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Limited  Concession  Scheme  (LCS)  

Concept  for  Indonesia  Airports


Pilot  Project:  Soekarno-­Hatta International  Airport

Jakarta,  15  December 2016

Dwianto E.  Winaryo
Transport  Director  of  Committee  for  Acceleration  of  Priority  Infrastructure  
(KPPIP)
Curriculum  Vitae

• Direktur Sektor Transportasi KPPIP  (Mar  ‘16  – now)


• Direktur Proyek KP  Mandalika,  PT.  ITDC  (Des’15  – Feb  ‘16)
• Ast.  Direksi PT.  SNJ,  PT  NKJ  dan PT.  CSJ  (Aug  ‘15  – Nov  ‘15)
• Manager  Procurement  PT.  Thiess  Indonesia  (2014  – 2015)  
• Technical  Manager  PT.  Thiess  Indonesia  (2012  – 2015)
• Construction  Site  Manager  PT.  Thiess  (2008  – 2012)
• Project  Manager  PT.  Waskita  Karya (2005  – 2008)
• Tek Adkon PT.  Waskita  Karya (2003  – 2005)

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Limited  Concession  Scheme  (LCS)  as  an  alternative  for  
infrastructure  funding

LCS  CONCEPT: IDEAL  ASSET  FOR  LCS:


§ Concession  agreement  schemes  with  Enterprises Given  the  LCS  concept  is  still  new  
in  Indonesia,  the  necessary  
§ Includes  asset  operations  &  development conditions  of  the  assets  are  as  
follows:
§ Concession  period  for  20+  years
Has  positive  cash  flow  
§ Provide  flexibility  to  the  government  to  get  an  upfront  
payment  that  can  be  received  at  the  time  of  Financial   track  record  for  several  
Close  or  annuity  payment  during  the  concession  period  or   years
a  combination of  both,  depending  on  Government  goals.

§ Can  receive  additional  incentives  in  the  form  of  revenue-­ Brownfield  assets*  or  
sharing already  operational

§ Ease  Government  burden  by  charging  all  future  


investments  in  concession  holders
Predicted  revenue
§ The  government  guarantees  the  availability  of  land  and  
permits
*Assets  are  referred  to  airport  operations  concessions  not  the  physical  assets.
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LCS  is  not  privatization,  does  not  eliminate  the  ownership  and  
control  of  the  Government

Government  remains  owner   LCS  limits  “super-­profits”  for   Government  will  receive  
of  the  asset concession  holders additional  revenue

• No  transfer  of  assets   • Unlike  privatization,  Concession   • Concession  Agreement  


ownership Agreement  provides  details  on   stipulates  that  the  government  
revenue  sharing  arrangement   will  get  revenue  sharing  from  
• If  the  concessionaire  does  not   between  concessionaire  and  the   all  future  revenue,  a  
fulfill  the  responsibility,  the   government continuous  revenue  for  the  
Government  may  terminate   Government  during  the  
the  Concession  Agreement;; • Avoid  the  possibility  of  revenue   concession  period.
monopoly  by  concessionaire
• There  will  be  no  change  in  
the  name  or  asset  branding.

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LCS  Provides  Greater  Value  than  Securitization

Securitization  is  a  DEBT  of  Govt/SOE  while  LCS  is  an  investment  by  private  sector  
LCS Securitization
Government   LCS  does  not  give   No Yes
Debt   rise  to  Government   Government  faces  no  ongoing   Government  will  be  responsible  
Liability debt  obligations financial  obligations. for  making  annual  interest  and  
principal  payments

Future   LCS  frees   Borne  by  the  Private  Sector Borne  by  the  Government
Downside   government  from   Government  receives  upfront   Government  retains  all  risk  of  
Risk default  risk  asset   funds  for  future  expected   future  underperformance
performance  in  the   performance  improvements  AND  
future participates  in  revenue  sharing

Future   LCS  ensures   Unrestricted Restricted


Operational   operational   Government,  through  the   Bond  holders  will  have  to  approve  
Flexibility flexibility  and   Concession  Agreement,  retains   any  changes  to  the  asset  and  
ultimate  control  over  SHIA  and   revenue  stream  meaning  bond  
expansion  options  
unforeseen  changes  and   holders  could  potentially  reject  
expansions  can  be  bi-­latterly   any  future  expansion  if  thought  to  
negotiated  with  Concessionaire adversely  effect  performance

Asset   LCS  ensures  that   Asset  Ownership Depends


Ownership asset  is  always   Lenders  to  concessionaire  only   Bond  holders  will  require  rights  to  
owned  by  the   have  rights  to  the  contract  not  the   takeover  asset  in  case  of  
Government   asset underperformance
LCS  allows  for  
Increased   Yes No
investors  to  apply  
Operational   Global  best  practices  applied   There  will  be  no  entities  
global  best  practices  
Efficiency by  the  investor  increases   bringing  in  new  knowledge  or  
for  airport  
airport  efficiencies. best  practices.
improvement

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Soekarno-­Hatta International  Airport  is  an  ideal  pilot  project  to  
implement  the  first  LCS  in  Indonesia
Strong  flight  demand,  but  not  capturing  growth… …needs  to  implement  world’s  operational  best  practice

