal, housekeeping expenses have been increased by 4% over CPI. Table 45: Housekeeping expenses under Single Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Housekeeping expenses 11.0 17.5 19.0 20.7 22.5

Table 46: Housekeeping expenses for Aeronautical services – Shared Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Housekeeping expenses 10.6 16.8 18.3 19.9 21.6

Consumables expenses Consumables expenses have been projected based on growth drivers such as historical trends, increase in terminal area and CPI. Historically, the CAGR for consumables expenses is shown below – Table 47: Historical CAGR for consumables expenses

FY15 (INR Cr) CAGR (2010-2015) CAGR (2005-2015) Consumables expenses 2.8 44.1% 29.4%

Consumables expenses have been increased by 100% on account of new international terminal commissioning. After commissioning of new international terminal, consumables expenses have been increased by CPI. Table 48: Consumables expenses under Single Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Consumables 3.2 6.5 6.8 7.1 7.4

Table 49: Consumables expenses for Aeronautical services – Shared Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Consumables 3.1 6.2 6.5 6.8 7.2

Other operational expenses Other operational expenses have been increased by the historical growth rates. Historically, the CAGR for other operational expenses is shown below – Table 50: Historical CAGR for other operational expenses

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

FY15 (INR Cr) CAGR (2010-2015) CAGR (2005-2015) Other operational expenses 6.9 43.4% 42.8%

Table 51: Other operational expenses under Single Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Other operational expenses 9.8 9.3 9.9 10.7 11.7

Table 52: Other operational expenses for Aeronautical services – Shared Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Other operational expenses 10.2 9.8 10.3 11.5 12.6

CUTE operating expenses From FY 2016-17 onwards, CIAL is changing the business model for CUTE services and will handle the services itself. CUTE expenses have been forecasted based on annual maintenance and support fees to be paid by CIAL to SITA as per existing agreement. Table 53: CUTE operating expenses

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 CUTE expenses 3.8 3.9 4.1 4.3 4.4

CUTE operating expenses have been considered as aeronautical expenses. The copy of agreement with SITA is marked in Annexure 2. Administration and General Cost Administration and general costs constituted approximately 4.01 % of total O&M costs in FY 2015 Different components of administrative and general costs have been projected based on relevant drivers like historical CAGR, inflation (WPI), an increase in terminal area and as % of gross block. Historically, the CAGR for administration & general cost is shown below: Table 54: Historical CAGR for administration expenses

FY15 (INR Cr) CAGR (2010-2015) CAGR (2005-2015) Administration & General 8.2 0.9% 4.3% expenses

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Table 55: Forecast basis for various components of administration expenses

Administration Expenses Forecast basis Repairs to office Repairs to office equipment has been forecasted as 10% of gross block equipment of office equipment based on the internal technical estimates. Rent Rent charges has been increased by 10% growth year on year as per the relevant agreements Rates and Taxes Rates and taxes increased by the increase in terminal areas Printing and Stationery Printing and stationery expenses have been forecasted accounting inflation Telephone, Postage and Telephone, postage and communication expenses increased by a Communication CAGR over a period from FY 2011 to FY 2015 Travelling expense Travelling expenses increased by a CAGR over a period from FY 2011 to FY 2015 Insurance Insurance expenses have been projected using historical % of gross block estimates Advertisement duty free Duty free advertisement expenses have been forecasted as an average of last 5 years’ expenses as a % duty free sales Bank charges Forecast was done as an average of last 5 years’ actual expenses as a % of total expenses Auditors remuneration Auditors remuneration has been forecasted as an average of last 5 years’ actual expenses as a % of total revenues Professional charges Professional charges increased by a CAGR over a period from FY 2011 to FY 2015 Table 56: Administrative and general expenses under Single Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Admin Expenses 12.7 13.8 15.1 16.7 18.9

Table 57: Administrative and general expenses for Aeronautical services under Shared Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Admin Expenses 12.3 13.3 14.6 16.1 18.2

Summary of Operations and Maintenance expenses Table 58: Summary of total O&M expenses under Single Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Payment to employees 62.6 94.0 103.3 113.7 125.0 Operational Expenses 81.9 112.2 126.4 142.3 157.8 Admin Expenses 12.7 13.8 15.1 16.7 18.9 Total 157.2 219.9 244.9 272.7 301.8

