In the matter of Determination of tariffs for Aero...

9 Review of Capital Expen dit ure 9.1 BIAL's submissions on Capital Expenditure during Second Control Period 9.1.1 Additions to Capital Expenditure as considered in MYTO-CP1 and actual Capital Expenditure as submitted by BIALwas as given below: Table 21: Additions to RABas considered by Authority in MYTO-CP1 (Rs. Crares) "-",' I( roj ect iJc _, " .. Apron Expansion Terminal 1 Expansion ,'"Ii,pate,of II . Basic CoW -~ , ~pi t~f1 ~i~lO ~~ ~1iJ~i~ a rge ~ ,I I""" " "'" ,"" j , > O l~ F ~ b'!: 14~~ '7, I {~ J ' 121.15"1 ' ~ I ' , ~.y (h'.:'F e b ~ 1 4~.)jtf..W' 1,342.30 'f; Fiha'nd ng illl l?,~~n l - ''RFoje'Gis 23.12 168.63 T~ a , RA B~ 144.27 1,510.94 Other Projects i.e, Miscellaneous 1 ~'-h ;c;01-ljeb~1A '~ i 16.39 16.39 Terminal 1 Expansion - Additional I'".. { O f: Mil. r ~ t'S{,:'f{ 80.22 80.22 Other Projects '; ( Ql~Mar-1.s ,:;, 98.32 98.32 Expansion Projects Capitalised (A) V]UVl1IJ 1,850.13

ll .h~JYla r cn 20 i~" 15.43 15.43 ~3 1s i : ~ arc't;\2b13' 22.52 22.52 Maintenance Capex Projects ~ " 31 s'UrVf 'c{ h ~oillll i ! ' J, ., ~. :. :arc .' " ._ ;j ! 0.00 0.00 ' 1 '9;3 ~ltMW7qW$.015!t"-; 264.50 264.50 I? ,~U; ~, Ma( c h 2mJi:.,. 61.66 61.66 Maintenance Capital Expenditure (Ef) l PI ~ -.I ' ''1 \l 364.11 Total Capitalisation 2,214.24 Maintenance capital expenditure for 2011-12 and 2012-13 given net of disposals 9.1.2 As against the above, actual amounts added to RAB for the period was as follows: Table 22: Comparison of Additions to RAB - As considered in MYTO-CP1 and aetuals (Rs. Crares)

1 ' ; Ra l)ticul~ rs 7!w " tt "'2~~"i.' I ~, 261"ilZi~2 _~0r::~3 ~_ '1"'2013-14 2oi4~15) ;' 201S;/I.~ . H Tot~ 1 15.43 .15.36 0.07 -, lr1167;1:60 443.04Addition as per'l'Y1YT0-CPl I , .11\1 61.66 2,214.2522.5;2 . 60.211,63;7..4Q 30.07Actuals as per BIAl $ubllnissions . .' ~ 23:84 . 1,766.97 Difference (unspent mainly from -1.32 34.11 382.83 31.59 447.28Maintenance Capex) 9.1.3 BIAL had stated the followingas key.reasons for difference between Projections and actuals: "...The amount capitalized for Apron Extension and Teimittal L is in line with the projections. Others includes various works towards Terminal refurbishment & Forecourt expansion maintenance capital expenditure, minor projects and sustaining capital expenditure. The major difference in other projects is due to deferment of various works to FY2017 and FY2018. Apart from the items discussed above, BIAL could not undertake major expansion projects due to shortage offunds ... II 9.1.4 BIAL had projected for a large-scale Capital Expenditure and commissioning of assets in Second Control Period. Further to the MYT ~ ~ ~I ~J},~~~,l~ March 2016, BIAL had updated the business plan considering increase in capa7~$ iil'r(f~fh"St.~~s.~ of Terminal II Project from 20 mppa to 25 / I.} li)'lJ,\Q .' , ' mppa. I '.t': ~!I,l:;}:'~i (s -:.\ ,~ ~~I!iT~~ r,:'"" ': ) ." ~'~i~ ' ,'\ ~. ;,;,~ :f;~j ~~ '0. :./.,... . ~ Order No: 18/2018-19 \ ~J- ' ,I..; Other items in capital expendifi1rl~n..cI~de /) t'(li.tliiff!~ irport offices, rescue and firefighting, aircraft and airport maintenance and eXistin ~runwa.'i/taxlway improvements. 3246.6 4033.8 4583.2 11863.5 Others Total . /' " , Airport Users' Consultative Committee (AUCC) consultations BIAL conducted stakeholder consultation workshops for Terminal 2 and Airfield Development including Runway 2 and other. projects proposed in :~pntrol Period 2 between FY2017 and FY2021. These workshops were conductedfor threestages oftwo projecrts.as per schedule below: 'I ' I i ~ -I' !' i~; . ~ - ' Date of workshop June 2015 October 2015

I ... ., -Prolects on Agenda Stage Project 1: Airfield De ~elopment .(South Runway and associated I and" works) Project 2: Termina! & Associated Landside and Airside Development Project: Airfield Development (South Runway and Associated /II works) In June 2015, the first AUCC Meeting was held, where BIAL presented the following for projects planned in Control Period 2: Project 1: Airfield Development (South Runway and Associated Works) ~""--.. .......... N d Id if . ee enti ication r". ~'"" ~0o. :l1I1:1..( i); .-",', 1'If.) '. ' Options Development ~ ~ ~ ;: ~~~ ....' A ~ w .~_)q;.G: 'J~~ ~t w : ' ~ ) Order No: 18/2018-19 ~. ~ ~ ~N!j( , J. (I :.u ~ ~ '_:~~:~ "~7~;" ~ I ~ / J~ Page 90 of 264 , I",.., ,/ r.. : I I , 1 :~ .,., \~ - I '-';~ :~ Review of Capital Expenditure Project 2: Terminal & Associated Landside and Airside Development Need identification The minutes of this meeting were circulated to all stakeholders on 24 July 2015 and have been attached in the Annexure to this document. Subsequently, another workshop was held where BIAL presented the following for the projects: Project 1: Airfield Development (South Runway and Associated Works) Stage III: Detail Design and Cost For Project 2 - Terminal & AssociatediIJafl'dside and Airside Development, need identification has " , J , " , & ;"" , been completed and next stag e:wIII 'betompiet'edJn,:the next 3-6 months.../I , '. . 9.1.6 for Project 2 for .State III also in 9.1.7 Order No: 18/2018-19 Page 91 of 264 Table 23: Overview of Capit al Expenditure and addit ion to RABfor second control period as submit ted by BIAL (Rs. Crores) ,wi ~ Interest .,~. TotaL ] R A!~ , Total .I,/ reapt ln .,. '" Ili Year , of I rtr t~i F l n a n~i ng dOtlnll addl fi Qnl R/W - Nor,, :.u, Cwrt ln Captl n Non ; ~ : ~ Aero Project . ~il Pt l n . Cost , NJJ o.~an c~ .p >n$tt!JSf,Qn to RAB , ,;~'rJ; Aero r~:~~~ s - Aero Aero I~ ca t e ~.eLY \uRatlo Site pre paration & Eart hworks to ,'~. Runway 2, Taxiway .1)'>:.,100:. ) , ~~ B,ulldings24 ~i 91 " , , &Apron 2018 908.32 66.49 I)J :97 4.82::.' " " .... I ~ 0.00 955.36 955.36 0.00 RW!TW 100%'} 9 ~4. ~2~ Runway 2, Taxiway (t~ 1; ... '. ' J,~"~ ~'. : i ;~ , Build lngs2 & Apron - Phase la 2020 1655.60 279.70 159.95 1 .(1~~ 5, 29 , ~' 19 ~ ?, ..29 ' 0.00 1815.54 1815.54 0.00 RW!TW 100% Runway 2, Taxiway le. [ ~~~. ~~' ':~!ll . Build lngsl & Apron - Phase II 2021 847.67 208.58 112.63' 1\ ;}056.2\ ,\~ 0 5 6 ; ~ 5 0.00 960.30 960 .30 0.00 T,B,R 100% Second Terminal - 1\1 I ! ~ }1. f' Build ingsl- Phase I 2021 3757.52 825.66 398.0 8 j 4583.18 I i 4 1 1,~).7 0 412.49 4155.60 3781.60 374.00 T,B,R 91% Forecourt roadwa ys l _t ~ ~f{ 1 f l )" " ~ , . f ' ~ ~ ~& landslde .!:? [',:IJ development - ~l J XI r'-) ~\ !]- Buildi ngsl" ' - ~4.9 . 9r~ c': ItQP, l, ~ ,)Phase la 2021 460.04 89.87 40.76" 49.49 500.80 455.73 45.07 T,B,R 91% Rescue & Fire ' .,;~##~;'I # ,'W'J1 ' Fight ing 2019 12.45 0.81 0.44 13.27 ---E.E-. 0.00 12.89 12.89 0.00 PM3-Safety 100% Airport Offices - '( iC..oi~<..! \JT ~ n Build lngsl- Phase I 2018 71.39 0.00 0.74 71.39 64.96 6.42 72.12 65.63 6.49 T,B,R 91% Build ings3 Ut ilities - Phase la 2020 118.59 15.94 9.09 134.53 122.43 12.11 127.68 116.19 11.49 WM S 91% Existing run way / taxiway improvements Buildin gsz- Phase l a 2018 69.30 0.98 1.40 70.28 70.28_ 0.00 70.70 70.70 0.00 RW/TW 100% Forecourt roadways " '. ~L - '' ~ ,Ii ' & landslde -' I ~ Il , ~ i development . 1\' Build lngsl 712.22 Phase Ib 2020 649.41 82.73 62.81 732.14 666.25 65.89 648.12 64.10 T,B,R 91% Forecourt roadw ays & landslde 1- development - 274.'141 ;' Bulld ingsl- Phase Ic 2019 258.88 15.27 8:77 249.47 ,24:67 267.65 243.56 24.09 T,B,R 91% Existing runway / - i ,~ .~ ~ .... 'wl! taxiway imp rovements - Buildin gs2 Phaselb 2021 103.33 0.00 0.00 103.33 103.33 0.00 103.33 103.33 0.00 RW!TW 100% Term inal Buildingsl ref urbishment 2017 79.99 4.59 0.01 84.58 76.97 7.61 80.00 72.80 7.20 T,B,R 91% Bulldin gsl Forecourts 2017 79.73 3.02 0.44 82.75 75.31 7.45 80.17 72.95 7.22 T,B,R 91% Buildi ngsl- Susta ining capex - I 2017 65.12 2.98 0.43 68.10 61.97 6.13 65.54 59.65 5.90 T,B,R 91% Buildingsl Sustaining capex - II 2018 85.44 10.10 10.13 95.54 86.94 8.60 95.57 86.97 8.60 T,B,R 91% Second Ter minal . 2021 209.38 45 .66 22.06 255.04 232.08 22.95 231.44 210.61 20.83 ICT- Blended 91% Review of Capital Expenditure I'''',

I.: ri"oleetI. J ."~.' PhaseI ,," ' ili- l i~~ e a r o r .. ~'1P ~ln. ,lnfral S9;W I' " hi ter.est I Financing I I' during II COhstudiorl';~,o W~.nc,e ..... ' , .,;" . '7\ ' , :::'JotaJ' addition t()RA B~ 1 . '

779 .00 10211.16 0.00

0 .00 0.00 0.00 4.52 77,9,QQ:; ;;::,.735.29 , ~-<. ; j :~ , -'I' r > ) . : . ,: . : 1\ , ' <..-l ~ , , -,) 87~ i~9 , : 11863 ,54,: 1119/);02 ;