According to Airport Council International Global  operator  sees  the  potential  to  develop  SHIA  as  
(ACI), SHIA is one of the busiest airport in international  and  regional  hub  airport
the world (SHIA fell from 9th place (in 2012)
to 18th place (2015), compared with Changi SHIA  still  lags  among  regional  competitors  in  terms  of  
consistent in 16th place) revenue  per  passenger  regardless  of  nearly  the  same  
number  of  passengers
Revenue  per  Passenger
Needs  of  significant  capital  investment  to  
develop  the  3rd runway  and  the  1st and  2nd
terminals  renovation  (~IDR  10  trillion)
IDR  74,000 IDR  189,000 IDR  294,000 IDR  367,000
Global  operators  have  experience  on  working  with   Apart  from  any  improvement  conducted,  SHIA’s  
airlines  to  develop  new  routes  and  improving   operational  margin  is  still  lagging  behind  regional  
airport  services  according  to  airport’s  standards   competitors  and  a  large  number  of  privately-­run  airport
which  was  ranked  top  as  SHIA.
Margin  EBITDA  
Airport Country
(H1  2015)
Passengers  movement   Cargo  movements  
2011-­2015  (million) 2011-­2015  (ton  thousand) Sydney Australia 82.1%

54,3 Auckland New  Zealand 74.7%


2015 20… 615  
2014 57.2 20… 626 Hong  Kong China 69.1%
2013 60.1 20… 645 Soekarno-­Hatta* Indonesia 60.8%
2012 57.8 20… 630
London  Heathrow UK 57.2%
2011 51.2 20… 573
Copenhagen Denmark 54.3%
Source:  APII  Annual  Report  ,  2015 Source:  Centre  For  Aviation

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SHIA  LCS  Illustration  (1/2)

Upfront  payment  provides   Profit  sharing  limits  “super   Concessionaire  will  be  
significant  amount  of   profit”  for  privates  and  ensures   responsible  for  all  future  capital  
cash  injection  to  the   government  participation  in   expansion,  which  will  be  
government future  upside defined  in  the  Concession  
Agreement

Cash  flow  at  financial  close…

Upfront  Payment  Range*

EBITDA Multiple Amount  of  Payment


MoT /  OBU MoSOE or  MoF
(IDR  Billion)
10.0x 25,000
30  year
Upfront  payment  
LCS 12.0x 30,000
Concessionaire 15.0x 37,000

18.0x 45,000

*Based  on  world  transaction  data  and  EBITDA  2015  or  Rp 2.44  
Debt  Providers Equity  Investors trillion
(75%  or  more) (0-­25%)

The  amount  of  the  payment  range  is  assumed  to  remain  moderate  annual  payments.  The  government  can  change  the  range  of  fixed  
payment  to  meet  the  internal  criteria  (e.g.  a  lower  ongoing  payment  means  an  increase  in  upfront  payment)

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SHIA  LCS  Illustration  (2/2)

…cash  flow  at  operational  period,  with  payment  priority  to  the  government,  mandatory  
capital  increase,  and  Dividend  Payment

Airport  Revenue

Concessionaire

Annual  Payment  and   Private  sector’s  ongoing   Dividend Dividend


Revenue  Sharing investment  commitment,  
including  capital  
additions

Mandatory  capital   Investor


MoSOE or  MoF increase (75%  or  more)
(0-­25%)

Note:  Payments  to  Government  and  Mandatory  Capital  Increase  will  take  precedence  over  equity  dividend

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Recent  market  transactions  show  strong  investor  appetite

Every  airport  concession   Valuations  have  been   Limited  deal  flow  creates   Majority  of  transactions  are  
process  in  the  last  few   steadily  increasing  since   high  global  demand structured  as  upfront  
years  has  attracted   GFC  in  2008 payments                                              
significant  interest Kansai/Osaka  is  the  only  
recent  exception  (see  
case  study)

Recent  Transactions  – Upfront  Payment  Structure


Amount   EV EBITDA EBITDA  
Airport Country Date Stake Winning  Team
(US$ M) (US$ M) (US$  M) Multiple
Nice France July  2016 60% $1,369 $2,281 $103.7 22.0x Atlantia /  AdR (Italy)
Vinci  (France)  /  Credit  
Lyon France July  2016 60% $600 $1,000 $52.5 19.0x
Agricole (France)  
Bangalore India March  2016 33% $321 $972 Unknown Unknown Fairfax  (Australia)
Vienna Austria March 2016 8.3% $235 $3,370 $308 10.9x IFM  (Australia)
London  City UK Feb.  2016 100% $2,600 $2,600 $60.5 43.0x OTPP  (Canada)
Chinese  led  
Toulouse France April  2015 50% $345 $691 $40.6 17.0x
consortium  (China)
Glasgow,
Ferrovial / Macquarie  
Aberdeen &   UK Dec.  2014 100% $1,362 $1,362 $85.8 15.9x
(Spain)
Southampton
75.5
Ljubljana Slovenia Sept.  2014 $198 $263 $12 21.9x Fraport (Germany)
%
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Bristol UK Sept.  2014 50% $432 $864 $45.5 19.0x OTPP  (Canada)
LCS  can  be  implemented  immediately

If  well-­structured,  the  process  of  concessionaire  procurement  using  LCS  


concept  can  be  done  in  7-­12  months

Luiz Munoz  Airport,  Puerto  Rico Nice  Airport,  France Ljubljana  Airport,  Slovenia

12  months 9 months 7  months


Concession  Bidding  Process  Schedule  for  Luiz Munoz  Airport*
2011 2012
5  Jul. 10  Ags. 23   1  Oct. Mar. 2  May 10  Jul. 19  Jul.
Sep.