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Table 59: Summary of total O&M expenses for Aeronautical services – Shared Till

INR Cr FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Payment to employees 60.2 90.3 99.4 109.3 120.2 Operational Expenses 78.3 107.3 120.3 135.3 149.9 Admin Expenses 12.3 13.3 14.6 16.1 18.2 Total 150.8 210.9 234.3 260.7 288.3

9. Depreciation CIAL has a policy of charging depreciation till 95% of the original cost and the same methodology is considered while forecasting depreciation for the second control period. CIAL has revised its depreciation calculation methodology based on The Companies Act 2013. The new Companies Act proposes to calculate depreciation taking into account the useful life years of the assets. The same methodology has been adopted to calculate depreciation of assets to be capitalized in the second control period. For new assets, the depreciation for the year in which the assets will be capitalized, is calculated on 50% of the asset value. Table 60: Useful life for certain assets

Useful life years Buildings 60 Parking bays 15 Roads other than RCC 5 Roads RCC 10 Railway over bridge 30 Runway re-carpeting 15 Rapid Exit and vertical link 15 In-line X ray baggage inspection system 10 Software 5 Servers and Networks 6 Computers 3 E-Gate 6 Data center 6 CCTV 10 CUPPS, BRS, CUSS 6 Arrival conveyor 10 Furniture 5 Housekeeping equipment 15 Road sweeping machine 15 Trolleys 5 Four wheeler vehicle 8 Two wheeler vehicle 10

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Useful life years MEP works – Electrical installation 10 Aerobridge 15 Light fitting 10 Office equipment 5

Accordingly, depreciation for assets is projected to be as under. Under single till, depreciation of all the assets have been considered whereas under shared till, only depreciation of aeronautical assets has been considered: Table 61: Depreciation under Single Till

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Land 0.0 0.0 0.0 0.0 0.0 Buildings & Civil Works 8.1 13.4 14.6 15.4 17.2 Golf Course Development 2.5 2.5 2.5 2.5 1.8 Runway, Roads and Culverts 22.0 34.5 36.5 43.8 51.1 Plant and Equipment 27.5 49.3 57.8 65.7 74.8 Office Equipment 1.4 2.7 2.8 3.0 3.1 Computers and Accessories 8.4 16.7 18.5 17.3 14.4 Furniture and Fixtures 0.8 1.1 1.2 1.3 1.3 Vehicles 0.7 0.8 0.8 0.9 0.9 Intangible assets 2.2 2.2 2.0 1.1 1.1 Financing Allowance 4.7 4.8 5.2 5.7 6.4 Total Depreciation 78.1 128.1 141.9 156.7 172.1

Table 62: Depreciation under Shared Till

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Land 0.0 0.0 0.0 0.0 0.0 Buildings & Civil Works 5.7 9.3 10.1 10.6 11.9 Golf Course Development 0.0 0.0 0.0 0.0 0.0 Runway, Roads and Culverts 22.0 34.5 36.5 43.8 51.1 Plant and Equipment 24.8 44.3 51.9 59.0 67.0 Office Equipment 1.1 2.2 2.3 2.4 2.5 Computers and Accessories 8.2 16.3 18.0 16.9 14.0 Furniture and Fixtures 0.7 1.1 1.1 1.2 1.3 Vehicles 0.6 0.8 0.8 0.8 0.9 Intangible assets 2.0 2.0 1.8 0.9 0.9 Financing Allowance 3.9 4.0 4.4 4.8 5.4 Total Depreciation 69.1 114.4 126.9 140.5 155.0

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 10. Tax on income The corporate tax for CIAL is the composite tax for all the services provided by CIAL. The corporate tax rate considered is 34.60%. The tax for Aeronautical services has been computed by taking into account aeronautical revenues, aeronautical expenses, depreciation on aeronautical assets and interest expenses towards aeronautical capital expenditure. CIAL was under tax holiday for its infrastructure investment till FY 2013-14, so tax was paid as per MAT rates and has accumulated MAT credit which is to be set off against future corporate tax. From FY 2015 onwards, CIAL has started paying tax as per corporate tax rates after setting off required MAT credit. MAT rate considered is 21.34%. From FY 2016 onwards, the tax is computed based on corporate tax rate adjusted for available MAT credit. Accordingly, the tax second control period has been calculated as follows- Table 63: Tax on income under Single Till