0 .00

43 .99 618.99 ICT..Blended 91% , 1~ q-. :;:~~~ - Order No: 18/2018-19 Page 93 of 264 9.1.8 BIAL had also informed vide letter dated 21'1 November 2017 that certain works had been awarded at costs lower than that of the estimates and were to be considered accordingly in the MYTP submissions. 9.1.9 BIAL had, subsequentfv.fn February 2018, given the break-up details of the savings detailed in the letter, and had also submit ted changes In the Capital Expenditure estimates, key reasons being: 9.1.9 .1 Consideration of Goods and Services Tax (GST) instead of the erstwhile Service Tax (ST)/ Works 9.1.10 We have estimated GST at 9.1.11 works, ICT Requirements, Additional parking stands, ITI project, Express Cargo, Aadhaar enabled entry, 220KVsubstation etc. 9.1.12 Further, BIAL had, on 12th March 2018, submitted details of certain costs to be incurred out of the savings submitted in Nllllenil5.er 2017. BIM Had alsosul5mitte'd aeM ils of another project proposed to be executed by it.BIAL, in its mail :~ad stated asfolloWs: "...BIAL vide its letter dated 21s1 November 2017 vide ref: AERA/Finance/2017-18/13 had informed AERA about the award of tender fOri the Newsouth Parallel Runway(NSPR) - including Pavement, T2 aprons, Remote aprons and AGL. It was submitted that there were cost savings to the extent of Rs.723Cr. However, BIAL wishes to submit that post the award of tender, there have been some additional works to NSPR/T2 Apron Works which were not previously considered. These are essential works amounting to Rs. 143 cr. (excluding Design, GST, Project Management, Contingency, IEDC and Pre-operatives). The cost break-up is given below: Review of Capital Expenditure Additional Works that needs to be considered as part of NSPR/T2 Apron Works Construction Cost Description estimated (Cr Rs) infrastructure Remote Stands - VDGS AdditionalGSE Parking Gate House No 2 / surrounding infrastructure / Utilities /Road security """': Taxi Bots Infrastructure provisions Total- Construction Cost 143 The Detailed explanationfor the above works are given in Annexure1. BIAL wishes to submit that the above Construction cost for these works amount to Rs. 143 cr. whichare imperative and need to be executed along with the,NSRR project. As BIAL has alreadyshared with the Authority the savings from N$PR tendered project, BlAt woulc/request the Authority to consider these additional costs as a reduction from the savings and approveof the same for the capitalexpenditure to be consideredfor the MYTP for 2nd Control Period. Eastern Tunnel Works The Kempegowda International Airport (KIA) currently has a single external access through the Trumpet on NH 44 (earlier NH 7). As this was of a serious security concern, the BIAL Management explored alternate access points to the airport and evaluated options which were discussed with Government of Karnataka (GoK) / Infrastructure Development Department (tOO). Also, the construction works on the South Western connectivity has commenced and is planned for operationalization by March 2018. An Eastern Connectivity Roadproviding connection to the proposed MRO/Cargo facilities on the KIA Eastern development pocket (not connected to the airport west areas and the terminals) is under construction by the PWD department. Further BIAL is also evaluating alternate connectivity options to/'Jf;ijji;;ijj(jf~,,, ~ & proposed T2) like the Southern Tunnel Option ~ <.* ~ ,,, ~ ./'t(. "t;~~ (J.t .~; Order No: 18/2018-19 If,' "'~~ff~ UIt \ Page 95 of 264 I r: " lld,1 ' ~, It ,~ ...TJ ~ , nlf. \. I ; \ . ~~~~ J :fJ \ :: ~ ' . ","'flr,; ~1l 1_ }c " . !f. f \ S " ,} , (.. -, ....' ,"-' / ' .... \ O,':. , ..........r~ ~: ,:\' ~ / <'~:" ~:2~ :~~~;.. Review of Capital Expenditure (below the proposed second runway/taxiway) and the Eastern Tunnel Option (below the proposed T2 Apron, east cross field taxiway). BIAL has conducted a feasibility study to evaluate options and based on the study it is proposed that the Eastern Tunnel Access road would be feasible and which would make the airport more easily accessible for the eastern part of Bengaluru city. development of airfield development worksso as to facilitate traffic and addresssecurityconcerns...II 9.2 Authority's analysis of Capital expenditure detailed in Consultation Paper 9.2.1 Additions to RAB - Projects - Authority had carefully examined the detailed submissions made by BIAL with respect to the large-scale Capital Expenditure proj~cts being undertaken by it during the second control period, which wOuld .e aiH:led td'RAB: . ! . 9.2.2 Authority had also noted submission made by ~IAL dated 21st November 2017 wherein BIAL had stated . that: "... BIAL wishes to informARAthat BlAt hastnvtt d tencfers for the NewSouth Parallel Runway(NSPR) - including Pavement, T2 'apro'!s, Remote Apf6nsandAGt. The financial proposals received through e tendering were evaluated and Larsen & Toubro is the L1 bidder. The Lumpsum Contract Price including the associated works are estimated at INR 1428 crores excluding soft costs amounts (Design and Engineering, Contingency and Preoperative expenses). The costs for the NSPR as consideredby BIAL in the Business Plan submitted was INR 2151 crores. These were cost estimates and cost savings to the extent of INR 723 crores primarily on account of value engineering proposition as expected from the bidders which ensured that the short-listed contractors could bid at optimized cost levels. At the same time, we ensured that quality and specifications as required under the tender documents are Order No: 18/2018-19 Page 96 of 264 Review of Capital Expenditure safeguarded. BIAL will endeavour to work with the contracting partners to ensure value engineering proposition to arrive at optimal costs for Terminal T2 and allied projects as well...II 9.2.3 The Authority had taken note of the above and asked BIAL to submit a reconciliation mapping the costs as considered in Business Plan versus th e revised estimates. This was received from BIAL on zo" 9.2.4 9.2.4.2 9.2.4.3 9.2.4.4 Passenger work and 9.2.4.5 Review and justify the reasonableness of the time schedule of completion of work proposed by BIAL. 9.2.5 The Consultant had shared the final report on 25th January 2018. Report of the Consultant was attached as Annex-3 to the Consultation Paper. cost evaluated and considered reasonable by the Consultant etc.were detaiJel!! as belbw: 9.2.6 Tabulation detailingth~ Broad Project head, submission Table 24: Comparison of block cost estimates considered by BIAL and that evaluated by the Consultant (Rs. Crores) As' against Rs. 726.66 crores planned for earthworks, works awarded is Rs. 547.31 crores - This is incorporated. Cost of Bitumen considered at 59,000 per MT at 2014 level this has reduced subsequently - considered 38,550 per MT 1910 f- ---:- -------,--,.---,------=-:,--,-.,---- - - - - - -!2,304 airf ield New south developm ent works T2 Apron 1 678 640 Rate of Reinforcement reviewed and changed 5econd Terminal Phase1 3,174 3077 Rate of steel reviewed Forecourts, roadways landslde development 1,256 1124 Steel rates corrected Aircraft maint enance Airport maintenan ce

132 130 Rescue and Fire Fighting 10 10 Fuel storage & Distribution Phase1 Order No: 18/2018-19 Page 97 of 264 Review of Capital Expenditure I ~, "''jII l' trt;oCkestimate Cost n I ~ ,'4 Part iculars Keydifferences . mlfted by B I A ~ eV~J~!}~ed .Jk ",.,... jL n . Airport and Admini stration

57 57 offices Utilities Phase1 98 98 Existing Runway, Taxiway

320 275 Cost of Bitumen corrected Improvements Design and PMC- 10% claimed by BIAL reduced to 5% based on LJeslgn/ PMC 10%, ConlillgclILY f.( ~\} ' ;' ~..\{ ' \ review 01other projects and reasonableness for a large proj ect 10%, Pre-Op 5% ~~ ' OGO \ 1(" ,.t (j~3 . Conttngencies claimed at 10% by BIAL. RIAL reduced It to 6% at ~ ~~ ( ~ ~~l/ ) . " . " . ~ J t he t ime of prov iding clarifications. 3% considered reasonable , V'\ '/'11 ., Site Preliminar ies '1iJi '1.''J!;,' 'Y Submitted by BIALadditionally - Preliminaries at 1% considered , ~.~ ~1fl;~6 reasonable. Second TermlnallCT i ' 2 S7 Submitted later by BIAL, Considered reasonable TOTALWITHOUTIEDC ~0, q 3 ~ ~ f .,a268 Notes: y1.VVI~ l) . Additionally, RITES has commented on Project Managetent 4t~1~ u r r e d by BIALfor which Authority has to ta ke a view . .iil .,-WI \.-.l The total block cost estimate submitted by BIAtJloes nof iiiat With tb e.addit tons to RABIn the MYTPsubmitted by BIALas:

i) Block cost estimate s do not consider minor .~~~:Vc a P i~ ~II ~.\!:a. ; l n .~i 6;M and estimates tow ards Sustaining Capexand Special Repairs iI) Above Block cost Includes certain projects ~h l.~~:~~P~~~'ftt_~:;bg.,s:l I Jt a l i s e d beyond the second control period, In the year 2021-22 , -~~ .7J\~ . . 9.2.7 The Authority also noted BIAL s submH,S:i_,atlng to certain additional projects to be done, as a withdrawal from the savings subm"rl~""~ """,'....s, - Para . 9.1.12 above. The Authority accordingly . -cl a~. ef;e taill~~ :in proposed to evaluate costs based on approval by RITES and adjusting the net savingsshared by BIAL. 9.2 .8 The Authority noted that BIAL had requested for additional amounts to be considered due to difference between the Indirect Taxes considered earlier at the time of submissions and the Goods and Services Tax (GST), which is applicable currently. The Authority noted that while the indirect taxes applicable had changed, the amounts tpbe considered for Capltalgation would be after considering the credits that can be taken OIl' tlte same. Hence, the h\uthority.proposed 'n9t to consider the impact due to GST currently and will evaluatetthd same after the costs are ihcurFedana capitalized in books. 9.2.9 The Authority had noted that RITES had commented about the Pre-Operating Expenses submitted by BIAL, as follows: "...An amount of Rs. 461,r;rares h{Js ueeo !hclJtled in the revised submissions towards preoperative costs which includes Rs. 180 Crores towards PMC. The cost towards PMC is already taken into consideration at SI.no.14 above and hence to be excluded. AERA may therefore like to take a view on the balance amount of Rs.281 Crares claimedtowards Pre-Operative expenses.../I 9.2.10 Authority had obtained certificate from Chartered Accountant on the details of Pre-Operative expenses carried in books and sought confirmation that these costs were not considered as part of the expenditure debited to P&L account. Extract from the certificate of the Chartered Accountant is as below. Page 98 of 264Order No: 18/2018-19 Review of Capital Expenditure This Is to certify that Banglllore International Airport limited (SIAL) has Incurred the below mentioned preoperative expenditures for various projects, during the FY 2016,17 and FY 201718 (Till Dec 2017). AmountIn INR Particulars FY 2016-17 FY 17-18 (Till Dec 17) Opening Balance of Preoperative Expenses 45,84,96,394 65,50,28,603 Add: Expenses Incurred during the

640 crores and BIAl valu e Is Rs.

271 crore s plus Rs. 143 crores. T2 Apron 1 460 BIAl base value considered 414678 As per RITES analy sis andSecond Term inal reduction . BIAL revi sed base value Is with 6.6% Incr ease due Second Ter minallCT 3,077 3420Phase 1 3,174

257 257 286 to GST,not considered As per RITES analy sis and Forecourts, roadways reduction . BIAL revi sed base and landslde value Is w ith 6.6% increase due development 314 1,570 1,124 1,124 1249 t o GST, not conside red 1,256 As per RITES analys is. BIAL Aircraft maintenance revised base valu e Is with 6.6% and Airport incr ease due to GST, not maintenance 145 con sidered BIAL revised analysis lower and Fight ing Rescue and Fire

8 hence considered 10 3 13 10 7 Not availabl e in Business Plan. Distr ibution -'Phase 1 Fuel sto rage & o Not consid ered As per RITES analysis. BIAL revi sed base value is with 6.6% Airport and incr ease due to GST, not Adm inistration offices 63 considered As per RITES analysis. BIAL revised base value is with 6.6% increase due to GST,not Utilit ies Phase 1

57 14 71 57 57

109 considered 98 25 123 98 98 As per RITES analysis and Existing Runway, redu ction. BIAL revised base Taxiway value is with 6.6% increase due improvements 306 to GST, not conslder ed 320 80 400 275 275

76 72 1% of above costs Site Preliminaries Order No: 18/2018-19 Page 100 of 264 9.2.15 Review of Capital Expenditure toadt ng RITES Olock Base Hation ale for t he,base va lue estimate 25% as per BIALApril17 value t o Cost incl . suQmJ$,S,IOI1 (tl llPort lon consldeted BIAl'(ap J (AtB)' consider 8.D30 2,008 10,038 7,655 7,423 8.167 Panlcu lars 01:' Sub-Total Deslgn/ PMC 10%, Contingency 10%. Pre Op5% 2,008 -2,008 613 593 8% as per HITES est imate 9.2.14 Ann : Prp-Operating Expenses 150 and from Oct. 2017 to March 2021 (42 months) for the building works. The time for construction stipulated by AAI in some of the tenders for airport terminal building projects for Project Management Consultancy including design and supervision is 9 months planning & design and 36 months for construction. Hence the time schedule proposed by BIAL is considered to be reasonable... 1/ revised cost for computing additions to RAB for the 9.2.16 purpose of determining ARR for the second control period. Additions to RAB- Special Repairs/ Sustaining Capital Expenditure 9.2.17 The Authority also noted that BIAL had considered a total of Rs . 929.55 crores as "Sustaining Capex / Special Repairs" for addition to RAB, in addition to the Projects detailed above, in addition to other minor Projects viz Terminal Refurbishment and Forecourts (Rs. 160 crores) . Order No: 18/2018-19 Page 101 of 264 9.2.18 9.2.19 9.2.20 9.2.21 9.2.22 9.2 .23 Review of Capital Expenditu re The Authority noted that in the revised details submitted by BIAL, the total estimate of Sustaining Capex/ Special Repairs and minor projects had increased to approx. Rs. 1700 crores - Rs . 1800 cro res for the control period. The Authority had reviewed the details provided by BIAL for the same. The Aut hority noted that BIAL would need to incur Special Repairs 1Sustaining Capex works for the regular upkeep and carrying out minor activities. The Authority also noted BIAL's submissions on need for managing the current constraints in Terminal Capacity and planning certain IT and other solutions r~ 1 ' )"': ," for the same whi ch necessitatefi;e'rt ~~ .:t~:P<.l1~, ll~~fl 'l)l Q.~ itu re projects to be implemented. While the Authority noted that, on an aver'a'~~ !:~unp~R~ i' 3~~rpi~ s - Rs. 34 crores was the value of Special repair 1Sustaining Capex cost capitalisedi ~~~ , ir$Jd;Q'~tr '(period , the Authority, also noted that BIAL had , - ~ - . ~ :\ actually incurred around Rs. 200 crofE~s R ~ (~I" '~ 1I" :{owards special repairs/ minor projects in the years '2016-17 and 2017-18. A certificate to thi~ ' f:fJ ~ ctJ a~ been submitted by BIAL. . .Il V il ' The Authority noted that where cost iof;l~h eA l? ldJ~ c t is over Rs . 50 crores, appropriate stakeholder . . d b ~' ~~~~ \:: A'i::IT7~}}f~ rt G ld I' consu tation was require I to e car.n~ . .(*.\P~~e.rt11e. t, rrpo . UI. e mes. ~ \ I.i

200 crores per annum from 2018-1~HoJ.~~~0jz :f1 In}he estimate of Special Repairs 1 Sustaining Capex for the purpose of the MYTP sUbm MI6'ri9'R{) ~ ani a