PQ PQ  document   Determination   RFP Proposal   2  Bidders BAFO   Bidding  Winner  


approved of  short  list received chosen   Offering Announced
(12  Bidders) (6  Bidders) (BAFO/Best  
and  Final  
*Government  internal  process  is  unknown
Offer)

To  ensure  the  process  of  LCS  is  well  structured,  the  government  needs  a  qualified  advisory  team

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To  understand  why  the  proposed  pilot  project  for  LCS  has  to  be  
SHIA,  Turkey  presents  the  most  compelling  reasons…

TURKEY  started  their  ‘LCS  like’  program  in  2005  with  its  main  gateway  – Ataturk  Airport,  Istanbul

2005 From  2005  to  2015  – 8  other  airport  deals  raised  US$  2.8  bil and  6  Seaports  
Raised  US$  3.2 bil &  new  PPP  infra  investments  topped  US$  16  bil

BUT  Most  Importantly,  these  influx  of  investors  


The  Pilot  Project  
resulted  in  other  investors  investing  billions  in  
was
related  infra  assets  and  projects
Ataturk  Airport,   8  Other  Airports
Istanbul Raised  an  
additional   6 Seaports   5  Medical  Centers  
Raised US$  3.2  bil &  Hospitals
US$  2.8  billion in  upfront   Greenfield  PPP  
Ankara    – $312  mil investment  of  
payments  +  US$  600  
Izmir  Adnan  -­ $  200  mil  #
Antalya  -­ $  800  Mil mil  in  greenfield US$  3.7  billion
Upfront  payment   Sabiha Gokcen -­ $  586  mil
paid  to  the   Milas-­Budrum -­ $150  mil*
Government  by  the   Zafer – US$  90  Mil  #
4 Toll  Roads  & Istanbul  Metro
Izmir  – US$  580  Mil
winning  Consortium:   Dalaman – US$  290  Mil* Tunnel PPP  Greenfield  
US$  3  Billion #  -­ Greenfield  Projects  ($  
PPP  Greenfield  
Investments  
Investment  
US$  1.22  billion
refers  to  investment  costs) US$  7.5  bil
*  -­ These  schemes  included  
revenue  share

In  10  years  total  upfront  payments  and  infra  investments  totaled  US$  22  billion
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The  key  lesson  is  that  the  Pilot  Project  must  be  a  large  enough  and  
prestigious  enough  to  attract  serious  investors  – The  rest  will  follow…

LEARNING  FROM  TURKEY   Samsun  Seaport Bosporus  River   Derince Seaport


It  started  with  the  most  attractive  LCS  – In   (USD  125  Million) Tunnel  Road   (USD  543  Juta)
10  years,  US$  22  billion  in  upfront  payments   (greenfield)
and  infra  investments… (USD  1.25  
PILOT   Bandirma Seaport   Billion)
PROJECT (USD  175  Million)
Ataturk  Airport,   Dalaman Airport  
Istanbul (USD  90  Mio  +  
(USD  3  Billion) Milas-­Bodrum USD  200  Mio  for  
Antalya  Airport Izmir  Airport
Airport expansion  +  
Ankara  Airport (USD  800   (USD  580  
(USD  150  Million  +   revenue  sharing)
(USD  312   Million) Million)
revenue  sharing)
Million)

2005 2006 2007 2008 2010 2011 2012 2013 2014 2015

Izmir  Adnan  Airport   Sabiha Gokcen Regional  Zafer


(greenfield) Airport Airport  (greenfield)
(USD  200  Million) (USD  586  Million) (USD  90  Million)

Airport   Iskenderun   Bilkent Integrated  


projects Mersin  Seaport   Istanbul  Metro   Seaport Gebze-­Izmir  Toll  
Medical  Center  
(USD  756   (greenfield) (USD  745   Road  (greenfield)
(greenfield)  (USD  
Non-­ Million) (USD  1.22  Billion) (USD  2.8  Billion)
airport   Million) 663  Million)
projects
Notes: The  values  for  brownfield  projects  indicate  upfront  payment,  except  if  stated  
otherwise. Non-­Exhaustive  List  of  Projects
The  values  for  greenfield  projects  indicate  the  investment  cost. 12
After  the  successful  Ataturk  Airport  deal,  other  brownfield  and  even  
greenfield  infrastructure  in  Turkey  received  high  interest  from  private  sector    
Infrastructure Investment  Value Concessionaires

1.  Ankara  Airport USD  312  Million TAV  Construction  (Turkey)

2.  Izmir  Adnan  Airport  (greenfield) USD  200  Million TAV  Airports  (Turkey)

3.  Mersin  Seaport   USD  756  Million PSA  – Akfen (Singapore/Turkey)

4.  Antalya  Airport USD  800  Million ICF  Airports  (Germany/Turkey)


5.  Sabiha Gokcen Airport USD  586  Million Malaysia  Airports,  Limak,  GMR  (Malaysia)
6.  Istanbul  Metro  (greenfield) USD  1.22  Billion Istanbul  Metro  (Turkey)
7.  Bandirma Seaport   USD  150  Million  +   Celebi Holding  (Turkey)
revenue  sharing
8.  Milas-­Bodrum Airport
USD  175  Million TAV  Airports  (Turkey)
9.  Samsun  Seaport USD  125  Million Ceynak Group  (Turkey)
10.  Regional  Zafer Airport  (greenfield) USD  90  Million IC  Ictas Insaat Sanayi ve Ticaret A.S.  
(Turkey)
11.  Iskenderun  Seaport USD  745  Million Limak Group  (Turkey)
12.  Izmir  Airport USD  580  Million TAV  Airports (Turkey)
13.  Bosphorus River  Tunnel  Road   USD  1.25  Billion Avrasya Tuneli Isletme Insaat ve Yatirim
(greenfield) A.S.  (Turkey)
14.  Gebze-­Izmir  Toll  Road  (greenfield) USD  2.8  Billion Egis  Group  (France)