INR crore FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Income Tax 54.6 44.5 79.9 110.6 127.9

Table 64: Tax on income under Shared Till

INR crore FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Income Tax 61.6 38.7 50.2 62.6 77.7

11. Non-aeronautical revenues Projections for non-aeronautical revenues have been made for specific components considering agreements made with various vendors, expected growth in traffic, increase in terminal area and WPI inflation. Following are various components of non-aeronautical revenue.

 Duty free revenues  Non-aeronautical royalties, license fees and lease rentals  Utility service charges  Interest income  Other income  Revenue from Golf Course and other commercial activities Table 65: Non aeronautical revenue forecast basis

Non-aeronautical Forecast basis revenues Non-aeronautical royalties,  Fuel throughput lease rentals has been forecasted based on leased license fees and lease area as per CIAL’s agreement with BPCL and lease rentals per rentals square meter to be increased by 12.5% per annum every year. The

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Non-aeronautical Forecast basis revenues details of lease rentals from BPCL is given in the agreement attached in Annexure 4.  Royalty engineering, royalty security and Royalty terminal handling have been increased by 10% as per the existing agreements  To forecast the license fee for car park, FY16 number has been derived from contractual agreement for the year and after that, it is increased by 10%. The copy of agreement is provided in Annexure 5.  License fee for catering services has been forecasted based on increase in passenger traffic. The copies of relevant agreements have been provided in Annexure 6 and Annexure 7.  Meet & Greet revenue share to be increased by 10%  Revenue share from retail and F&B is to be increased by 10%  Minimum guarantee amount from retail and F&B is increased by accounting the increased area. For FY 2017, increase in rental area is considered for half year only. From FY 2022 onwards, minimum guarantee amount increased by 5% along with increased in area.  Fixed rent for airline offices & rental space, retail area and F&B area increased by 10% after accounting for increase in rental areas. For FY 2017, increase in rental area is considered for half year only. Duty free revenues Duty free revenues have been forecasted taking into account the new business model and historical growth rate in duty free sales per passenger. Utility service charges Utility service charges to be collected from various service providers is forecasted as an average of actual charges of last 5 years as a % of utility expenses. Interest income Interest income has been forecasted based on deposit rates and the last year’s closing bank balance. Other income Other income includes rent & services from other activities, miscellaneous income and public admission fees. Other incomes have been increased by 10% year-on-year.

Non-aeronautical royalties, license fees and lease rentals Non-aeronautical royalties, license fees and lease rentals include following major revenue heads –

 Royalty – Engineering  Royalty – Security  Royalty-Terminal Handling & Valet Service  License fee for Car park  License fee for catering services  Meet & greet revenue share  Revenue share from retail and F&B outlets  Fixed rent from airlines offices, retail outlets and F&B outlets

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21  Minimum annual guarantee from retail and F&B outlets  Lease rentals from BPCL for land leased  Lease rentals from CIAL Infrastructures Ltd

The non-aeronautical royalties, license fees and lease rentals for the second control period is as follow –

Table 66: Non-aeronautical royalties, licensee fees and lease rentals

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Royalty-Engineering 0.8 0.9 0.9 1.0 1.1 Royalty-Security 3.3 3.7 4.0 4.4 4.9 Royalty-Terminal Handling 3.4 3.8 4.1 4.6 5.0 License Fee Car park 8.7 9.5 10.5 11.5 12.7 License Fee Catering Services 2.7 2.9 3.3 3.6 4.0 Meet & Greet revenue share 0.1 0.1 0.1 0.1 0.1 Revenue Sharing Rent 5.1 5.6 6.2 6.8 7.5 Fixed Rent 19.8 27.2 34.4 42.5 47.6 Minimum Annual Guarantee 26.3 42.3 52.9 63.7 64.9 Lease rentals from BPCL 2.3 2.4 2.7 3.0 3.4 Lease rentals from CIAL Infra 0.1 0.1 0.1 0.1 0.1 Total 72.6 98.4 119.2 141.4 151.3