154 .00 88.18 242.18 713.57 713 .57 1,411.81 1,411 .81

58 .96 58 .96 492.49 448 .16 272.44 247.92 80.46 80.46 84.08 76.51 82.4 3 75.01 67.78 61.68 94.41 85.91 4,544.48 4,390.47 781.75 693 .57 487.06 5,326.23 5,084.05 4357670.00 4,839.17 2018 2018 Fnr ecourt roadways & landslde develo pment Phase la RlJnway 2, Taxtwav& Apron - Phase II Site prep aration & Earthworks to Runway 2, Taxlwav & Apron Runway 2, Taxiway &Apron - Phase la Special Repairs and Refresh Capitalisation Rescue & Fire Fighting Airport Offi ces - Phase I Utilities - Phase la Cxlstlng runway / taxiw ay improvements - Phase Forecourt roadways & landslde development Phaselb Forecourt roadways & landslde development Phaselc Existing runway / taxiway improvements - Phase Terminal refurbishment Forecourts Total Infra Capitalisation Sustaining capex - I TOTAL Sustaining capex - II Review of Capital Expenditure 9.2.24 The Authority noted that the actual cost of Capit al Expenditure may vary till the Project is completed . The Authority also noted that the capitalisation/ addition to RAB would vary due to various factors such as the timing of expenditure, manner of funding etc. The Authority therefore proposed to true up the cost based on actuals subject to a cap of 10% over the cost as per the Consultant approval for the Projects. 9.3 Stakeholders' comments on Authority's analysis of Capital Expenditure 9.3.1 9.3.2 "...KIA has witnessed double digit growth in passenger traffic which is showing no signs of subsiding... KIA is currently designed to handle a traffic of 20 MPPA and its infrastructure has already been stretched to handle close to 27 MPPA in FY 2017-18. The growth rate pattern would require substantia! investments in capacity both on the airside as well as Terminal side. Therefore, K~A'S inves tm.~n~s, in air of:&ih!rastwcur:.e is critical for the growth ." . . ~ of the entire aVia.t!orf~c;gsy~te m in,. tJi"e re~lon. , .. KIA has capacity expansion plan in terms of adding a 2nd runway, 2nd Terminal and other associated facilities and has ~submit.teda proposal to AfRA for approval of Capex. We also 9.3.3 APAO hasstated the following: "...In the context of reviewing BIAL's proposed expansion project cost for the second Control Period, we understand that the Authority had engaged an independent technical consultant. Based on the technical consultant's report, the Authority has revised and brought down the estimated cost of the expansion project of BIAL to Rs 8,167 crore from Rs 10,038 crore which was requested by BIAL and has also capped the true-up of the expansion project up to 10% Order No: 18/2018-19 Page 104 of 264 9.3.4 Review of Capital Expenditure We would like to highlight to the Authority that project cost estimates that were submitted by the airport operator prior to the implementation of the project works were only estimates of the expected expenditure and these cannot be predicted with complete accuracy. Typically, the private airport operators in India have adopted robust practices for competitive bidding for the project works, internal project management practices to control costs etc. However, given the uncertainties on account of fuel prices, costs of raw materials, "...The Eastern Tunnel work connect~l1ity'.hps_qlJ~n-c,estimated at cost INR 1121 Cr by KIAL in ~\''1~c l \J"i "i (1 its submission. We request AERA to direct KIAL to furnish a breakup of the line items and estimated costs of the tunnel work. Further, we urge AERA to relook in to the design and cost aspect of Eastern Tunnel connectivity. We urge the AERA to direct KIAL to draw a Master Plan including land usage with phase wise development along with the timeline and the cost for utilizing the land parcel of area , ' ,' . development of the land p,drt;el wduld.hot ~ drl/Y, in,creosethe burden on the UOF and the PSF but would also reduce thecl'v,m(abi/ity;of re:tqilaod rectedtlon services to the passengers. KIAL in its submission to JAERA duringAprilL2017 licla estimated the cost for construction of a new terminal at INR 10,038 Cr. However, the evaluation report submitted by RITES to AERA estimates the construction cost of the new terminal at INR 8268 Cr. We request AERA to direct KIAL to furnish details on the difference of INR 1740 Cr in the cost estimated. AERA should relook in to the design and cost part of the new terminal. ....The KIAL in its submission to AERA has estimated cost of Eastern Tunnel work connectivity at INR 1121 cr. This estimated cost appears to be excessive. .... We would also request AERA to appoint an independent consultant such as RITES to validate the design and the cost estimated by KIAL before approving the same" Capacity over utilization has led to congestiq17 ,at KJIA.--. ) ' ,,\1>, ,1 " .., Order No: 18/2018-19 Page 105 of 264 9.3.5 Review of Capital Expenditure As per Fairfax's Annual Report, it is estimated that KIA will handle passenger traffic of ~2 6 Mn in FY2018. With a capacity of merely 20Mn, the airport is currently operating at an overutilization rate of 130%. In its 2017 credit review of KIAL's instruments, ICRA noted that the passenger throughput had exceeded the terminal capacity leading to capacity constraints during peak hours. This is clearly visible at the airport today and the passengers are already feeling the brunt, with the Airport clogged right from 6 am. surely in consumers and Users interests. With respect to AERA's comments noted on previous responses, a lack of AERA resources is not a reasonable basis to avoid supporting Users consultation or addressing the concerns we consistently raise. We do not necessarily require AERA to join consultation meetings (much as that would be useful) - as a start we simply request 'ARRA , SUPp.p~Qur r~Juest that,airpott!s cOf/su,lt;ps they should already be doing in line wiffi;rh:e ((;m. ~Ult~tJon Proto ~,o { J:e. O'ywriting letters to airports reinforcing the need for meaningful consultation, joining conference calls, and generally taking much more of an interest in enforcemen,t of these,.aqtiVitj~. . While we respect the BlAt. m(jnagemel1t team, the tig.tp,wmmarised in section 5.2.2.2 and references to AUCC corls Itati; hs fias:'littlemeanidilwithoat the corresponding project level detail. A small handful of AUCC meetings called on an ad hoc basis between 2015-17 that includes no information on project costs and benefits is ineffective and leaves the airline community extremely frustrated regarding our ability to provide informed feedback. Until we are in a position assess project costs and benefits, and understand there is a positive return to Users we are unable to support the costs being added to the RAB. So AERA is aware, lATA and the BLR AGC wrote to the Managing Director of BIAL in December 2017 thanking them for information shared to date, and requesting consultation Order No: 18/2018-19 Page 106 of 264 Review of Capital Expenditure Reference section 6.2.3 BIAL states the new terminal and airfield development will also require the development of adjoining area for access to terminals and retail outlets for passenger ease and comfort, and other elements such as Utilities, offices, and maintenance. We request consultation on project details have not been shared to date with the airline community. Reference BIAL's comment total airport capacity is forecast to serve the passenger demand Reference Terminal developmeri~~ \w6j QfJ:Cf B,}f iNt-f1 IAL assessment that a phased approach to terminal development based on demand triggers and generally accept its approach. However, a Business Case still needs to be shared and reviewed in consultation with Users. We request further AUCC consultation regarding terminal design concepts, passenger flows and capacity and demand analysis and a review of capital costs. We are pleased BIAL is applying IA TA Level ofSenf(iCe parameters as a de,sfgI'J input, however please note these are is very important to ensure the Users agree with them. Business Case clearly demonstrating a return on investment for Users. London's Heathrow as one of the world's busiest hubs with around 77 million passengers and 480,000 ATMs from 2 runways, has just one public access tunnel to the central terminal area to access Terminals 2 and 3 (and the old Terminal 1).The associated risks of a single point of entry have been carefully managed over a number of years with high levels of resilience, and so a second tunnel at BIAL mayor may not be required, that should be subject to scrutiny and detailed consultation. . Reference 6.3.2 and 6.3.3 we agree with N R'trS':~0",,-,. u , _ " . ~!.; 1>'\, / 9.3.6 Review of Capital Expenditure consultant an assessment on project requirements considering capacity and demand factors. Regarding AERA's assessments, we agree no additional allowancesshould be made for GST. Reference proposalnumber 5, we recognise the efforts AERA has made to try and determine a capitally efficient cost for the 2nd control period and efforts to reduce costs. We would comment however that while a cap is a reasonable approach allowing an additional 10% of important that expansion plans are not delayed which could have adverse impact on industry. Further, BIAL has requested for cash flow support to meet the capacity expansion plans, the same should be consideredby the Authority as per Regulatoryframework .../I 9.3.7 GoK Infrastructure Developmen.t Department has sJa ~.ed the following: important ancillary projects such as 220 KV substation, existing terminal improvements etc. AERA may kindly ensure that appropriate measures are taken during the tariff determination process so as to take care of the expansion and growth requirements of BIAL.. ./I 9.3,8 Sanjeev V Dyamannavar has stated as follows: /I...Cost of Connectivity to Airport from City: As KIAL was planned for handling 40 - 50 Million Passengers during 2005 itself, either GoK or KIAL Management gave serious thought and moved on Mass Public Transport to ensure no congestion happens at the Airport Terminal. This is been followed in all ~r.i';:ifiFfj.t1tion al Airports, ~,~ "'"t 111/:..-. ~ ~ , ~ .<;,0 "" f~. -. , 'fl;:;~ 1,ifJ(h ~:>~ .;.\~~ l -T ~~"Order No: 18/2018-19 Page 108 of 264 :r . ',- ~."[Q J> ';:I ,.' 'J "'6 , V ~" rlj ':j; llRlinJ CiJlll! )f : ~ .':;' .1 " Oh ;~l Review of Capital Expenditure a. Metro Connectivity from City: Connectivity by METRO by BMRCL with additional funds requirement of INR 1000 Crore. This will further burden the Airport passengers through additional UDF. Further, after the metro line is operational, all passengers travelling to and from the airport metro line should be charged a premium service charge by way of higher ticket fares which will keep less UDF burden on passengers. Tunnel. D. Eastern Tunnel Connectivity: The KIAL in its submission to AERA has estimated cost of the Eastern Tunnel work connectivity at INR 1121 cr. This estimated cost appears to be on Higher side. We request AERA to direct KIAL to re-design the Tunnel keeping cost low and even maintenance cost should be furnished in the AERA proposal. 9.3.9 Siemenshasstated the following: "...Bangalore International Airport is experiencing high growth in traffic and we are now the s" largest airport in the country. BIAL is in the midst huge expansion plans consisting of mainly Airfield projects for 2nd Runway, taxiways, Apron, Terminal T2 and Other associated Projects. A Capital Outlay of around Rs.~1,OOo.,C(ores is estimated for the future expansion , ' ., :~\\\,ll ;J ; ' i. . ." ' . projects and we have made con~Si7~' 'Y;;;;CA$~~~exe~ution of these projects. t:: V~I~~~, r . :r l~ \~ .: po 8 .." .1\ ! ;~ . ~~.". , Order No: 18/2018-19 ~~, \....,.... "'''" ;' . .:' Page 109 of 264 \ ~(o: ~ . ' .: \ ('0,., "i..\.'~)/~ ' ~~~( . . Review of Capital Expenditure Despite the Positive intents of the Government and the Regulato ry authority in terms of Progressive policies and approach, the experience of investors in airport sector in India have been mixed. We believe that the sector could not attract the requisite Private Investments in airport projects as compared to the growth potential on account of policy and regulatory uncertainties. This is mainly due to inconsistent approach by ministry in terms of implementing the provisions of Concession Agreement differently amongst the similarly place airports and also due to inconsistent approach by AERA in their consultation papers ~su~dforvariousaifports. ~, In order to ottroct the requi1!&~VJFw"r~l!ts ond to ensure the sector is posed towards a compelling future,A e~A.~W~atii'~ fI:}t~)fmprove the viability of airport projects and bring clarity and consistenCy,~inttfje{lPiiJi'!!1.i'&f) of regulation. The provisions of the CA's should be held sacrosanct, as the' ~nv.es~frli CFn/idence is highly dependent on such an approach. , ~ , " I), "l H,r VIk4!r~ )11 \\ ' Further we also request AERA to, l,l'~W{(;I~': ,t,~~if, ~~ '" , , ~ ,fX estimates as submitted by the BIAL and ~ '" ~'~'H.~~ not to exclude any CAPEX inve ~tr;neii ~. s.~~ff: . ~;1p$ jOach is a need of the day in the present situation where we are in a preA?~'iJi~K~:i~'i.PJ~Significant capacity at airport..." 9.4 BIAL's response to Stakeholders/We ~meht~l (i: , n Authority's analysis of Capital Expenditure 9.4.1 On lATA's comments, SIAL stated as follows: "...IATA has stated that merely updating stakeholders on BlAL's high level investment plans is an ineffective and unreasonable approach to coow.ttation. No project business cases have been shared WfHj~ ttie airlife ~ommU(,ff~W'iiJCliJdiilg~inIo.rmatiQ~retfarding costs or return on investments. Farther': IAiA,. Mis tdted !thpt itls perp(,ei.ed at t{le Authority's lack of willingness to enforce its own Consultation Protocol to support meaningful consultation at Bangalore, and other regu atf?dairports,in ifnaiG, that isin interest of consumers and users. BIAL wishes to submit thatth,e A/rport'Gui(je!Jn"{!s laY cLown the Consultation Protocol and also mention the compositioo'"of 's takeholtJers so as toectdequately represent interest of airport users. BIAL has conducted the AVCC process in line with the Airport Guidelines set by the Authority. All the project details, cost and relevant information have been captured in the Project Information File that has been submitted to stakeholders to have a meaningful discussion. Further, the queries of the stakeholders have also been addressed and submitted shared all the process. Order No: 18/2018-19 Page 110 of 264 Review of Capital Expenditure Further, in addition to above requirement, BIAL proactively has undertaken two intensive workshops with lATA on T2 Phase 1 as a pre-discussion to consultation process and shared all relevant details with lATA. Subsequent to the workshops conducted by fJlAL for lATA there have been no further queries from lATA and lATA chose not to participate in the AVCC meeting held for the New South Parallel Runway ('NSPR') and associated projects as well as for Terminal T2, Phase 1. lATA bringing up questions on those capex decisions is not in the spirit of the aviation industry growth in India. It is suggested that lATA take AVCCs with due ~--seriousness and provide quality iQf"u~ ~;,&'fg~v~~u,: (AVCC) as enabled by the regulator and th t )~' -,J .~ ....r'L /l e opera or. v.~' . ~ ~,' '~,~Jir..~ . \. . ~~ ~ "0'; , J" :,yz'1:'~~ lATA has mentioned that without! intQ[rr1!Jt~Pit(//l , c'6s ts and benefits of projects, stakeholder , . ,FF' d I h ~' :~'I'/~l;, , I F d diconsu tations are I inettecuve an ~ ~(j1Ve ,t e~a}( [re .comm unlty extreme Yfrustrate reqar mg . their ability to provide in/armed /<1 d .G~ t7e airports. fATA has specifically requested a response to letter sent to the Man . iti ~ Director of BIAL in December 2017 requesting a ' f,~u i H h~ "\. . consultation. " :f'R. .. , . "...IATA has requested the Au f.htbj/fy.i~t 6.i~it~ l~ustaining capex / special repairs costs ~)~:-A\~J~;(.~~ 1JlIf incurred by KIAB in FY2016-17 6n{fJE-Yf32e'if.7218 of approx. Rs. 200 crore per annum and suggested that BIAL consults sta~ I~~,rOfj , m,(J1mts exceeding Rs. 50 crore. KIAB is witnessing exponential traffic growth, and it is expected that the traffic will continue to grow significantly over the next decade, Thus, maximising the utilisation of the existing oirside, terminal and landside capacities through various measures until the proposed Terminal T2, Phase 1 becomes operational. Further, KIAB is also investing in replenishment The sustaining capex/speciai repairs/minor projects were considered to cater to this growth while arriving at the cost estimates and these have been submitted to Authority, which is part of Annexure 4 of the CPoBIAL has always followed the AVCC Consultation Process and conducted the AVCCmeetings wherever mandated. lATA has requested for a business case of the terminal project to be shared and reviewed in consultation with airport users. The Authority has provided Consultation Protocols (AVCC) . for capital expenditure projects which comprehensively covers the business case and this has been complied with by BIAL for terminal project. Further, lATA has requested an AVCC consultation process regarding ter~lt~~m~ ~concepts, passenger flOWS, capacity and ./ . ,~ _.--....... Y ' " . demand analysis and a review Zc..4rjUff costs. B ~L's ..~takeholder consultation for the T2 project considered all the above, ;tiremf~~~ ta ted~bY 'lATA. Further, in addition to above ; ~ilrr~ ~j A~ Order No: 18/2018-19 \ _ '1n~:~:" ) \fJ:, . Page111 of 264 'J, / ..: : ~ '<0 ---..-:1' . ~'" .... ":('i' '1'10 ~ ~ . " "'11';;... l'o,t . \ I'V ~ ....... . '~' ) J P'\ ' . '" .,----:.._..., ~ Review of Capital Expenditure requirement, BIAL proactively has undertaken two intensive workshops with lATA as explained above. IA TA has requested for options, costs and benefits to be shared via a business case demonstrating areturn on investment for users for the Eastern TunnelConnectivity project and has also questioned its requirement of the project citing the example of London's Heathrow airport ('LHR'). BIAL submits that it has already shared details on the Eastern Tunnel Connectivity project in June 2018, where the document contained a need identification (business justification),r,JJ'pti0n.s development, assessment of alternatives, , f ~~l .~;~ \ '~~h' project cost and risk assessmetft-(j d."ftfg'(}J fii:frr,.nwasures. The Phase 2 work cost estimate ~:Z: 't;?<1;%; . ~.< ... 1K : .. l~:~) is being provided as a tentativ~' t()stN3JAL JiJWlqpp'i:Jach the AVCC separately for Stage 3 for A.:'" . ' ~\ ,v" the Phase 2 work. lATA has qlJ dte t(e~" \Il !qrs connectivity of LHR, which has a single . . . access tunnel and expected BIAL t~ ef.