15.  Dalaman Airport   USD  90  Mio  +  USD  200   YDA  Airport  Construction  and  Mgmt.  
Mio  for  expansion  +   (Turkey)
revenue  sharing
16.  Derince Seaport USD  543  Million Safi  Kati  Yakit (Turkey)
17.  Bilkent Integrated  Medical  Center   USD  663  Million DIA  Holding  (UAE)
(greenfield)
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Key  Takeaways

A successful  pilot  project  can  open  up  opportunities  for  back-­to-­

1 back  LCS  implementation  on  a  project  or  other  sectors  that  can  
be  done  sequentially  so  as  to  accelerate  the  process

SHIA  is  the  most  ideal  asset  for  piloting  LCS  in  Indonesia,  

2 thus  demonstrating  strong  Government's  commitments  to  


attract  investors.
14

Many  LCS  investors  for  the  airport  sector  are  investors  in  other  

3 sectors,  e.g.  Vinci,  Ferrovial,  etc.  The  implementation  of  LCS  


scheme  will  positioned  Indonesia  as  an  attractive  FDI  destination  
for  Infrastructure

4
Revenue  from  upfront  payment  and  annual  payment  can  be  
used  to  fund  the  construction  of  other  infrastructures

It  takes  a  top-­down  champion  and  strong  government  policies  to  drive  forward  
progress  on  the  first  LCS  project  in  Indonesia.
14
THANK  YOU
Secretariat – Komite Percepatan Penyediaan Infrastruktur
Prioritas (KPPIP)
Menara Merdeka,8 Floor  -­ Jalan Budi Kemuliaan I  No.  2
th

Jakarta 10110,  Indonesia


T. +62  21  2957  3771, +62  21  2957  3772
F. +62  21  2957  3773
LCS  is  NOT  a  privatization,  it  is  in  fact  a  Triple  Win  Solution

Under  LCS  structure,  Government  remains  owner  of  the  asset


• LCS  structure  works  similarly  to  a  PPP  in  which  the  Concessionaire  is   LCS  would  deliver  
granted  the  rights  to  operate  the  asset  for  a  fixed-­period  of  time TRIPLE  WINs
• If  the  Concessionaire  does  not  meet  the  terms  of  the  Concession  
Agreement,  government  will  have  a  right  to  terminate  the  Concession
• Concessionaire  will  hand-­back  operational  responsibility  to  the   Typical  infrastructure  
government  at  the  end  of  the  fixed-­term assets  usually  deliver  
double  benefits…  
LCS  Concession  Agreement  will  clearly  define  the  terms  of  
operations  and  mandatory  capital  improvements  of  the   1. Immediate  benefit  
airport from  construction  

+
• Concession  Agreement  will  clearly  define  limits  to  pricing  power  (i.e.   expenditure  
landing  fee  restrictions),  required  capital  expansions  (i.e.  required  3rd  
runway)  and  hand  back  provisions  (i.e.  the  required  condition  of  the   2. Longer  term  benefits  
asset  at  the  end  of  the  fixed-­term) from  economic  
activities  caused  by  
LCS  limits  “super-­profits”  and  ensures  government   the  infra  asset
participation  in  future  upside
• Concession  Agreement  to  stipulate  revenue  sharing  that  will  be  required  
from  the  concessionaire  
…However,  in  LCS  
• Revenue  sharing  provides  ongoing  revenue  stream  to  government   there  is  an  additional  
direct  win  for  the  
LCS  allows  for  APII  to  remain  as  a  minority  shareholder government  in  the  form    
• LCS  structure  allows  for  APII  to  retain  a  passive  minority  stake  (20-­30%)   of  Upfront  Concession  
in  the  asset  while  ensuring  that  their  local  knowledge  is  included  in  airport   Fees
operations

Similar  scheme  might  be  explored  for  other  brownfield  infrastructure  such  as  seaport,  telecommunication,  
power  plant  and  other  transportation  projects.
16
Key  Drivers  of  Airport  LCS  Valuations

Maturity  of  Airport  &  Market Airport  Traffic  Mix


• Higher  growth  potential  facilities  will  result  in  higher   • International  passengers  are  likely  to  have  higher  
upfront  multiples passenger  spend  rates  and  have  longer  transit  times
• SHIA  currently  underperforms  in  this  area  as  
Potential  for  Yield  Improvement passenger  demand  is  heavily  domestic
• Airports  with  relatively  lower  revenue  per  passenger   • Potential  to  become  international  hub  is  attractive  to  
figures  have  higher  potential  and  interest  amongst   investors
potential  investors
Capacity  Constraints
• Capacity  constraints  will  need  to  be  addressable  by  
Airline  Dependence Concessionaire  to  obtain  maximum  value
• Garuda  is  a  major  customer  of  SHIA
• Construction  of  3rd runway  will  be  important
• Ability  to  attract  other  major  airlines  will  be  vital
Regulatory  Environment
Catchment  Area • Operational  flexibility  will  have  to  be  included  to  allow  
• SHIA  is  attractive  due  to  its  large  catchment  area  in  a   operator  to  fully  optimize  airport  operations
mega-­city  with  a  rapidly  growing  middle  class • Clear  process  for  adjusting  landing  fees  must  be  
outlined

Weighted  Average  
EV/EBITDA  Multiples
EBITDA  multiples  show  
relatively  stable  airports  
operation  worth  over  the  
years