Duty free revenue CIAL is partnering with a specialized agency for operations of duty free business to put in place international best practices for the new international terminal. CIAL is desirous of increasing the volume of the duty free operations significantly and bringing greater operational expertise and efficiencies into the duty free business. Accordingly, it plans to hive off these operations to a subsidiary for having greater focus. CIAL proposes to set up a 100% subsidiary company to carry out the duty free operations. Under the proposed structure, CIAL’s duty free revenues for the second control period have been forecasted as follows – Table 67: Duty free revenues

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Duty free revenues 58.5 66.6 80.0 96.2 115.6

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Utility service charges Utility service charges to be collected from various service providers is forecasted as an average of actual utility service charges of last 5 years as a % of utility expenses. Utility service charges for the second control period are as follow – Table 68: Utility service charges

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Utility service charges 6.9 10.2 11.3 12.4 13.6

Interest Income Interest income has been forecasted based on prevailing deposit rates and the last year’s closing bank balance. Due to ongoing capital expenditure, CIAL would not be able to invest in long term fixed deposits. Additionally, as CIAL is using internal cash accruals for capital expenditure during the second control period, only a minimum cash balance of INR 20 cr has been maintained. Interest rate forecast for the second control period is as follows – Table 69: Interest income under Single Till

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Interest income 1.0 1.0 1.0 1.0 1.0

Table 70: Interest income under Shared Till

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Interest income 1.0 1.0 1.3 1.0 1.0

Other Income Other income includes income from rent & services – other activities, miscellaneous income and public admission fees. Other income has been forecasted to increase by 10% per annum. Other income for the second control period is as follow – Table 71: Other income

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Other income 8.2 9.0 9.9 10.9 12.0

Revenues from Golf course and other commercial activities While determining aggregate Aeronautical Revenue Requirement (ARR), revenues from golf course and commercial activities are considered as non-aeronautical revenues. Revenue from golf course is linked to memberships and membership is assumed to remain constant. The revenue from

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 trade fair centre is increased by 10% based on historical trends. During the second control period, another commercial complex will be capitalized and the revenue from the commercial center is forecasted based on rental per sq.m. basis. The rental for commercial complex is forecasted to increase by 5% per annum. Table 72: Revenue forecast for golf course and other commercial activities

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Income from Golf Course 2.1 2.1 2.1 2.1 2.1 Income From Trade Fair 2.3 2.5 2.8 3.1 3.4 Centre Income From Commercial 0.0 0.0 1.2 2.5 4.0 Complex

Table 73: Total Non-aeronautical revenue forecast under Single Till

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Non aero Royalty & License Fees 72.6 98.4 119.2 141.4 151.3 Duty Free Revenues 58.5 66.6 80.0 96.2 115.6 Interest Income 1.0 1.0 1.0 1.0 1.0 Utility services charges 6.9 10.2 11.3 12.4 13.6 Other income 8.2 9.0 9.9 10.9 12.0 Golf Course, Trade centre, 4.5 4.7 6.1 7.7 9.5 Commercial Complex Total 151.7 189.8 227.5 269.5 303.0

Table 74: Total Non-aeronautical revenue forecast under Shared Till

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Non aero Royalty & License Fees 72.6 98.4 119.2 141.4 151.3 Duty Free Revenues 58.5 66.6 80.0 96.2 115.6 Interest Income 1.0 1.0 1.3 1.0 1.0 Utility services charges 6.9 10.2 11.3 12.4 13.6 Other income 8.2 9.0 9.9 10.9 12.0 Golf Course, Trade center, 4.5 4.7 6.1 7.7 9.5 Commercial Complex Total 151.7 189.8 227.8 269.5 303.0

12. Additional Issues Contingent liabilities At the end of FY 2015, CIAL has contingent liabilities of INR 236 crore. INR 183.9 crore is on account of income tax and service tax payments due to tax disputes currently being heard by Hon’ble Income Tax Tribunal and Hon’ble High Court of Kerala. CIAL submits that although it