7) In response: lAlI 'W0J!/d ' /I~e to. s,l:Jpmit tHa.t f bos seonducted the AUCC for need identification, ',orJ'ilipt:ls ' developm~f} t"a.niJi'

9) BIAL submits''thatre.garoing collection and utilization to refer the submission made in point 58 para2. FurtlJer,'Ds,part of MYTP submission and tariff determination process all the future expansionprDjeetsincluding Eastern tunnel connectivity project will be considered appropriatelyJnthe tarijfproposal,for consideration of the Authority. Since metro connectivitvis notoart of the current tariff determination exercise for the Second Contro1'Per;od; :BIA'L thooses not to)Ji~QQf! ?n the funding and charges that need to .~ -\ ::'.\ : t ~ ,~; Ii\~" '" be cohectedfortne.same.: /::., . ~\.:,... .... t' >,.:..,. , _, ~" " " /~~' r n "~'. \,I .:(: ~~X[5::11J. ,".~ \ I f: ~~~7'w ~ \ f $' ~'ft ;~ j I~ r> \ l7 t.;- .~ f ~ Order No: 18/2018-19 \ ;i'~~i>l ~ I Page 113 of 264 \ .~.. "Hl ~C .1:; ,1 / i;') \ -\)~~ -/ " . ?~ lJU 'Il\()~ .,;; ~ ~t1'.... _ ._ 9.4.4 Review of Capital Expenditure Proposal 7: BIAL notes that B.PAC sought details from BIAL on the difference of Rs. 1,770 crores between BIAL's proposed capital expenditure (Rs . 10,038 crore) and the estimates providedby RITES in its evuluuiion report (Rs. 8,268 crore). BIAL would like to submit that these details regarding the costs allowed, disallowed and the rationale for doingso has been provided in the RITES report annexed with the CPo Proposal 8:

6 ,/~ '~ 9.5 BIAL's comments on Authorityj~~~ n:<:!JY~i Sc~ fa~~~~: ~ Expenditure 9.5.1 BIAL has submitted as follows: T+ < ' Control Period. schematic design stage. This has significantly reduced design timelines for the EPC design phase. Also, in ord r the ef;1Sure that 'thework is comp!eteaon time, all critical work elements are made as part of the EPOlump sum scope such that 'there Js a single point of responsibility, thereby minimizing co-ordination and interfacing issues. Currently the EOI and RFP for EPC procurement have already been floated by BIAL with commercial evaluation due by September 2018 and award pf works. -due by earlyfirst week of October2018. Further, BIAL has been using various ~technology jnitiatives to improve the performance of the airport both during construction as well as operations. BIAL plans to adopt latest construction technologies such as Building Information Modelling - BIM (for clash analysis, project reporting purposes), modern document control systems, sophisticated scheduling and monitoring systems for ensuring timely decision making, robust quality and safety systems. Lastly, BIAL has appointed Turner Project Management consultants as the PMC for the PAL 1 works. They willbring global and local experts for fast tracking and achieving the T2 completion target. Review of Capital Expenditure Expansion in 30 months duration. Given these reference timeframes, BIAL believes that it is well on course to operationalize the T2 terminal in this control period, as shown in Exhibit 1 below. Accordingly, BIAL requests the Authority to consider the capitalization of T2 in March 2021 and include the asset while determining aeronautical charges for the Second Control Period. Exhibit 1: Project Schedule for T2 n .......

1 " . t. '. . . BlAL's Submission: - BIAL requests the Authority to consider the capitalization of T2 in March 2021 and include the asset as part of the RAB while determining aeronautical charges for the Second Control Period. On Authority's proposal to exclude the impact of Goods and Service Tax (GST) on the projected Capex.... BlAL's Resppns;: - eo {lo.t~s lthan he Authorjtyh[1s;acknowl?dged the change of indirect taxes applicdb'le in the c,Gantry. However, it has not al(owe'd an increase in project cost of BIAL to incorporate the same. Mere acknowledgement of the fact and not considering the same while determining aeronautical charges i.e. leavlnq the same for a true-up at a later stage will cause a signifiCdnt detsimentol impact otutne casn flows of BIAL. BIAL would request the Authority to recbg~izi! ' that it would need to incur GST on capital projects as a cash outflow, and unless the Authority considers it towards BlAL's capital expenditure while determining aeronautical charges, it will deteriorate BIAL's cash flow position during the Second Control Period, until it is allowed to recover the amount during the Third Control Period. Order No: 18/2018-19 Page 116 of 264 Review of Capital Expenditure Accordingly, the Authority is requested to consider the project cost as submitted by BIAL on account of the changing indirect tax regime. BIAL's Submission: - BIAL requests the Authority to consider the project cost submitted by BIAL, including the impact of GST on the project cost and not penalise BIAL in terms of significant cash flow issues. Any difference between the GST outflow allowed by the AuthorIty and that incurred on actuals may be subjected to a true-up. On the matter of additional projects in the Airport User Consultative Committee ('AUCC') stage ,.~, . - ". BIAL's Submissions: - BIAL w dUldjik~'t&{jiide7iake the following additional projects in the Second Control Period: 4;~; "'::l ' .~' -;" :' ~ . ~~ Eastern Tunnel Works - The c;utrent: NH':;44"through the existing trumpet and through SW ',' j . 'l Connectivity road is the only .exfernol ',t C(fSS available between airport terminal and Bangalore city. The expansion oNJ ~ 4 ~S'~ ?,t possible due to congestion at Hebbai flyover " ; , '1' n; '\and due to land acquisition COn;fP.ffints. As.:pei ~~ngaluru Metropolitan Region Development ,'0' . . I' ~f ' , Authority (BMRDA) Structur~1.Pldn(i2fJ}?!in-t~ ~~lt, development is planned around east of 1hr~( '\;"At<:.l)}:., ~ I lr Bangalore urban clusters l ~ 'n ~!/ll#1.gl1 ifjca h t other developments in the area e.g. commercial developments at.p.ocfdaba. lIap,ufa .and Chikballapura, business parks, IT and ",-le' r; .:n ,J~ d . hardware parks, KIADB aerospace parks etc.' is expected to lead to additional traffic. Accordingly, BIAL has conducted a feasibility study to evaluate options for an alternate access and based on the study it is proposed that the Eastern Tunnel Access road would be feasible and make the airport more easily accessible for the eastern part of Bengaluru city. The construction of the Eastern Tunnel works involves the Phase 1- Early Works which includes coqstructlon of:Tu,nnf?1 belQwcross field tpXiway (QPwoximately 300m, only civil works). I 220/66 KV Substation - As per KERC, power supply needs to availed at 220KV for power loads above 20MVA. As a result of LfPcqming facilities, total estimated demand by FY 2020

21 (for aero assets) is,likely to be "'33 MVA and the same by 2030 is likely to be "'55 MVA. BIAL pursued with KPTCL to }Jrovideup to "'33MVA of power at 66KV level, however, after multiple rounds of discussions, KPTCL has refused BIAL's request. Accordingly, BIAL will have to accept power at 220KV and would require a 220/66 KVSubstation, BIAL has completed the AUCC meeting on 22.06.2018 for both the above projects and the stakeholders have not raised objections to either of the projects. Accordingly, we would request the Authority to consider BIAL's submissions at the time of finalizing BIAL's AERA's Treatment Order No: 18/2018-19 Page 117 of 264 Review of Capital Expenditure As per CP, the Authority has stated as below with respect to the treatment of Special Repairs/ Sustaining Capital Expenditure: BIAL's Response - Other Sustaining Capexi- KIAB is witnessing exponential traffic growth and has achieved traffic of N 27 million passengers in FY 2017-18. It is expected that the traffic at the airport will further continue to grow and thus maximising the utilisation of the existing terminal capacities through sweating out of assets is necessary to handle the facility augmentation requirements. Considering the above, ~h. Authority should not proceed on an adhoc basis. The Authority's justijicationc!p'rCOnsidering special:.repair$:at Rs. ,zOOcrores.f!lenannum for FY 2018-19 to FY 2020-21 is based on the past,tre{1d, ~hich is nO,ta true reflection Qfthe future. The Authority has also not given due consideration to BIAL's technical justifications or any specific justification its own treatment. This is Jikely to have an impact on airport operations and BIAL may not be able 'to. handje t he :prole ~ted traffic if such capital expenditure is not undertaken. Further, .. this situation mayealso .aggravate the cash flow deficit expected by BIAL. BIAL's Submission: - BIAL request the Authority to consider special repairs / sustaining capital expenditure / minor projects based on BlAL's estimates and true-up the same at the time of tariff determination for the Th irdControl Period. On the matter of truing up the RegulatoryAsset Base at the end of the Control period based on actuals and based on results of the study on reasonableness of the costs incurred as part control period and capping th / '., 't (Order No: 18/2018-19 '" '7 ~, Page 118 of 264 Review of Capital Expenditure AERA's Treatment: - As per CP, the Authority has stated as below with respect to capping the true-up of Project Cost: BlAL's Response: - BIAL submits that an appeal is pending against OrderNo.07/2016-17 in the matter of normative approach for capital costs regulation for major airports passed by the Authority. BIAL understands that Authority appointed RITES to examine the capital expenditure on expansion of BIAL and has considered the RITES report for Capital Impact of the TDSA T Order on the Project Cost: Also, in the matter of DIAL's Tariff Order for First Control Period, the Hon'ble TDSAT has upheld the Authority's views that estimation of project cost can only be examined to see if it relates to approved costs, and supported by auditor certificates. .The Authority's legal counsel obseiv!?'d:hpt ":..s ~!th cos ts cannot be re-eJ?qminelj'"QY;I ~tbe yardstick of efficient cost but has to be taken (1S the incurredcost!only,ps appearing,in tlJe duly certified books of accounts", whichhas been accepted by the Hon'ble TDSAT. Practices and Technologies rhat ~wolild 'b ~odQP t,ed byBIAL Further, BIAL assures tl:ie"Authority"that it willbe efficient in incurring these costs and adopt ; . ' . ' '". ' robust practices for competitive 'biddimjof project worKS. BIAL will endeavour to manage capital outlay within estimated project costs and willJustify any significant deviations. Moreover, BIAL plans to adopt latest construction technologies such as Building Information Modelling - BIM (for clash analysis, project reporting purposes), latest document control systems, latest scheduling and monitoring systems for ensuring timely decision making, robust quality and safety systems with a view towards reducing time and cost overruns. BlAL's Submission Order No: 18/2018-19 Page 119 of 264 Review of Capital Expenditure BIAL requests the Authority to remove a cap of 10% of the project cost for true-up and consider the actual project cost based on financial results, backed by auditor's certificates corroborating that these costs were actually incurred and pertained to approved projects. Further, BIAL assures the Authority of its best efforts to execute the projects within the prescribed cap of 10%. In the event BIAL's actual project costs exceed this cup, BIAL will provide the requisite justifications in support of the escalation. 9.6.1 9.6.2 9.6.3 9.6.4 of Terminal 2, GST costs, Sub-station, Tunnel works and other Sustaining Capital Expenditure. Authority's analysis on each of these are as given below: 9.6.5 The Authority has noted detailed submissions made by BIAL that Terminal 2 will be commissioned before March 2021. BIAL has submitted plans and estimates regarding the same and also has, citeii references of its past experience in constructing T-1 and T-1 expansion. The Authority 'has also sought the :opi nion on the same from RITES, the Consultant who opined that the Terminal Building works could be completed by March 2021, as estimated by BIAL. Based QD the detalled explanation and justification provided by BIAL, the Authority decides\to consid~r t il e capitaliqatiqn year for T-2 Phase 1 as 2020-21. The Authority also nC!t~s that should .BIAL fail -to' commission the same by March 2021, in addition to the normal True-up with carrying cost, 1% additional penalty, by way of reduction of the said value from ARR, will be imposed on BIAL. Also, additional Interest! Financing allowance and Project Management Cost will not be considered if there is a delay . in executing the Project beyond March 2021. 9.6.6 The Authority, in Consultation Paper had detailed its comments on GST. The Authority had noted that BIAL has submitted details on the additional cost on account of GST for which credit is not eligible for. The Authority accordingly decides to consider additional 4% as tax Order No: 18/2018-19 Page 120 of 264 Review of Capital Expenditure computation of permitted Capital Expenditure estimate. This will be trued up based on actual credit availment and capitalization. 9.6.7 The Authority notes that BIAL has carried out Stakeholder consultation on sub-station and Eastern-Tunnel works. The Authority notes that BIAL has estimated Rs . 354 crore as cost of sub-station and the Eastern Tunnel works are estimated to cost over Rs. 1000 crores, as per the presentations made by BIALin the stakeholder consultation meetings. 9.6.8 Based on the explanations provided and the stakeholder meeting undertaken, the Authority 9.6.9 The Authority has noted Capital Expenditure. The Authority notes that the Authority has already considered an estimate of approx. Rs . 200 crores per annum towards sustaining capital expenditure based on trend of 2016-17 and 2017-18. The Authority had also noted in the Consultation Paper that BIAL would need to consider and spend these costs prudently and the Authority will evaluate the same once these are incurred and capitalized qCl.~ed on evaluation of need and , , ', . " - I efficient costs Oeingincurred. 'Hencej the Authority decides.notto change the estimation of other items of Sustaining Capital Expenditure considered by it ln the Consultation Paper. The Authority expects BIAL to keep a separate record of Special Repairs/ Sustaining Capital Expenditure for its review. 9.6.10 The Authority notes BI.Al and,certain othe r. stakeholders' submission on the cap indicated by the Authority on the Capital Expenditure. The Authority notes lATA's comments to not permit any margin of change. The Authority notes that there could be instances of changes to the costs beyond the control of the Airport Operator. The Authority notes that the cap indicated by it is a reasonable caution for not spending beyond the evaluated levels. Should there be a justified reason for costs being higher than the cap provided, the Authority notes suitable explanations and Order No: 18/2018-19 Page 121 of 264 Review of Capital Expenditure 9.6.11 The Authority notes comments made by certain stakeholders on providing for sufficient cash to facilitate the Capital Expenditure and expansion. Authority's analysis on the same is listed in Para 19.6 below. 9.6.12 Based on the above, the Authority has recomputed the Capital Expenditure proposed to be included as part of the RAB for the second control period as below: Order No: 18/2018-19 . Page 122 of 264 Review of Capital Expend itu re Table 27: Reworked Capital Expenditure decided to be considere d as part of RAB for the second control period (Rs. Crores} Site preparat ion & Earthworks to Runw ay 2, Taxiway & Bulld lngs2 100 Apron 2018 696.47 105 .98 65.32 802 .45 802.4 5 0.00 761.79 761.79 0.00 RW/TW % 0% Runway 2, Taxiway & Apron - Phase Bulld ings2 100 la 2020 1,286.92 194.33 1,451.2 1 1,451.21 0.00 RW/TW % 0% Runway 2, Taxiw ay & Bulldlngsl 100 Apron - Phase II 2021 479.66 92.68 94.65 574. 31 574 .31 0.00 T,B,R % 0% Second Termi nal - Bulldlngsl- Phase I 2021 3,853.67 363.29 507.77 4,361.44 3,838.07 523.37 T,B,R 88% 12% Forecourt roadways & landslde developm ent Build lngsl- Phase la 2021 374.56 56.95 65.22 439.78 400 .20 39.58 T,B,R 91% 9% Rescue & Fire 100 Fighting 2019 7.93 0.46 0.18 8.11 8.11 0.00 PM3 -Safet y % 0% Airpor t Off ices - Bulldlngsl- Phase I 2018 65.27 0.00 0.00 65.27 59.40 5.87 T,B,R 91% 9% Ut ilities - Phase Buildlngs3 la 2020 108.84 12.96 8.39 117.23 106.68 10.55 W MS 91% 9% Exist ing runw ay / taxiway Improvements Build lngs2 100 Phase la 2018 58 .23 0.73 0.73 58.96 58.96 0.00 58.96 58.96 0.00 RW/TW % 0% Forecourt roadways & landslde developm ent - Buildi ngsl- Phaselb 2020 473.71 47.96 T,B,R 91% 9% Forecou rt ro adwa ys & landslde developm ent Buildln gsl- Phase Ic 2019 285.00 26.53 T,B,R 9 1% 9% Existin g runway / tax iway Im provements - Bulldings2 100 Phase Ib 2021 86.64 0.00 RW/T W % 0% Term inal Buildingsl refu rb ishm ent 2017 79.99 7.20 T,8,R 91% 9% Bulldl ngsl- Forecou rt s 2017 79.73 2.70 0.39 82 .43 75.01 7.42 80 .12 72.9 1 7.21 T,8,R 91% 9% Sustaini ng Bulld lngsl capex -I 2017 65.12 2.66 0.38 67.78 61.68 6.10 65.50 59 .60 5.89 T,B,R 91% 9% Susta in ing Build ingsl capex- 1/ 2018 85.44 8.97 8.98 94.41 85.91 8.50 94.42 85 .92 8.50 T,B,R 91% 9% Total Infr a Capitalisation 8,087 .19 896 .08 990 .90 8,983 .27 8,319.17 664.10 9,078.09 8,395 .42 682.67 Special Repairs and Refresh Capita lisatio n 1,219.44 0.00 44 .87 1,219 .44 1,091 .87 127.57 1,264.31 1,132.09 132.22 TOTAL 9,306 .63 896 .08 1,035 .77 10,202.71 9,411.04 791.67 10,342 .40 9,527 .51 814 .89 Order No; 18/2018-19 Page 123 of 264 Keview of Capital Expenditure Decision No.6. Regarding Capital Expenditure G.a.Based on the material before it and its analysis, the Authority decides:

i. To cons ider Capital Expenditure as per Table 27 Para 9.6.12 above to compute Average RAB and return to be considered in determ in ing ARR.

ii. To ask BIAl to sub mit detailed explanat ion and justifications should the cost incurred exceed 10% over the cost approved by the Consultant.

iii. commissioned the actual cost incurred and its Financing Order No: 18/2018-19 Page 124 of 264 Depreciation

10 Depreciation 10.1 BIAL's submissions on Depreciation

10 .1.1 SIAL had submitted that depreciation on assets had been provided on the basis of Straight line Method (SLM) over the useful life of the asset estimated by the management where it believes that the useful lives represent the period over which it expects the use of the such assets. 10.1.2 . 10 .1.3 ",~ , 10.1.2.1

10 .1.2.2 SLI\I1 % No. of years AssetsCovered Asset' Type " J. Buildings1-T,B,R Building, Roads, Culverts, Apron 3.34% 30.00 5.00%Buildings2-RW!TW Engineering structure: - Runway, Taxiway 20.00 3.34%Buildings3-WMs Water Management System 30.00 10.34% PM1 Equip.-Airport/Comm /E&M/Office, 10.00 Vehicles PM2-Lighting 10.34% 10.00 , Lig~ti U~ " .. i . ~'I ~\o.- PM3-safety ",Ji.J1 ' 116.21% 6.00Saf~ty;~nd'Securitypl , " ~,I. l~ ""11 . '"' . ., 1162 1% PM4 - IT Equipment 11' equipments 6.00 20.00% Software Software 5.00 ICT - Blended 16.21% 6.00ICT! uture GapEx) RElfr.esh FF ~ 6.33% 16.00 Fu fh1t'ur~ ar'id Ei.xture s ~ \ 3.33%Intangibles 30.00prelim inf ~y ' E~aense s~ Good'Wi II:etc. 10.1.4 Accordingly, the total Depreciation considered by SIAL for the assets, under Hybrid Till, for the control period 2, considering the capital expenditure and HAS considered by SIAL was as listed below: Table 29 : Depreciation considered by BJAL/or Second control period (Rs. Crores) Asset :Typ 2921 Building s1-T,B,R 230.71 159.39 Buildings2-RW/TW BUildings3-WMS 8.42 Order No: 18/2018-19 Page 125 of 264 3.76 3.86 6.17 32.76 ' 59.46 107.89 2020 Depreciation 2019 2018 2020 Asset Type Covers 2017 2021 69.8865.39 66.89 72.21PMl Equip.-Ai rport/Com m/E& M/Office,Vehicles 37.21 40.07 40.10PM2-Light ing Light ing 40.05 40.18 0.9 3 6.17 PM3-Safp.ty Safety and Security 18.13 18.13 2.15 2.15 2.78 6.59 PM4 - IT Equipment ITeq., 14.84 8.83 22.89 1.16 0.00Software Software 6.06 0.00 U.OO 0.00 0.00ICT- Blended ICT Future CapEx / Refresh 0.00 0.00 20.67 7.16 Furniture and Fixtures 7.16 7.16 7.16FF 7.16 0.99Intangibles 0.99 0.99 0.99Preliminary Expen ses, G.oo.QwilJ ,l;Hc. 0.99 259,38 236.70 292.14 360.56 Total .(. Y-J:f~ :\:k( :::. 490 .52 '.>1l: it:~~;\ lffk'-~~'Aero Depreci~t ipn' :::t ., ' ~ T;; -,,- ' *,.,,} 233.80 271.92 213.15 335.26 465.31 ' (-),;:1\!t:' I TI)~~h 9 90.14% 93.08% 92.98% % of Aero DepreclatlonJo,!.otalljle-pr.eeiation 90.05% 94.86% 1-" I~!t"~~ ::~~~'M"?10.1.5 BIAL had, on zs" April 2018 and' 27ft Aer,i,l;.,018 submitted the computations relating to . 'WY ~.~~:.r:~~ Extra shift depreciatlon and Impact 'of chBl'ilge to useful life mime With Authority's Order - 1 ~ V I: ' No. 35/2017-18. U I' '\ 1'.' '1tJt' IIJ.,-.I '''''. "...KIA is a fast-growing air C({t \:9~di~-o/E\ VI{!tQ~~ffed rapid passenger growth and high air . .Ill). . .'<: ' ;/'I'~<) \: l~l lk . . traffic movement. J.t!1flf_rsUCh aero bridges, baggage handlmg Airport SP ~flNrtf as system, escalators, elevators, travellite, HVAC-equipments, cargo ASRS, ETV Equipment, Xq- rl' Ray machine, RT set, OFMO, liMo, se~u ity 'equipment are continuously used and need maintenance. Being used in triple shift, these equipments undergo wear and tear and this reduces their useful life. BIAL wishes to submit that it would adopt lower useful life for certain assets used 24/7 on triple shift based on technical justification. Based on the above AERA Order and technical evaluation done, summary of changes in useful life of assets, and one-time impaet-toope#ing reserves 9fe 'SIJmmDrise'd.;in below tqble ..../I 10.1.6 BIALhad, as per its computations indicafed that a total -of Rs . 271.fl.:6 crores was additionally estimated to be charged to assets, including the one-time adjustment in 2018-19, due to change of useful life ofcertain categories Furniture & Fittings, etc, 10.2 Authority's analysis of Depreciation detailed in Consultation Paper 10.2.1 Authority on 12'h Jan 2018 has issued Order No. 35/2017-18 (Order determination of useful life of the Airport assets, which would be effective 2018 . from April 10.2.2 Summary of comparatives on useful life adopted by BIAL and Order No. 35 is detailed below. Table 30: Comparison of Useful lives as per BIAL and Order No. 35 of assets such as Plant & Machinery, Roads, Asset Type , Order No: 18/2018-19 Covers No. of Years stated in the Order No. of Years applled I;jy BIAL Page 126 of 264 Depreciation PM2-Lighting PM3-Safety Equipment Software leT - Blended Intangibles Furniture and Fixtu res ~. ~~--..--'. Preliminary , Expe'ii'ie's, '-l EiO"'odw iII etc . No. of Years No. of Years Covers stated in theAsset Type applied by BIAL Order Buildings1-T,B,R Building 30/60 years 30 years Roads 5/10 year s 30 year s Apron 30 years 30 years Buildings2 20 to 30 years 20 years RW/TW Runway Taxiway

20 to 30 years 20 years ~ ".",.,...." . -

15 years 10 years

10 year s 10 year s

5 years 10 years

8 years 10 years

10 years 10 years

15 years 6 year s

6 years 6 years - 5 years

6 years 6 years

7 years 16 years - 30 years 10.2.3 The Authority noted that in certain cases, BIAL had projected a higher useful life and in certa in cases BIAL had projected a lowe r useful life as compared to Order No. 35. The Authority noted that BIAL had submitted its estimate regarding the same as detailed in Para 10.1.6 above: The Aythprity, noted .that this ~$tim:ate; tncluded a charge for assets where useful life had enqed ancle>,

10 .2.5 .1 Study the overall Development plan / master plan indicating various airport facilities for BIAL. 10.2.5.2 Study for all drawings, speciflcatlons and procurement documents for cost assessment. 10.2.5.3 Carry out verifications to assess the cost incurred as per the various awarded works. 10.2.6 Buildingsl-T,B,R Buildings2 RW/TW Buildings3-WMS PM2-Lighting PM3-Safety PM4 -IT Equipment Software ICT - Blended Intangibles Total Building,Roads,Culverts,Apron 74.23 83.02 94.41 109.22 134.21 Engineering structure :- Runwav.Taxiwav 6.11 25.43 44.79 80.13 117.97 . ":'-. . ", 3.72 3.72 3.77 5.80 7.78Water Management System Equi!i> ~il I ' ~ t .. . .~ I ' ," ~, 'f

1 ~ 5 .3 9,Airp0rt/Comm/E&M/OfficeWehides 65.39." 67.68 89.30 68.49 Lighting hi j I 19 .75~ I' 140.05 40.05 40.13 22.18 Safety and Security 18.13 18.13 5.77 1.36 1.36 .~ lr~ITeq ., 14.84 0.00 1.04 3.28 4.47 Software f ' L ~ ! .. 9~06 1.16 0.00 0.00 0.00 -ICT Future CapEx / Refresh 0.00 0.00 0.00 0.00 0.00 Furniture and Fixtures 7.16 7.16 7.16 7.16 7.16 Preliminary Expenses, Goodwill etc. 0.99 0.99 0.99 0.99 0.99 215.38 245.04 265.65 337.36 364.61 % of Aero Depreciation to total Depreciation 89.20% 89.37% 91.97% 91.33% 93.59% Aero Depreciation 192.12 218.99 244.32 308.12 341.25 Less : Adjustment ElL -3.68 -3.68 -3.68 -3.68 -3.68 Less : Adjustment for Development works -9.00 -9.00 -9.00 Add: Additional Depreciation as per BIAL ~~11~ 1~ ~\based on changes in useful life in line With; ~-Order No. 35 t ~~"" 186.12 28.15 30.04 (Il. f C?'Order No: 18/2018-19 .; I Ii Page 128 of 264,.,. '~ ~,qQ ~ ~.\ a \:;;.~ -# " , ,<:'0 Depreciation Asset Type Covers 20'1il ~ 2018 2019 2020 2021 Aero Depr eciation for RAB 188.44 21S.31 417 .7G 323 .59 358.61 10.2.10 Accordingly , th e Authority proposed to consider the recomputed depreciation for the purpose of computing Average RAB and review of depreciation. Authority proposed to true up the depreciation based on actual costs incurred and re-compute depreciation based on Order No.35 at the end of the current control period, and t rue up the same. 10.3 Stakeholders' comment s on Authority's analysis on Depreciation 10.3.1 10.3.2 CCS has stated the following: ~ l,:-,~ trq \i'P~d "...To consider re-computing of depreciation for computing Average RAB Safety and Security - Why is the depreciation running so low (from 18.13 to 1.36) IT Equipment - 14.84 to 4.47..." 10.3.3 Sanjeev V Dyamannavar (Respondent) has stated th e following: ((.~.Depreciation ' amount: f.\5 .depreciatron fs be~n provided os p~r norms for Airport Assets, , . . , t there need clarity on.how these Depreciation-funds 'are 'managed by KIAL. Depreciation amount is quite high (2017 YR: INR 188 o, YR 2018 : 215 o, YR 2019: INR 417 o, YR 2020 : INR 323 Cr YR 2021 : INR3!38 Cr)..." 10.4 BIAL's response to Stakeholders' ~ommerlt s .on Author i ty' s analysis of Depreciation 10.4.1 On lATA's comments, BIALhas submitted as follows: ".....IATA would like the Authority's confirmation that the asset allocation adjustments (as mentioned by the Authority in Proposal 6 of the CP) have been considered while determining aeronautical depreciation. lATA has further requested the Authority to elaborate on the Depreciation submission to the Authority. BIAL is of the view that the Authority appropriately considers these details and suitably included for tariff determination as per the details provided in the cP..... " 10.4.2 On CCS comments, SIAL has responded as follows: " .... /1'1 response to the request of CCS to consider re-computation of depreciation for estimating Average RAB, BIAL would like to submit that the depreciation value with respect which are being ' 10.4.3 10.5 10.5.1 ~ "Treatment of Land Development Works AERA's Treatment: ....... BIAL's Response: - BIAL has undertaken land development works for various projects including New South Parallel Runway (NSPR). BIAL had considered capitalization of land development works separately. However, as op.ln,ed by BIAL 's statutory auditor, the land . .. developmen t W6f(ks teaf~fill1forks) sHqulf:lbe capitallzedalong WitH NSPR Project. Hence, BIAL would request the Authority io-cobsider the expehse ;9n 'U:Jnd; f)evelopment Works as a capital work-in-progress and consider for capitalization with NSPR." . 10.6 Authority's examlnatlon.of Stakeholders' comments on Depreciation 10.6.1 The Authority has caref.ully rev.iewed comments suomitte<:fby SIAL and other stakeholders. 10.6.2 The Authority notes lATA's query on Depreciation and SIAL's submissions on the same. 10.6.3 The Authority notes that SIAL has submitted the Technical justification on useful life of certain assets, from a Technical valuer as part of stakeholder comments. The Authority notes that these would be evaluated and considered by the Statutory Auditors in the annual financial statements of SIAL for the year ended 31st March 2019. 10.6.4 The Authority had also sought and reviewed the technical specifications of the Runway and Taxiway constructed. The Authority notes that SIAL had stated 30 years as the design life for Order No: 18/2018-19 Depreciation Taxiways. The Authority notes that design of the Runway and Taxiways is similar to that of other airports and has therefore decided to change the useful life of these existing assets to