17
Developed  in  consultation  with  KPPIP
Key  benefits  of  Limited  Concession  Scheme  (LCS)  for  Soekarno-­
Hatta International  Airport
Unlock  significant  upfront  value  and  maintain  ongoing  revenue  
stream
ü Recent transactions have shown an upfront payment range of 15 -­ 22x EBITDA
ü Potential upfront payment of greater than IDR 25 Trillion – 45 Trillion
ü Maintain ongoing revenue stream through revenue sharing and/or annual rent payments

All  future  capital  improvements  are  no  longer  a  burden  on  Government
ü Mandatory  capital  improvements  included  in  concession  agreement
ü Concessionaire  will  fund  IDR  4.5  trillion  for  the  3rd runway  and  other  civil  works
ü Concessionaire  will  be  responsible  for terminal  renovations  and  modernizations

Implement  global  best  practices  to  increase  competitiveness  of  


the  airport
ü Partnering with an experienced global airport operator will bring global best practices increasing
efficiency and improve operations
ü Increase the revenue per passenger amount to match and exceed SHIA regional competitors
ü Position SHIA as an international hub airport – Both for passengers and cargo

Re-­launching  Indonesia  as  a  destination  for  infrastructure  FDI


ü SHIA  is  the  ideal  asset  to  attract  foreign  infrastructure  investment  capital
ü Successful  transaction  will  increase  Indonesia’s  profile  as  a  destination  of  private  
sector  infrastructure  investment  capital  

18
Most  regional  airports  lack  the  fundamentals  required  for  a  pilot  
LCS
Kualanamu showed  strong  revenue  growth   …but  it  is  not  of  sufficient  scope  to  pilot  
and  expense  reduction  in  2015…   an  LCS  scheme

(IDR  bn) 2014 2015 %  Chg.


Total  Revenue 524 715 36.5%
Total  Expenses 492 431 -­12.4%
Employee 83 96 15.7%
Operating 346 285 17.6%
General 63 50 20.6%
Kualanamu is  not  the  right  airport  to  
EBITDA 32 284 787.5%
serve  as  a  pilot  project  for  national  LCS  
EBITDA  Margin 6.1% 39.7% +33.6% scheme
• First  LCS  process  will  require  bidders  to  invest  
Selected  Global  Airport  EBITDA  Margins significant  resources  to  develop  understanding  
of  market  and  legal  environment  
EBITDA   • Airport  cash  flows  are  relatively  small  to  
Airport Country Margin support  significant  interest  as  a  pilot  project
(H1  2015) • Kualanamu proceeds  will  not  be  significant  
enough  to  fund  significant  improvements
Sydney Australia 82.1%
• Kualanamu does  not  have  similar  connectivity  
Auckland New  Zealand 74.7% or  international  characteristics  as  SHIA  to  
develop  into  hub
Hong  Kong China 69.1%
Uncertainty  in  recent  cash  flow  
Soekarno-­Hatta* Indonesia 60.8%
improvements
London  Heathrow UK 57.2% • Airport  had  significant  improvements  in  
revenues  and  operating  expenses  in  2015
Kualanamu* Indonesia 39.7%
• Sustainability  of  recent  EBITDA  increases  are  
Source  of  Numbers:  Centre  for  Aviation *  EBITDA  Margin  for  FY   unclear
2015 19
LCS  can  be  structured  to  suit  Government’s  priorities  – 3  Options  

There  are  3  potential  structures  that  could  be  used  for  LCS  of  Soekarno-­Hatta International  Airport

1 Upfront  Payment 2 Ongoing  Payments   3 Upfront  +  Ongoing


• Concessionaire  pays  one-­ • Concessionaire  pays   • Concessionaire  pays  
time  upfront  fee  to   ongoing  annual  payments   annual  payments  defined  
MoSOE/MoF to  MoSOE/MoF in  bidding  documents
• Concessionaire   • Payments  will  be   • Concessionaire  additionally  
responsible  for  pre-­ structured  in  the  bid pays  a  reduced  upfront  fee  
defined  future  expansion   • Future  capital  expenditure   to  MoSOE/MoF
capital  program requirements  will  be   • Concessionaire  
• Allows  MoSOE/MoF reflected  in  reduced  annual   responsible  for  pre-­defined  
immediate  access  to   payments future  expansion  capital  
funds • Creates  ongoing  revenue   program
stream  for  MoSOE/MoF

All  options  include  the  following  assumptions:


• 30-­year  concession  to  operate  and  maintain  all  terminals  at  SHIA
• Concessionaire  will  be  responsible  for  all  future  capital  expansion,  which  will  be  defined  in  the  Concession  Agreement
• Concessionaire  will  be  responsible  for  operations  of  all  commercial  activities  and  slot  assignments
• Landing  fees  will  be  regulated  by  the  Concession  Agreement
• Potential  for  revenue  sharing  on  future  upside  to  limit  super  profits  
• Suggestion  to  incentivize  AP2  with  fresh  capital  equal  to  an  agreed  percentage  of  the  total  concession  fees  

20
Option  1  -­ Upfront  Payment  Structure  offers  immediate  funds  for  
other  developments  as  well  capital  injection  

Estimated  Upfront  Payment  Range


MoT /  OBU MoF /  MoSOE EBITDA Multiple Payment  Amount

10.0x 24,400bnRp
30  Year  LCS Upfront  Payment
12.0x 29,300bn  Rp

Concessionaire 15.0x 36,600bn  Rp

18.0x 44,000bn  Rp

Based  off  recent  worldwide  market  transactions  and  2015  


EBITDA  or  2.44  trillion  rupiah
Equity  Investors
Debt  Providers (70-­80%)
(20-­30%)