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 has not made any provision for the above INR 236 crore in the ARR computation, the same may be allowed as part of revenue requirement for this control period by AERA if and when CIAL is required to make such payments. Cargo tariff filing As advised by the Authority during the MYTP filing for the first control period, cargo operations have been included as part of the airport operations for the MYTP submission for the second control period as well. Fuel throughput royalty The royalty paid to CIAL by BPCL was INR 5 per kL till FY2008 and was increased to INR 35 per kL for FY 2009. From 1st April 2009, CIAL had increased the royalty fee to INR 70 per kL with 20% annual escalation till 31st March 2015, in accordance with the Agreement. Since, the first five years AERA control period is from April 2011 to March 2016, royalty fee was further escalated at 20% for one more year, i.e till March 2016, as AERA has considered this tariff as part of overall CIAL multi-year tariff proposal for control period ending on March 2016. From April 2016, for the next five years of AERA control period for CIAL, revised Royalty fee will be at INR 758.71 per kL for first year with annual escalation of 5%. Thereafter, at the end of every 5 year control period, royalty fee value will be revised by CIAL and BPCL, in line with market conditions. The contract with BPCL is enclosed in Annexure 4. Ground handling royalty Presently, at Cochin International Airport, two ground handling agencies namely AIATSL, a subsidiary of Air India and BWFS provide third party ground handling services. As per the decision of the Board of the Directors, it was decided to appoint a third ground handling agency for third party ground handling services at CIAL. CIAL is contemplating a new operating model for providing ground handling services wherein the equipment for ground handling services will be owned and maintained by CIAL. This initiative is being explored in order to minimize the overall cost of ground handling operations, improve the quality of service and ensure uniformity in service standards. 13. Aggregate Revenue Requirement Based on the above mentioned regulatory building blocks, the ARR for the second control period has been computed and is summarized below – Table 75: Aggregate Revenue Requirement under Single Till

INR crore FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Average RAB 1142.1 1867.9 1974.3 2165.8 2493.8 FRoR 13.9% 13.9% 13.9% 13.9% 13.9% Return on Regulatory Base 158.6 259.3 274.1 300.7 346.2

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 INR crore FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Depreciation 78.1 128.1 141.9 156.7 172.1 Operation & Maintenance cost 157.2 219.9 244.9 272.7 301.8 Tax 54.6 44.5 79.9 110.6 127.9 Subtotal 448.5 651.8 740.9 840.6 948.0 Less: 100% of Revenue from Non 151.7 189.8 227.5 269.5 303.0 Aeronautical Revenue Target Revenue (ARR) 296.8 462.0 513.4 571.1 645.1

Table 76: Aggregate Revenue Requirement under Shared Till

INR crore FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Average RAB 942.7 1533.7 1616.6 1785.9 2062.6 FRoR 14.3% 14.3% 14.3% 14.3% 14.3% Return on Regulatory Base 134.4 218.6 230.4 254.6 294.0 Depreciation 69.1 114.4 126.9 140.5 155.0 Operation & Maintenance cost 150.8 210.9 234.3 260.7 288.3 Tax 61.6 38.7 50.2 62.6 77.7 Subtotal 415.8 582.7 641.8 718.3 815.1 Less: 30% of Revenue from Non 45.5 56.9 68.3 80.9 90.9 Aeronautical Revenue Target Revenue (ARR) 370.3 525.7 573.5 637.5 724.2

14. Yield Calculation and escalation factor The yield per passenger is calculated based on the present value of ARR and total traffic as per AERA guidelines. Table 77: ARR and estimated yield per pax for Single Till

INR crore FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 ARR 296.8 462.0 513.4 571.1 645.1 Passengers (million) 8.4 9.0 10.0 11.2 12.4 Yield per passenger* 446.6 462.6 479.3 496.6 514.4 * Calculated as per AERA guidelines

Table 78: ARR and estimated yield per pax for Shared Till

INR crore FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 ARR 370.3 525.7 573.5 637.5 724.2 Passengers (million) 8.4 9.0 10.0 11.2 12.4 Yield per passenger* 510.5 528.9 547.9 567.6 588.1 * Calculated as per AERA guidelines