30 years and consider this change prospective from 1st April 2018 as per Companies' Act. 10.6.5 Based on the analysis of the above comments, changes to RAB and Capital Expenditure as detailed in other chapters of this Order, the revised depreciation is calculated by the Authority as under: Table 32: Recomputed Depreciation decided to be considered as part ofARR for the second control period (Rs. Crores) Asset Type BUildings1-T,B,R Buildlngsz RW/TW Buildings3 2018 ..... p ""':'> 'J!~.;::'-::i'i l.-- ,~ ::. _ 83.05Building, Roads, Culverts, A'p'i:on '?~r t~~~ V<,74:23 ,~~ l ,,:~~ 'f "*V 7.59Engineering structure Rum.;lyhaxiwClY . , ~ ll'.ll ~~~~;:: .. ~;~ . W~ 3.72Water Management System ~,~.(J'lt?7.1 ,{.a. '" 3.72 Equip.-Airport/Comm/E&M/Off ce' (l t, ~Ul. ; 65.39Vehicles f Au ,r I 65.39 40.05 40.05 40.13 22.18 18.13 5.77 1.36 1.36 0.00 1.04 3.28 4.47 Software 6.06 1.16 0.000.00 0.00 0.00 0.00 0.00 46.27 Furniture and Fixtures 7.16 ICT Future CapEx/ Refresh f.:rF?i~rq \Slr:qr:p.oo 7.16 7.16 7.16 7.16 Preliminary Expenses, Goodwill etc. 0.99 0.99 0.99 0.99 0.99 215.38 227.23 240.71 316.04 462.42 % of Aero Depreciation to total Depreciation 89.20% 89.37% 89.79% 91.69% 93.79% Aero Depreciation 192.12 203.08 216.13 289.77 433.69 Less: Adjustment ElL ~(' '~. -3.68 -3.68 -3.68 -3.68 ~rl ':'; -4.50 -9.00 -9.00 " "' .. .'. 'I . ' . "' ; 1186.12. Add: Additional Depreciation as per BIAL .:Aeronautical ' ,I . 28.15 30.04 Aero Depreciation for RAB 188.44 305.24 451.05199.40 394.07 2019 94.77 19.49 3.77 67.68 ' 2020 110.31 57.66 5.86 89.30 2021 196.77 84.20 7.90 91.12 PM2-Lighting PM3-Safety Safety and Security PM4 -IT Equipment IT eq., Software JCT - Blended Intangibles Total Decision No.7. Regard!l)g 'Qepreciat ion 7.a. Based on the m~'terial before it and 'lts analysis, the Authority decides:

i. To consider depreciation as per Table 32 Para 10.6.5 above to compute Average RAB and depreciation to be considered in ARR.

ii. To true up the Depreciation based on the actual Capital Expenditure and other factors as per the Order No. 35 on Useful lives, at the time of determination of tariff for the next control period. Order No: 18/2018-19 Page 131 of 264 Regulatory Asset Base (RAB)

11 Regulatory Asset Base (RAB) 11.1 BIAl's submission on Regulatory Asset Base for the second control period 11.1.1 Based on the above Capital Expenditure and Depreciation, average RAB computed by BIAL for the second control period under Hybrid Till was as given below: Table 33 : Average RAB computation as per BIAL, under Hybrid Till (Rs. Crores} 11.2 11.2.1 11.2.2 3580.48 6049.96 317.37 2759.29 6366.41 271.92 335.26 465.31 3625.93 6049.96 11951.06 3603.21 4837.95 9000.51 11.2.3 The Authority had, in MYIO-CP1 Paras 10.34 to. 10.41 considered the report submitted by Engineers India limited (Ell:t Wh'ereby .Rs. 69'.45 Cro..resw a's reduced from Opening RAB. The Authority proposed to cohtlnue w.ith t lie ~adjustmeht for the purpose of arriving at Opening RAB for the second control period also. 11.2.4 Considering the above, t~e~uthority's cornputatlon of Average RAB under Shared Revenue Till (considering allocation of assets between Aer,onautical and Non-Aeronautical services and Capital Expenditure proposed to be inciude Cl ~in RAB as per Authority's analysis) was as given below: Table 34: Recomputed Average RAB as per Authority under Hybrid Till detailed in Consultation Paper OS/2018

19 (Rs, Crores) Page 132 of 264 01V, 213.20 2,224.29 Depreciation during the year Additions during the year Closing RAB Average RAB Opening RAB Order No: 18/2018-19 Regulatory Asset Base (RAB) 11.3 Stakeholders' comme nts on Authority's analysis of Regulatory Asset Base 11.3.1 International Air Transport Association (lATA) has stated the following: "...On the basis of the comments stated on proposal 6, we believe the aeronautical RAB to be overestimated, and request AERA to review its cost allocation methodology..." 11.3.2 Association of Private Airport Operators (APAO) has stated the following: report submitted by ElL that attempts to estimate cost-efficiency, the Authority is going against not just its own .sieted position in t fie TribL(nC1/ but also against the Order issued by the Tribunal. Accordingly, we the "A uthority to maintain consistency in its regulatory treatment and positions and consider the project costs as submitted by BIAL supported by auditor certificates..." 11.4 BIAL's response to Stakeholders' comments on Authority's analysis of Regulatory Asset Base 11.4.1 On lATA's comments, BIAL has submitted as follows: to review its cost allocation methodology. Order No: 18/2018-19 Page 133 of 264 Regulatory Asset Base (RAB) Vide its responses to the CP, BIAL has responded on the asset allocation for Opening RAB, Terminal T2 and the Authority's proposal to carry out a technical study for the allocation of T2 once the same is operationalized. Accordingly, BIAL disagrees with lATA's comment that BlAL 's aeronautical RAB is overestimated on account of its allocation ratio. /I 11.4.2 BIAL has concurred w ith APAO comments . 11.5 BIAL's comments on Authority's analysis on Regulatory Asset Base 11.5.1 estimated by ElL, the differential is not even set out. Moreover, as stated above, ElL concludes that the overall impact with respect to cost of the project is minor in nature. The statutory auditors of BIAL have accepted the project costs. The Board has also adopted it. BIAL therefore; respectfully submits .that no deductions be made on the basis df Ei4'sIeport. Based on the above, thereappeors to be' no reason for the Authority to disallow bonafide costs incurred by BIAL and penalise the airport operator. Impact of the TDSAT Order on tiie reduc~ion~ trom:qpening RAB:- Further, BIAL would also like to reiterate the hdlding in thf? TDSA T,Order. In the proceedings; the Authority itself took a strong position stbting that project costs should be examined for incurred cost as per available records and see that it relates to the approved and essential parts of the airport. The Authority's legal counsel maintained that costs should not be re-examined on the yardstick of efficient costs; and has to be taken as incurred costs as appearing in books of accounts. The position of the Authority was accepted by the Tribunal, which acknowledged that it was weighty and deserved acceptance. An extract from the aforementioned TDSAT Order has been presented below: Regulatory Asset Base (RAB) and essential parts of the Airport. According to him, this had to be done on the basis of accounts bearing certificates granted or approved by the Chartered Accountant. His clear stand is that such cost cannot be re- examined on the yardstick of efficient cost but has to be taken as the incurred cost only, as appearing in the duly certified books of accounts. This submission appears to be weighty and deserves acceptance." Accordingly, disallowing bona-fide incurred project costs would be against the Authority's own stated position. 11.6 11.6.1 11.6.2 11.6.3 available to the Authority based on the study commissioned by one of the Shareholders viz. AAI and was appropriated considered by the Authority. 11.6.4 The Authority had commissioned a study for evaluation of costs incurred for Terminal-l and has, after issue of Consultation Paper, obtained the report from RITES dated zi" August 2018. Key summary of fin<:Jin-gs listed out by RITES iYl -~heir report are as follows: 11.6.4.1 Expansionscarriie ilput by BfA[1! were j\.lstified in view Of the growth Witnessed. 11.6.4.2 Specification of finishes and works are considered to be in order. 11.6.4.3 Costs incurred on expansion of Terminal Building is comparable with similar 11.6.4.4 reasonable. 11.6.4.5 Interest and Administrative costs have considerably increased due to delay in implementation of the project from 18 months to 30 months. Projects of this nature generally require 24 - 30 months for completion particularly when it is intended to be executed through EPC contract and the work is to be executed in operational airport environment. The delay is mainly on account of technical additional field investigations, Order No: 18/2018-19 Page 135 of 264 Regulatory Asset Base (RAB) 11.6.5 The Authority notes that soft costs relating to Project Management and Administration as well as Interest Costs is on higher side. However, considering the RITES report justifying the delay from 18 months to 30 months the Authority will consider these cost as submitted by BIAL. The Authority is also of the view that study should be conducted to get a clearer view of the components of the cost incurred in a Project of this magnitude . The true up of the project cost will be done taking into account the finding of the study. Authority has sought for a CAcertificate that these costs have been incurred and BIAL has submitted the same. 11.6.6 2,376.22 1,215.78 394.07 3,197 .94 2,787.08 3,197.94 2,425.90 305.24 5,318.60 4,258.27 2021 5,318.60 5,229.58 451.05 10,097.14 7,707.87 Decision No.8. Regarding Regulatory Asset Base 8.a. Based on the material before it and its analysis, the Authority decides:

i. To consider Regulatory Asset Base as given in Table 35 Para 11.6.6 above for the purpose ofcomputation of Aggre,gate Revenue Requirement.

iii. To commission a study to evaluate the quantum of Project Management and Administration costs fOr execufing a ,Rroject and consider the results at the time of trYpup at tHe be.ginnin"gof ~ft~ ne~t control period. Order No: 18/2018-19 Page 136 of 264 Operating Expenditure

12 Operating Expenditure 12.1 BIAL's submission on Allocation of expenditure between Aeronautical and Non- Aeronautical services and Authority's analysis

12 .1.1 SIAL had stated as follows: If.. The table below shows the allocation of Operating expenses into Aeronautical and Non Aeronautical expenses. The basis for the allocation is given for each component of Operating Expenses. Broadly, t~e allpi~~pj~?l has been done on the basis of auditor's reports for the last financ~al year FY~~~j~.t~ ~~11' . The report Of Auditors on AIlOCi!:ltJ(f) 1~fl.xn::"~. . et1s~s .Is

12 .1.3 Authority had. review d s;~~as i s of se re atioQex enses between Aeronautical and 12.1.4 finance costs and tax expenses) into Aeronautical and Non- Aeronautical" 12.1.5 However, KPMG had also indicated in its report that: "...Because the procedures performed do not constitute either an audit or a review made in accordance with the generally accepted auditing standards in India, we do not express any assurance on the allocation of expenses between Aeronautical and Non-Aeronautical for the periods 31 March 2014, 31 March 7W1-!5.~ December 2015...." I"':~ ~~ ,.mi ; -r~~~ I '!' ""~.:" " .r.:!' . , : <: ", .\ tt (;: ~~ ) !: ~ r :~ Order No:' 18/2018-19 ; ~ y. Page 137 of 264 " ,} m"!'io