Key  Advantages  for  Government


1. Government  receives  upfront  payment  which  can  be  used  immediately  to  fund  other  development  projects  
around  the  country  or  set  aside  as  endowment  to  fund  future  growth  from  its  proceeds
2. Government  minimizes  its  future  downside  risk  by  receiving  all  funds  on  day  1
3. Improved  airport  operations  by  bringing  in  world-­class  operators  that  will  implement  global  best  practices
4. Greater  operational  flexibility  allows  Concessionaire  to  optimize  long-­term  planning
5. Ensure  SHIA’s  competitiveness  as  a  global  and  regional  airport  hub

21
Option  2  -­ Ongoing  Payment  Structure  allows  for  future  revenue  
stream

Key  differences  from  Upfront  


Payment  Structure
MoT /  OBU MoF /  MoSOE
ü Government  does  not  receive  immediate  
access  to  funds
30  Year  LCS Ongoing  Payment ü Government  retains  some  downside  risk  in  
event  of  concessionaire  default
Concessionaire ü Potentially  reduced  operational  flexibility  for  
Concessionaire  could  reduce  proceeds
ü Cost  of  Capital  considerations  could  positively  
or  negatively  affect  proceeds

Equity  Investors
Debt  Providers (70-­80%)
(20-­30%)

Only  if  needed  for  Capital  


Expenditure  Program  or  
Security  Deposit

Key  Advantages  for  Government


1. Government  receives  ongoing  revenue  stream
2. Improved  airport  operations  by  bringing  in  world-­class  operators  that  will  implement  global  best  practices
3. Ensure  SHIA’s  competitiveness  as  a  global  and  regional  airport  hub

22
Option  3  -­ Upfront  +  Ongoing  Structure  – Potential  for  best  of  both  
structures

Key  Considerations
MoT /  OBU MoF /  MoSOE
ü Bidding  process  needs  to  clearly  outline  
minimum  or  fixed  upfront  or  ongoing  payments
30  Year  LCS
Reduced  Upfront   ü Bidding  process  must  clearly  define  how  
Payment   competing  bids  will  be  compared  if  having  
Concessionaire + different  structures
Ongoing  Annual  
Payment  

Equity  Investors
Debt  Providers (70-­80%)
(20-­30%)

Key  Advantages  for  Government


1. Government  receives  reduced  upfront  payment  which  can  be  used  immediately
2. Government  receives  ongoing  revenue  stream
3. Government  reduces  its  future  downside  risk  by  receiving  funds  on  day  1
4. Improved  airport  operations  by  bringing  in  world-­class  operators  that  will  implement  global  best  practices
5. Ensure  SHIA’s  competitiveness  as  a  global  and  regional  airport  hub

23
In  implementing  LCS,  the  Government’s  current  approval  processes  
and  institutional  arrangements  may  need  to  be  optimised

Supervisor  of  
Airport  Authority State-­owned  Enterprises

u Minister  grants  permission  of  airport  


management  relating  to  enhancing  
service  capacity
Landside  Business   Airside  Business  
u Directorate  General  of  Civil  Aviation   Entities Entities
asseses pre-­feasibility  study  and  
prepares  concession  agreement u Providing  non-­ u Providing  navigational  
navigational  services service
u Concession  is  granted  by  designation  
of  an  organization  to  oversee  existing   u All  forms  of  partnership   u All  forms  of  partnership  
airport  facilities have  to  be  endorsed  by   have  to  be  endorsed  by  
Commissioner  Board   Commissioner  Board  
and  Minister  of  State-­ and  Minister  of  State-­
owned  Enterprises   owned  Enterprises  

Source:  Ministry  of  Transportation  Reg.  No.  193/2015  and    Gov’t  Reg.  No.  
77/2012   24
Key  considerations  to  ensure  the  best  value  for  Government

Foreign  Exchange   Operational  


Airline  Engagement
Risk Flexibility

Foreign  Exchange  Risk  will  be  a   Airlines  operating  at  SHIA  must   The  greater  degree  of  
key  concern  for  potential  investors   be  involved  in  the  process  to   operational  freedom  allowed  to  
given  volatility  in  Indonesian   ensure  deal  success the  Concessionaire  will  drive  a  
Rupiah higher  valuation
• Concessionaire  will  want  to  
• Government  should  consider   partner  with  airlines  to   • Clear  understanding  of  
allowing  airport  landing  fees  to   develop  long-­term   operational  limitations
be  indexed  to  USD  or  basket   partnerships
of  foreign  currencies • Work  together  with  
• Need  to  provide  assurance   government  to  improve  
• Pegging  landing  fees  to  USD   that  related  airline  operating   efficiency  including  customs  
will  allow  investors  to  tap  US   costs  are  clearly  defined and  immigration
private  placement  market  for  
lower  rate  debt Potential  Legal  Restrictions
Potential  Legal  Restrictions MoT Reg.  No.  129/2015,  article  
• Use  of  low-­rate  debt  will   7  Airport  business  entities  
Gov’t  Reg.  No.  70/2001,  article  48   (Badan usaha Bandar  Udara)  
increase  compensation  to   The  determination  to  provide  
government are  required  to  provide  facilities  
International  flight (to/from   for  operational  services  at  least  
abroad)  should  be  done    by   70%  and  commercial  at  most  
• Long-­term  IDR  hedging   considering  the  tourism  and   30%  from  the  total  terminal  area  
instruments  are  difficult  and   economic  growth  of  the  country reduced  by  20%  for  terminal  
expensive  to  structure   circulation