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 15. Conclusion Clause 13.1(a), Chapter III of the AERA Act, 2008, states that it can propose different tariff structures for different airports having regard to all or any of the following considerations: “… i. the capital expenditure incurred and timely investment in improvement of air facilities ii. the service provided, its quality and other relevant factors iii. the cost for improving efficiency iv. economic and viable operation of major airports v. revenue received from services other than the aeronautical services vi. the concession offered by the Central Government in any agreement or memorandum of understanding or otherwise vii. any other factor which may be relevant for the purposes of this Act

Provided that different tariff structures may be determined for different airports having regard to all or any of the above considerations specified at sub-clauses (i) to (vii);…)” In this MYTP proposal, the Authority is requested to consider Shared Till regulatory approach for the Cochin International Airport for the long term benefit of all the stakeholders. Application of single till regulatory mechanism strictly as per the Guidelines would, inter alia:

a. adversely impact CIAL’s ability to arrange funds for future expansion b. adversely dis-incentivize the development of non-aeronautical revenue streams which have been effectively used by CIAL to subsidize the aeronautical tariffs c. undermine CIAL’s pioneering effort in managing a cost-effective functionally efficient airport. It is to be noted that even with the increase in tariffs, charges at Cochin International Airport would be among the lowest with respect to comparable airports in the country. Cochin International Airport has always strived to keep air travel affordable for its passengers while maintain high service quality standards. We are confident that AERA would issue a favourable tariff order to CIAL based on the aforesaid considerations. 16. Annexures

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Annexure 1 – Agreement between CIAL and the Federal Bank Ltd for the term loan

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Annexure 2 – Agreement between CIAL and SITA

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21 Annexure 3 – Land utilization details

Particulars Area (acres) Approach road 89.7 DVOR -installation + influence area 72.3 Golf -excluding DVOR influence area 59.7 Solar area 52.0 International cargo, CPC, EDI center, Truck parking 6.4 Domestic Cargo 0.7 Domestic Terminal 4.5 International Terminal (Existing) 8.0 International Terminal (New) 80.4 Car Park International 7.5 Car Park Domestic 6.9 BPCL Building 1.2 Airline Office Building 1.0 Cargo Handling Agents Building 1.0 A T C 1.7 Utility Building 2.4 DVOR 11,Thattekkad 5.0 Outer Marker ,Koovapadi 1.0 Middle Marker,Kaladi 0.2 NDB,Cheranalloor 0.9 Sewage Treatment Plant 0.7 Operational Area 662.1 Trade Centre 5.0 LUP zone 1 -hotel, entertainment 30.1 Office-cum-Commercial Complex 2.0 LUP zone2 -operational funnel area 36.0 FEC area (Future expansion) 25.0 Retail Mall, Shops 3.0 110 KV Substation 1.5 Building adjacent to NIT 2.5 CIASL 33.3 BPCL Aviation Tank 5.6 IOC Land 1.1 IOC RO 1.4 11 KV SS, Power House, Water Tank 0.7 Public Canteen 0.1 Federal Bank Building 0.2 Future Expansion 22.0 Rehabilitation Land (balance) - Nayathode area 23.0 Common Rehabilitation facilities 13.4 Rehabilitation Land (balance) - Akaparambu area 5.4 Total Land 1276.0

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Annexure 4 – Agreement between CIAL and BPCL for fuel throughput services

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Annexure 5 – Agreement between CIAL and Bency & Company for car park management

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Annexure 6 – Agreement between CIAL and Lulu Flight Kitchen Pvt Ltd

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Annexure 7 – Agreement between CIAL and Anjali Hotels (p) Ltd for flight catering

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Annexure 8 – Agreement with TDI for the license of the advertisement right

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Annexure 9 – Agreement between CIAL and Vodafone Essar Cellular Ltd for operation of mobile phone counters and wall mounted mobile charger boxes

Cochin International Airport Pvt. Ltd. Multi Year Tariff Proposal FY 17-FY21

Annexure 10 – Agreement between CIAL and D C Books for the book shop