1 Support Services 28,55 ,82 ,094 34,28,47,415 39,08,30,019 5,22,26,921 43,50,07,510

2 Commercial 5,22,13,067 3,17,48;366

3 Operations 39,11,79,525 42,28,80,040 Business Development, Marketing & Strategy 2,11,89,040 2,79,69,802 3,58,13,794 18,43,35,1765 Engineering & Maintenance Grand Total rf~e ~ 15,35,46,519 17,12,56,305 ~:~0 , 3 7 , 1 0 , 2 4 5 ~ , ..".....;. 99,67,01,928 1,09,82,13,422 12.1.11 BIAL had submitted as fOIlOW"~~ '.~ }~ "c.Common costs under personn"el :JXflt;,~Se'S. ing{udes the salaries and related costs of ICT and Real estate departments S!h";;~W:oIi time to bath Aero and Non aero act/vi ties . . .\ .n . . . . 12.1.12 From the above, considering S #J3A.Ga .s"Aero;alid 2 as Non-Aero, the Authority noted that \.'10 '1 'Jl ~("'i the ratio of Aero cost to total is around 91.5% in 2013-14, 95% in 2014-15, 92.6% in 2015-16. The Authority noted that the allocation changes based on composition of teams. The Authority proposed to consider 90% of Personnel cost and General Administration cost as towards Aeronautical Services. control period. 12.1.14 Recomputed Aeronautica l 'Rat io qf O-&M expenses was a.s given below: Table 38: Recomputed allocation Iotio ofAeronautical Expenses to total expenses, catego ry wise % of cost considered as Aeronautical Cost Element Personnel cost 90% Based on asset ratio Marketing & Advertisement - Others Operations and Maintenance Cost General Administration Cost 90% 100%Lease Rent, Property Tax Utilities Cost (Net) 100% 91% Insurance Order No: 18/2018-19 Page 139 of 264 Operating Expenditure 12.2 12.2.1 BIAL's submission on Operat ing Expenditure BIAL in its submission dated 13t h April 2017 prov ided the details of Operating and Maintenance expenditure. BIAL had submitted details of the above expenditure incurred for Control period 1 and proposed expenditure for Control period 2 in their submission . A summary of costs incurred towards Aero Operating expenses is detailed below: Table 39: Aero Operating expenses submitted by BIAL for first control period (Exc/. Concession Fee) (Rs. Cro res) 2014 '2013' 2016Operating Expenses - Past as per B1AL t ;t r: .. ,:" 2012 Personnel Expenses 77.70 87.92 98 .61 107.37 45.18 43.11Operations & Maintenance 51.03 53.57 Lease Rent 6.35 11.796.35 6.35 Utilities 22.86 24.76 36 .06 39 .90 Insurance W, ' ", Iif' , if 1.88 2.08 2.06 1.84 1.90 0.22 13.01 27.15 13.32 4.86 11.43 6.27 7.62 47.51 0.00 0.00 1.87 CSR 0.00 0.00 0.00 1.16 OMSA Fee 6.64 9.99 15.05 2.65 General Administration Costs ~ .L.1 r-t ,;- 1.....,....,)0.30 20.89 24.12 22.97 23.69 . ""T"f "'" .1 "-A i', Total Operating Expenses - Aero 166.83 234.28 222.75 265.34 264.85 Rates & Taxes (other than IT) Marketing and Advertising Waivers & Bad Debts Table 40: Operating Expenditure for second control period as submitted by BIAL (Excl, Concession Fee) (Rs. Crores) Particulars , 201"t 2018 ~ 2019 2020 2021 Personnel Expenses ~- .. 119 .54)1 1 ~~5 2 . 96 171.81 196 .26 246 .72 Operations & fI1!i.9!er ;ance;r;':;l f Lease Rent ~ ,.J J n I~ ,t r ~ n ~ 8'2 . 7 3~ 1 ~' , 9 9 j ~~ . " ~ II J13,~9 3. " .... .,h 3 .4~f "l'fl,r31.5O ,. l 13.83 149.42 14.24 211.93 14.67 Utilities 43.97 46 .95 54.16 57.84 71.60 Insurance ~ . 3.5:l ~ 4.54 5.36 6.23 9.11 Rates & Taxes (other than}]), \ Marketing and Advertising "" '" \ '; L8 . 7 ~1 If'~ 8 O 7\58.. Il '- S.31 8.87 9.10 8.96 9.94 9.40 10.84 CSR - 3.71 1- 13~9'0 23.19 31.47 34.88 General Administration Costs - Consultancy and Legal 10.07 13.06 14.36 15.80 17.38 - Travel Costs 5.44 5.98 6.58 7.24 7.96 - Office Costs 11.07 12.17 13.39 14.73 16.20 Total Operating Expenses - Aero 309.41 379.40 452.14 512.14 650.70 12.2.2 BIAL had submitted as follows: "...The Operating Expenses discussed in this section pertains to the Aeronautical Operating Expenses. 5.6.2 Personnel Costs Order No: 18/2018-19 Page 140 of 264 Operating Expenditure BIAL considers human resources as its strongest asset and recognizes the vital role being played by the employees of the organization in catering to the needs of the growth, expansion and successful operations. The headcount projections are hased on the requirements for existing business and future expansion plans. Employee headcount for the five years in Control Period 2 is detailed below: Particulars FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Total No. of Employees 816 914 936 959 959 . . r. l ;~~ 4" .~"" Further, the additional headcQp(lt~ ( t~Jttl!"rd~':f..l:Jt':Jre expansion projects namely AIrfIeld r\,~-\ ~ ~..~T). I .', " Development and Terminal 8t~fs.ociidt 'd:'f a i1dgid~"and Airside Development is estimated to ~~ ~"f' . .' 1.~\1be 235 and 467 respectively. Thek'e'a d!t(9:n.'s ~ re}Planned to be hired in FY 2021 and FY 2022 respectively. ', u . , . The table below represents the p~ ~ co/t for the Control Period 2 for Aeronautical e'rs Oi n ~e~1 t,, business. i ~1" jl\ !,l or( !'&. ~ \ "~). ~)'\ ":..t:. M ~ ~~~!fi Personnel Cost (Rs. Crore) Personnel Cost j \" t ,::::c'! J ( ..,\! ,"j;;!~ ~;' Ii , : PY~, 2Q1l~ :~i , I i.: rl"' ~ :>::\\: : '/\: . h, ~' ;'f~ !~()l 8 <:';",' 'i1t FY 2019 FY 2020 FY 2021 I' I~< " ;'jt/~01' iJ9';'5 ~: :~~i'~ 153.0 171.8 196.3 246.7 Personnel cost is expected to in:q i~ci~ll~(a7'tE{l.~f{hf 19.86% over Control Period 2. This is due to the fact that there was no increase in manpower on account of expansion in Terminal 1 in Control Period1. In order to maintain the quality of service provided by BIAL, it is important to increase the manpower with the increase in number of passengers. Hence, the Management of BIAL has assumed that due to passenger growth, there will be a corresponding need to increase the manpower. 'PtlHhermore, adequate manpower would of the Business Plan. Personnel cost relating tc) Aerpnautica( Se;rvices, :has been derived 'based on a pre determined allocation !of-. ( Aero ana ,Non-Aeroin the JotciltPersonnel Cost. This is based on the number of employees directlyrelated to Aeronauticalservices as defined by BIAL. The increase in personnel cost also considers the competitive environment by addressing the attrition levels being currently experienced. The airport industry is unique and requires skilled talent and is maturing over the period of time. It is difficult to identify and hire trained manpower and hence there is a need to retain the existing skilled manpower. In order to enhance retention, it is assumed that every third year (starting from FY2017), there willbe a 2% upward correction in the average CTC for all levels... " 12.2.3 Order No: Page 141 of 264 Operating Expenditure BIAL is dedicated at ensuring that all operations and activities are supported by wetl maintained machinery and equipment. The process setup at BIAL ensures state of the art maintenance comparable to international standards. To address the ever-evolving expectations, a separate Engineering & Maintenance department has been set up to ensure safe, efficient and smooth functioning of the Airport. Engineering and maintenance department basically meets the requirements of infrastructure facilities on landside, airfield, utilities and maintenance of ITenabled services. Particulars (Rs. Crore) FY2017 FY, 2018 F 2019 FY. 2020 FY. 2021 O&M Expenditure 82.7 99.3 131.5 149.4 211.9 The O&M expenditure includes the operation and maintenance expenditure towards facilities at landside, airfield, utilities, ICT and others and is assumed as a percentage of the Gross Block. Control Period 2. Hence, it would be critical to replenish the assets to maintain the quality 12.2.4 standards which BIAL has maintained so for ..." "... 5.6.4 Utilities Costs Utility costs comprise of power and water costs. The Utilities Costs have been calculated after netting off the recoveries from the concessionaires. The Utilities Costs considered in the MYTPsubmitted for Control Period 2 relating to aeronautical services is given below: Particulars (Rs. Crore) FY2017 F.Y 2018 FY2019 FY2020 FY2021 Utilities Cost 44.0 46 .9 54 .2 57.8 71.6 Order No: Page 142 of 264 "...4.6.5 Concession Fee 18/2018-19 12.2.5 Operating Expenditure A Concession Agreement (CA) was entered into between Ministry of Civil Aviation, Government of India (Gol) and BIAL on s"July 2004. For the grant of concession, exclusive rights and privilege to carry out various activities as listed in the CA (Article -3), BIAL has to pay an annual fee 4% of annual gross revenue to the Gol. The payment terms, accounting, provisional payment, interest and taxes have been detailed in Article 3.3 of the CA. 12.2.6 privileges, benefits, rights of way, paths, passages pertinent to the site to hold, possess, use and enjoy the site and or any part thereof, in accordance with the provisions of the Deed. However, KSIIDC handed over the possession of 124 acres 6-guntas in the years 2006 & 2007 and sUQ$egugnJ/y Cli]jJt!gltionQ! Land Lease Deed dated 31st December 2011 has been executed and registered. As per the Deed, the lease rent payable to 'KSIIDC is nominal lease rent of one rupee per annum up to AGD. After the AQD, thf! leQse.rent is r;plculated at a fixed percentage as per following schedule: Period From AOD to beginning of e' year 3% For s' year 6% From 8t year onwards Annual escalation at 3% of lease rental at end of previous year Based on the above, Lease rent considered for Control Period 2 is given below: Particulars 2017 2018 2019 2020 2021 Lease Rent 12.2.7 Order No: 18/2018-19 14.2 14.7 Page 143 of 264 Operating Expenditure /I The General Admin istration costs category majorly includes Consultancy & Legal Cost, Travel Costs, Office Costs, Insurance, Marketing and Advertisement, Rates and Taxes. These costs are incurred to meet the day-to-day running and administration of the airport. The General Administration and other costs relating to the Aeronautical business is shown below: ustry outreach programs, catchment areaThe initiatives include conducti Particulars (Rs. Crore) 2017 2018 2019 2020 202 [ Consultancy and Legal 10.1 13.1 14.4 15.8 17.4 Travel Costs -; ;.... S:4 r :-, 6.0 6.6 7.2 8.0SC" , ~, Office Costs /J: :V~'ltj ~i1J: l: : :.. ~: 13.4 14.7 16.2 "",... t ''!, .,:; / ," ~'Y' r.;+l f'f Insurance (~;' '~ #~~X ~~~t5 5.4 6.2 9.1 Rates& Taxes (other than IT) !..'.;.:"j ~;~' )8:7.1 ;~ ~ 8.8 8.9 9.0 9.4 C'tll-' ( ~ ,~:"'ti ,\i Marketing and Advertis ing and oth fU,s ~1 M:l1'-iSJ) . ~ 22 .2 32.3 41.4 45.7 . ':.r Total U't ' "SO!. iJ. 66.8 80 .9 94.4 105.8 , ~. J ,f I , . s i' ~ , ~! '(I if programmes and industry alignment meetings. BIAL is transforming the Kempeqowda Airport into a smart airport, is embracing technology and embarking on a digital journey. This will further enhance the 'naturally easy experience' BIAL offers to its customers... /I 12.3 Authority's analysis of Qperating Expenditure -detailed in Consultation Paper

12 .3.1 Employee Cost

12 .3.2 Authority had reviewed t~e Grade-wise,hea;dtoynt proH~cted by BIAL and the details of costs considered per grade. 12.3.3 Authority noted that, based on the above, the Personnel cost computed is as follows : Table 41: Salary cost computed for the second control per iod by BIAL (Rs. Crore) Salary cost FY 2017 FY 2018 FY 2019 FY 2020' FY 2021 Grade F 3.18 3.53 3.89 4.35 4.79 Grade E 11 .07 18.21 20.04 22.44 24.68 Grade 0 17.87 23.95 27.07 31.14 35.16 Grade C 34.25 41 .97 47.39 54.45 70.06 Grade B 19.53 24.50 27.61 ' 31.65 44 .13 Grade A 9.55 10.74 12.36 19.20 Order No : 18/2018-19 Page 144 of 264 Operating Expenditure Salarycost FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Grade 0 0.20 0.35 0.39 0.43 0.48 Other 6.95 7.79 8.72 9.77 10 .94 Total 101.47 129.85 145.85 166.61 209.44 Add: - Incentives 14.21 18.18 Add: - Others (Staff Activities/Transport/Education/ Training etc.) 10.15 12.98 20.42 23.32 29.32 14.58 16.66 20.94 Total Personnel Expenses (f'25~ 8 3;. 161 .01 Jlo;..... H<,( ."'" 180.85

95 .00% 171.81 206.59 95.00% 196.26 259.71 95.00% 246.72 Shareof Aero f:''<:;; '~f.~~ 9~ %J .-I' -~, ~~ " , ~l : :r.~5 R O % Personnel Expenses - Aero t~~' _~t~,,~~41:~1::%~)9 6 12.3.4 The Authority noted that sala~;~p~ ~i~ f&~~.~projected with an annual increase listed" ~.. . 7%ave from the existing levels onr ;eaJ~f~ye a:ry b a S i S for the control period 2 between d 12%. t ~ ,I '. i J \. 12.3.5

12 .3.6 "...Grade F: - Increase in Cl'C by 12% in FY2017 is due to actual payout & by 11% in FY2018 is due to budget projection for the year on salary increase for the grade Grade E: Increase in Cl'C by 54% in FY2017 is due to hiring of expatriates in that grade. Grade others: FluctuatingJpay.out is due to commiss ipn payouts to Managing Director..." 12.3.7 proposed by BIAL. 12.3 .8 The Authority noted that the increase in headc0unt fon 2917 had been considered 30% & 8% for grade D (28 emplo 'le e s) "~ l5,ra ~e A J .6 ernployee s)re~p!=ctively. The Authority also noted that 98 resources had been considered across va rious grades for 2018 and 235 employees were added for FY 2021. The Authority enquired about this increase in resources for 2017 and 2018 considered by BIAL. In addition, BIAL had also considered 14% YOY increase in staff variable pay and incentives of the Salary cost and 10% increase in staff welfare, transportation, training and other costs on the Salary costs: 12.3.9 BIAL had submitted as follows: "... Grade B, 0, C, A & 0: Increase in r trength due to carry forward/replacement of ~ :~\l 1'4q; lit. positions that were approve:z",~ . ~'" t could not be hired. Marginal increase in % increase in strength to c in business growth. (! Y inl !it r Order No: 18/2018-19 \~, .,:' .,,0~~ ;;. . Page 145 of 264 '\~'o ~.. " ?.... .... ~~C,/ " ~/'r l> ~~\ " " "" ) " ~ I I()f'l -/ -......- . ........ Operating Expenditure Incentives and Others: Increase in incentive and other Staff and training cost has been considered based on historicalperformance trend, which ranges around 14%-15% of erc. .. II 12.3.10 The Authority proposed to reduce employee strength considering a maximum increase of 15% (Changes made to Grade 0) for Phase 1. Also, for the expansion, Authority sought clarification on the number of resources considered and proposed to consider 50% of the increase submitted by BIAL in FY 2021 for the expansion (117 employees) and consider \1 UL Il /1 If Particulars fF~2{lb, \ FY2018 FY 2019 FY2020 FY202 ] yr~4 , .l ~ . , O&M lnfra Running Costs - Aer ~ll!!J ~'~' ~ 9}~~?~ ~" . 58.05 86.10 99.48 157.00 - Phase 1 ~! fJ~ \1tj';:zj;JA, -1." 'IVS4.92 60.41 66.45 73.10 .v "'>/ ;'1.\" , , . L~ - Phase 2 f.<1:'li\ ~of~Q1' ~(~ ' 3.13 3.44 3.79 4.17" " .:00 - Phase 3 TT:. rriT::PP.9 ...=::r 0.00 22.24 29.24 79.73 O&M Costs - ICT- Phase 1- Aero '\ { " l'I 2'3.N "1 \ / 25.61 28.18 30.99 34.09 O&M Costs - Aero 9.52 15.66 17.23 18.95 20.84 Operat ions & Maintenance Total 82.73 99.32 131.50 149.42 211.93 12.3.12 Authority noted that BIAL had considered operating and maintenance (O&M) cost at certain percentage of the assets capitalized in books and additionally 10% increase in budgeted expenditure on ,q ye a ~ on '~.eaJ: 'basis. %value of.as.s.e.t considered for estimating Operating & Maintenance E~pen~iture !slCl~ {oliows: Table 43 : Phase-w ise % of asset value considered as Operating Expenses by BIAL 12.3 .13 T h Particulars Utilities e Phase 1 0.73% 1.71% A Phase 2 1.53% 0.73% 1.71 % Phase 3 1.92% 2.00% 2.96 % thoritv noted that there had been increase in % of the O&M cost on the asset base in Phase