25
SHIA  is  poised  for  increased  global  profile  but  requires  massive  
capital  expenditure

Economic  Impact

The  largest  amount  of  contribution  payment


In  2013,  the  total  amount  of  property  tax  paid  to  
the  gov’t  is  IDR44.54  billion  an  increase  of  
23.8%  from  2012,  while  for  parking  tax  is  
IDR24.89  billion  an  increase  of  44.54%  from  
2012
In  2014,  the  transportation  sector  contributes  
3.11% to  the  total  of  DKI  Jakarta  GDRP,  while  
SHIA  alone  contributes  at  6.06%  of  the  total  
air  transportation  contribution

Strong  Flight  Demand  – But  Not  Capturing  


Access  Infrastructure  to  SHIA Growth

Via  Toll  Road  (from  city  center  to  SHIA) According  to  Airport  Council  International  (ACI),  
§ Jakarta  Inner  Ring  Road  (~30.2  Km) SHIA  is  one  of  the  busiest  airport  in  the  
§ Prof.  Sedyatmo  Airport  Toll  (~30.5  Km) world  – It  was  ranked  9th busiest  in  the  
§ Jakarta  Outer  Ring  Road  (~35  Km) world  ahead  of  Changi  in  2012,  but  now  
ranked  18th behind  Changi  at  16th
Providing  flight  services  from  up  to  46  airlines  
SHIA  Express  (Express  Train) for  domestic  and  international  flights
Planned  route:  Halim Airport  à Manggarai à
Dukuh Atas à Tanah  Abang à Pluit à SHIA  
Need  for  significant  investment  capital  to  
(~33.68  Km) develop  a  third  runway  (IDR  4.5  trillion)  and  
upgrade  Terminals  1  &  2

Source:  AP  II  Annual  Report  (2015),  AP  II  Press  Release  (2014),  Tusk  Advisory  Database  (2014),  BPS  DKI  
Jakarta  (2015) 26
SHIA  has  strong  fundamentals  but  has  significant  need  for  
operational  efficiency
SHIA  has  shown  decent  revenue  growth   …but  it  still  lags  behind  the  operational  
despite  negative  passenger  growth…   efficiencies  of  other  large  regional  competitors

(IDR  bn) 2014 2015 %  Chg. EBITDA  Margin


Airport Country
Total  Revenue 3,592 4,100 12.1% (H1  2015)

Non-­Aero 1,305 1,821 39.5% Sydney Australia 82.1%


Aero 2,287 2,279 -­0.0% Auckland New  Zealand 74.7%
Total  Expenses 1,439 1,575 9.5%
Hong  Kong China 69.1%
Employee 334 417 24.9%
Soekarno-­Hatta* Indonesia 60.8%
Operating 809 898 11.0%
London   UK 57.2%
General 296 260 -­12.2% Heathrow
EBITDA 2,146 2,444 13.9%
Copenhagen Denmark 54.3%
EBITDA  Margin 59.9% 60.8% +0.9% *  EBITDA  Margin  for  FY  2015
Source  of  Numbers:  Centre  For  Aviation

Annual  Passenger  Movements  (in  millions) Potential  Private  Operator  Value  Drivers
Private  sector  investment  can  provide  needed  upgrades  
to  allow  SHIA  to  become  a  major  hub  airport
• Improve  and  add  runways  that  can  handle  larger  
passenger  planes  such  as  A380s
60.1
57.8 57.2 • Increase  airport  movement  efficiencies  to  improve  
54.3 connection  abilities
51.2 • Increase  proportion  of  international  flights
Improve  retail,  cargo  and  aeronautical  revenues  to  bring  
2011 2012 2013 2014 2015 SHIA  up  to  global  standards
Source:  AP  II  Annual  Report,  2015 • SHIA  revenue  per  passenger  is  $5.66  compared  to  
global  average  of  $21.22  as  well  as  regional  competitors
27
LCS  will  increase  revenue  per  passenger  of  SHIA  to  rightful  levels  

Operator Operator Operator Operator


Profile

Retail  Concessionaires Retail  Concessionaires Retail  Concessionaires Retail  Concessionaires

54.3  million  passengers 49  million  passengers 69.7  million  passengers 55.5  million  passengers
386,615  routes 815,340  routes 410,000  routes 346,300  routes
Revenue

Aero:  US$175  million Aero:  US$  460.5  million Aero:  US$  5.74  billion       Aero:  US$611.3  million

Non-­ Aero: US$141 million Non-­ Aero: US$252  million Non-­ Aero:  US$  1.04  billion   Non-­ Aero: US$954  million

Revenue/passenger: Revenue/passenger: Revenue/passenger: Revenue/passenger:


$5.66 $14.53 $22.63 US$28.20
Expense  Structure

General 17.0% General 13.9% General 19.1% General 17.8%

Employee 26.0% Employee 20.2% Employee 34.8% Employee 34.5%

Operating 57.0% Operating 65.8% Operating 46.1% Operating 47.7%

Source:  Changi Annual  Report  (2014/15),  HKIA  Annual  Report  (2015/16),  KLIA  Annual  Airport  (2015),  Centre  For  
28
Aviation
LCS  will  also  bring  SHIA  up  the  value  chain  in  terms  of  managing  
operational  complexities  in  the  modern  age
…and  increasing  both  stature  and  revenue  for  
Global  operators  will  ensure  SHIA’s  growth… SHIA

Increasingly  airport  operations  requires   u Lowered  gov’t  spending  on  


addressing  issues  that  are  beyond  the   revitalization  and  airport  expansion  
traditional  scopes.    
u Create  new  investment  opportunity  
New  Airport  management  process  requires   and  give  signal  to  the  private  sector  
investments  in  digital  and  new  technologies,   that  limited  concession  
such  as:
schemes  can  be  applied  to  
u Self  adjusting  lighting  and  air-­
conditioning  systems  can  lead  to   other  infrastructure
considerable  operational  efficiency u Increased  government  income  from  
u Intuitive  music  systems  and  passenger   commercial  and  property  taxes
care  services  increases  passenger  
comfort u Increased  revenue  especially  for  non-­
aero  revenue  via  commercial  
u Superior  network  connectivity  within  
optimization
the  airport
u Opportunity  to  add  overseas  flights
u And  intuitive  digital  services  that  guide  
travellers  to  spend  money  at  the  airport   u Improved  standards  of  service  to  
thus  increasing  non-­airside  revenue   passengers
for  the  operator. u Partnership  with  global  operators  
will  increase  AP2’s  institutional  
knowledge  for  application  in  its  other  
airports.
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Case  Study  – Kansai  &  Osaka-­Itami Airports  (Japan)

In  March  2016,  the  Japanese  Government  reached  financial  close  on  44  year  concession  
featuring  an  ongoing  +  upfront  payment  structure  for  two  airports

Deal  Overview
Concession-­ Upfront   Annual   Revenue   Performance  
aire Payment Payment Sharing Security
JPY  175  billion
JPY31.4
Project   billion
JPY  37.3  billion
3%  after (US$1.49  
Highlights revenues  reach   billion)
(US$371
(US$312   JPY150  billion
million)
million) *  reduced  by  
JPY56  billion  
after  Year  5
ü Government  receives  ongoing  fixed revenue  stream
Benefits  to   ü Retains  long-­term  revenue  stream  and  participates  in  achieved  upside
Japan ü Performance  security  partially  mitigates  downside  risk  in  case  of  
concessionaire  default
ü Airport  serves  large  catchment  area
Similarities  
ü Operational  upside  from  transfer  from public  sector  to  private  sector  
to  SHIA management
ü Kansai  Airport  is unable  to  have  any  future  expansions  due  to  geographical  
footprint
Advantages   ü Osaka  Airport  has  operating  curfew  and  limits  on  aircraft  movements
of SHIA ü Future  high-­speed  rail  connection  to  Osaka  limits  future  upside
ü Osaka  Airport  only  serves  domestic  market
ü High  annual  payment  structure  reduced  competition
Structural  
ü 10  teams  were  shortlisted  but  only  one  submitted  a  final  offer
Dis-­ ü To obtain  high  valuation,  government  removed  any  restrictions  on  landing  
advantages fees
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Case  Study  – Luis  Munoz  International  Airport  (Puerto  Rico)

In  February  2013,  Aerostar  reached  financial  close  on  a  40-­year  concession  to  operate  Luis  Munoz  
International  Airport  in  San  Juan,  Puerto  Rico.
Deal Overview Private  Sector  Management  
Led  to  Improved  Efficiency  &  
Additional  
Concession-­ Upfront  
Committed  
Revenue   EBITDA   Increased  Revenue
aire Payment Sharing Multiple
Investment
Pre-­Concession Post-­Concession
Year  1-­5:  
US$2.5mil  /year
Project   Year  6-­30:  
Highlights US$170  million
US$615   5%  of  Gross   25.4x  
(In  first  5  
million Revenue (not incl.  future  
years)
investment)
Year  31-­40:  
10%  of  Gross  
Revenue

ü Concessionaire  has  already  invested  $130  million  to  modernize  airport


Benefits  to  
ü Government  received  upfront  payment  to  solidify  its  own  fiscal  position
Puerto   ü Concessionaire has  increased  operational  efficiency  and  attracted  new  routes
Rico ü Retains  long-­term  revenue  stream  and  participates  in  achieved  upside
ü Main airport  serving  island
ü Airport  serves  large  catchment  area
Similarities   ü Primarily  Origin/Destination  airport  (83%  at  Luiz  Munoz)
to  SHIA ü Operational  upside  from  transfer  from public  sector  to  private  sector  
management
ü Significantly  higher  passenger  activity  (54.3 mill  at  SHIA  vs.  4.2  mill  at  Luiz  
Advanta-­ Munoz)
ü Potential  to  become  a  regional  hub
ges of   ü Increased  retail  opportunities  including  duty-­free  opportunities  
SHIA ü Indonesia  macro-­economic  profile  is  much  more  attractive
ü ASEAN  Open  Skies  will  increase  demand 31
Case  Study  -­ London  Heathrow  Airport  Before  and  After  
Concession

Before  
Concession

Airport Characteristics After  Concession

Was  privatized  as  part  of  the  privatization  of  the  


British  Airports  Authority  in  2006  for  12bn  GBP  
(192  trillion  IDR)

At  the  time,  it  was  the  3rd largest  airport  in  the  
world  with  over  67  million  passengers

EBITDA  increased  from  $1.093,9  million  (2008)  to  


$1.884,5  million  (2016).
Source:  Heathrow  Limited  Report  2008  &  
2016
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Well  established  market  of  interested  airport  investors  &  
operators
These  blue-­chip  firms  are  few  of  the  investors  who  have  participated  in  airport  LCS  deals  
over  the  last  2  years  – Opening  opportunities  for  partnerships  with  local  firms.

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