3 compared to Phase 1 and 2 while actual expenditure in CPl was lower than budgeted. Comparison of Budget Vs. Actuals is tabulated below. Table 44: Comparison of cost projected versus cost incurred in CPl (Rs. Crore) 20142013 2015 2016Rarticulars Estimate for Control period 1 45.35 45.07 69.88 80.04 Order No: 18/2018-19 Page 146 of 264 Operating Expenditure Particulars 2012 2013 2014 2015 2016 Actuals for Control period 1 34.91 45.18 43.11 51.03 53.57 Excess j(shortfall) 0.29 0.18 1.96 18.84 26.47 Authority noted that BIAL had also considered O&M cost towards phase 3, which was expected capitalization from FY-2019 onwards, as below. Table 45: Aeronautical Asset expected to be capitalized in phase 2 & 3 as per SIAL - (Rs. Crore) Particulars 2017 2018 2019 2020 2021 Phase 2 Landside 204.60 204.60 Phase 3 Landside 142.71 378.29 Airside 977.63 990.08 Manufacturers' warranty and ma~ 'nG t;r~~Uinle "uge maintenance expenditure as projected '\ " ' "1 '.I. . I by SIAL. 12.3.15 Authority noted that SIALhad considered increase of 65 % in FY 2018 on Other O&M Costs. 12.3.16 SIAL response for clarifications sought by the Authority on the O&M cost was as follows: "...Increase in O&M cost at 10% In-spite of increase in wear & tear of assets with higher utilization due to increa ed'fraffic growth, which has direct bear.ing on the O&M cost. The O&M cost %jor Phdse 3 iscarrivedbas,ed onthe D&M:Go5t estimates and the infra O&M expenses are labour intensive and normCilly'the anrwai increase in AMC is around 10% to 12% and the cost base has increased with sharp increase in minimum wages by around 25%-27%. Apart from thes .AMC~ l1'e.hav,e OEM /, Proprietary item AMC's/ cues .We are on single runway ooetattonottzedin May 20'0.8 and faster ageing of the runway due to higher ATMs has resulted in increased frequency of maintenance of runway & taxiway thereby increases in O&M costs. Re-Iaying of existing runway and taxiways is considered in FY 2021 after second runway is operationalized. Due to capacity constraints there are certain equipment whose utilization is beyond design capacity thereby increasing the frequency of servicing resulting in higher O&M costs. Further, due to capacity constraints there are certain equipment which are out of support Order No: 18/2018-19 . Page 147 of 264 Operating Expenditure works on airside, airside vegetation management (regulatory requirement), Arrival-l0 carousal with two in feed lines etc. The increase in 'Other O&M costs' are mainly towards new initiatives / improved services to enhance customer experience like Self check-in kiosk on kerbs ide, customer engagement program for Airport community, VIP lounge expenses due to substantial increase in VIP movement, Trolley maintenance (increase in qty & ageing), manpower costs - trolley & landside parking, customs baggage clearance and custom stamping, Increase in minimum and proposed to recalculate Actual costs incurred would be reviewed and trued up based oQ 1r,evje y.19f"t ~e ((~penses including need and justification of the costs incurred. Lease Rentals

12 .3.18 BIAL pays lease rent at 3% of the land value upto 23'd May 2015 and 6% of rental value in the s" year and with a 3% escalation per annum thereafter, to GoK as per State Support Agreement ar;l:d pwjection'sf()r control-periqd 2 Iias ,been based-on the Agreement. 12.3.19 Authority observed that BIAl hadallo!=ated .100% of lease rentals to Aeronautical expenditure. Authority understood that usage towards Non-Aero/ Airport would be a small percentage of the total lease land hence decided not to allocate any cost to Non Aeronautical services. Utilities 12.3.20 Authority understood that the Utility cost computations for the second control period are as below. Table 46: Computation of Utilities Costfor second control period as per BIAL (Rs. Crores) Particulars 201i7 2018 2019 2020 2021 Power Power Costs - Consumption 62.38 72.72 77.81 88.96 Power Costs - Contracted Demand 2.51 .2.51 2.51 5.02 Less : - Recovery Order No: 18/2018-19 Page 148 of 264 Operating Expenditure Particulars 2017 2018 2019 2020 2021 Recovery towards demand charges 1.88 1.88 1.88 1.88 1.88 Recovery towards Power Costs 18.95 20.27 23.63 25.29 28.91 Net Power Cost 39.98 42.73 49.71 53.15 63.19 Water Potable Water Costs - Own Consumption 2.31 2.47 2.65 2.83 5.34 Potable W ater Costs - Others' Consumption 2.83 3.02 3.24 3.46 7.17 Total Raw Water Costs 0.91 0.91 0.91 0.91 0.91 Recoveries rl,r;Y:::"t Recovery - Potable Water Cosj,S, --::-~{;~~t~.,-, ;. ;'" 2.06 2.20 2.35 2.52 5.00 Potable Water Costs - Aero .~~:: ., 6?,~tAlr ' ~. -r;,~\ 4.00 4.21 4.44 4.69 8.42;.:{ Ii .,,) Utilities Total ''i;,j 't~ "+1i:1~ ~y 43.97 46.95 54.16 57.84 71.60s~; "" , .. ,t :;:,~1)~ : . Increase In12.3.21 Authority noted that BIAL had proJe~ted water and power charges by 7% on a The historical trend may not be true Potable Water - The revision in tariff by BWSSB is not done on yearly basis, but typically happens once in 2-3 years' timeframe. The last revision happened in FY16 and this resulted in an increase of 20% in FY16. Given that the average increase in CP 1 is 6.4%, a nominal increase of7% is fore casted for CP 2. Increase in water: - InFY, 2021, the Soutf1 runway ondesseciated Works is expected to become operatlondl., This will result in addittona! wafer consumption towards airside landscaping and vegetation maintenance apart from the increase in water consumption in airside buildings and allied infrastructures..." 12.3.23 The Authority proposedto moderate the increase in power and water charges by 5% per annum in line with th e past trends and proposed to recalculate the expenses accordingly. Also, additional recoveries were made by BIAL from concessionaires, which were considered as Non-Aeronautical Revenues. The Authority proposed to net off such recoveries from Power and Water costs and consider the net cost as Utilities cost under Operations & Maintenance Expenditure. Insurance cost Order No: 18/2018-19 Operating Expenditure AOL policy had been increased from $500Mn to $750Mn from 2017 to 2020 and $1000Mn for 2021 and SIR policy coverage had been increased from Rs. 2168 Cr to Rs. 4000 Cr for 2017 to 2020 and Rs. 6000 Cr thereon . 12.3.25 Authority had sought clarification from SIALon the basis for considering premium at the rate of 0.05% while historical trend reveals average rate of premium at 0.03% and reason for increase in insurance coverage for AOL and SIR Policy. 12.3.26 SIAL response was given below: insured. Therefore, the increaS~ .f~ :i1i(JqWMJiI?Q ~ r FY22 is assumed. With the planned expansion and higher traffic levels, the sum insured for the assets including CWIP and the Business Interruption cover and the other miscellaneous policies will increase and hence the BI and Terror cover/others needs to be increased to mitigate the higher risk..." 12.3.27 The Authority, noted the res'ponses from (}IAL qn~ b,slsjs fQr c.QH~lpering increase in value of underlying assets ~n9 basis ~fo'r considering 'increase in premium. The Authority proposed to . . . consider the estimates as provided by SIAL and true up the costs based on actuals at the end of the current control period. Ratesand Taxes 12.3.28 The Authority noted that SIAL had paid Rs.25 .54 Crore arid Rs. 13.32 crore in 2015 and 2016 respectively towards Property tax. Authority sought clarification on sudden increase in expenditure incurred during control period 1. 12.3 .29 SIAL has submitted that: "...The Property taxes amount of Rs. 36.25 crore for FY 2014 and FY 2015 is the charge raised by tax authorities including arrears The Property taxes spend for FY 2016 is towards Property tax - Rs. 7.25 crore and balance towards BIAPPA Tank rejuvenation cess..." Order No: 18/2018-19 Page 150 of 264 Operating Expenditure Waivers and Bad Debts 12.3.31 BIAL had claimed bad debts of Rs. 44.87 Cr and 1.87 Cr for 2013 and 2016 respectively. Authority noted that in MYTO-CP-l, Authority had approved write off towards outstanding of Kingfisher Airlines becoming unrecoverable as one-off event for Rs . 47.51 Cr and also stated that managing the risk of Bad Debts was within the Business Act ivity to be undertaken by the Airport Operator. Authority proposed to not consider write off of any Bad debts other than Kingfisher, as the Airport Operator is expected to recover the same, in the 1.16 34.88 Year 5 0.00 31.47 Year 4Year1 Particulars Control period 1 Control period 2 normal course of business. 12.3.33 The Authority noted CSR cost as part of the Operating Expenditure. Being not related to the Airport Activity, the Authority proposed to not allow CSR expenditure for CPl and CP2 and proposed to recalculate the expenses accordingly. General and Administration Costs 12.3.34 BIAL had claimed increase Consultancy and , Legal charges by 30% in 2017 and 10% thereon, traveLal'Jdqffice oSt' had been CQrlsidered} t 13%iI1Gre~se in 2017 and 10% there on. Authority sought' clarification for basis of significant increase in cost for 2017 and 10% increase YoY. 12.3 .35 BIAL response is given below: "...BIAL is transform(ng the. Ke'mpegoWaa. Airport into a smart airport, is embracing .. . technology and embarking on a digital journey. The underlying vision is to develop Bengaluru as the Gateway to South India and enhance its brand as the Silicon Valley of India, while at the same time align with the vision of the Gol of a 'Digital India'. This will enhance the 'naturally easy experience' BIAL offers to its customers. The initiatives include conducting roadshows, industry outreach programs, catchment area programmes and industry alignment meetings. Hence, the estimates for Consultancy and costs as per the past trend. .." 18/2018-19 Travel costs and Office Order No: Page 151 of 264 Operating Expenditure 12.3.36 The Authority noted that the past trends on increase in General Admin and Maintenance costs were fluctuating. The Authority proposed to moderate the increase in General & Administrative expenditure to 10% per annum and proposed to recalculate the expenses accordingly. 12.3.37 Considering the changes above, the Authority had recalculated the Operating Expenditure relat ing to Aeronaut ical Services as follows: Table 48: Operating Expenditure recomputed by Authority under Hybrid Till detailed In Consul tot ion Paper 05/ 2018-19 (Rs Crores) ...., ))~ l l ~'~ . , --. ~ r\~20 1 9I?artlculars . '~",'~tL lIijlQJi,...,'~0 18 202;1,-'. 2020 ;' ~ "' i~ ~1", ' ~:r-~;~ 164.60146 .70 193.92Personnel Expenses ~128 . 73 1:J,;;:t9~; 7,7;t~" ',,:.~ II.

1 !~-'fJ'\7-" ' 125.82109.41 144.69Operations & Maintenance I~~ ~~ l i.r.I:: ? ~?3 t , 95 .14 ~ , * ' '.. :"'--'M.3~; 13.42 14.24'.r~"' 13~ 13.83 14.67Lease Rent < I~ 46 .66 49.1840.55 56.22 Utilities \ 'nN3.4:2 6.06Insurance 4.54 5.13 8.84'J ~3 . 54 jj ~ T ~ to i~' 8.87 8.96Rates & Taxes (other than IT) . tf ~~ I :,;i:.~z~ 8.80 9.40 .', . ~.. e 1\ 10.74Marketing and Advertising ~l\lt ':';'1J.( <~{~~:?'~~.$~ 8.52 9.57 12.06:IlP Llf9(4;'i.~ :;~CSR '~ ~".~ 26.1721.63 23.79 28.78 General Admin istration Costs I... . 19;6.fi:IY -- ,' ':':"1 ( "1 I c I2 8i ~45 I 405.76321.32 363.96 468.59Total Operating Expenses - Aero Less: Disallowance - Interest/ Hotel cost -0.20 -0.28 etc. Concession fee

42 .64 44.7126.77 30.67 54.71 450.47TOTAL OPERATING EXPENDITURE - AERO 308.02 351.72 406.60 523.30 12.3.38 The Authority noted that all components of Operating Expenditure estimated above, could vary, especially. considering the New Runway anti Jerminal beiRg commissioned, large scale Capital expendl fure :beir]g proposed by BIAL arid other factors. The Authority, hence proposed to true up the costs based on actuals at the end of the current control period after analysis for reasonableness. 12.4 Stakeholders' comments on Authority's'analyslsof 0perating Expenditure 12.4.1 lATA has stated the following: "...IATA commends AERAfor correctly identifying items such as CSR cost which should not be part of the operating expenditure in the first place. There ought to be stricter distinction by BIAL of such costs, which are not for the provision of aeronautical services. On the aspect of the increase of consultancy costs, the business cases and expected benefits should be made transparent with the aim of delivering increased efficiency to drive unit cost down. This Order No: 18/2018-19 Page 152 of 264 Operating Expenditure which at present can be considered high (90%) for an airport like BIAL, and more so given that this determination is made under a hybrid till approach..." 12.4.2 HIAL has stated the following: "...We would like to submit that the CSR as stipulated by the Central Government is in the nature of acts, which reduce the overall profitability of the company including the aeronautical profitability as decided under regulatory framework thereby reducing the 12.4.3 include all expenditures incurred by airport operators including statutory operating costs, We would like to highlight that expenses incurred on CSR is a statutory requirement mandated by the Companies Act, 2013 and hence, such costs incurred by airport operators would fall under the category of statuto~y:ol2erating costs defined 9Y the Airport Guidelines. Further, while the Authority:is' oli the view that C$R cost is '9(1 appropiia6ipf) ,of profit, we would like to submit that it is. instfja'd 'an "above tne line" item, w,hich reduces .the net profit of the airports. Accardingly, we would request the Authority to allow CSR costs in the nature of statutory casts to be incurred by the airport ope/'ators and consider the same while determining final tariffs ,:." 12.4.4 APAO has stated the following: "...It is observed that the Authority has proposed to disallow expenditure pertaining to Corporate Social Responsibility (CSR) as part of the tariff determination exercise. As per the Airport Guidelines, operation and maintenance expenses shall include all expenditures incurred by airport operators including statutory operating costs. We would like to highlight that expenses incurred on CSR is a statutory requ irement mandated by the Order No: 18/2018-19 Page 153 of 264 Operating Expenditure Further while the Authority is of the view that CSR cost is an appropriation of profit, we would like to submit that it is instead an "above the line" item, which reduces the net profit of the airports. Accordingly, we would request the Authority to allow CSR costs in the nature of statutory costs to be incurred by airport operators and consider the same while determining final tariffs..." 12.4.5 Consumer Care Society (CCS) has stated the following: 12.4.6 12.5 BIAL's response to Stakeholders' comments on Authority's analysis of Operating .Expenditure 12.5.1 On lATA's comments, BIALhas submitted as follows: "...IATA agrees with the !luthority's proposal that items such as Corporate Social Responsibility'(6;$RF cost should not'tle "part tit 'PpetQti'ng expenditure. It has further . . ' " commented that tiie-expected benefits of certain other costs Including consultancy costs need to be made transparent. BIAL has already provided a detailed justification flJA 't'Ihy CSR costs should be included as part of its operating expenses, and aUustiffca~{bn for consultancy costs has also been provided in BIAL's responses to the CPo lATA has also commented that the allocation of personnel cost appears to be on the higher side (90% aeronautical) for an airport like BIAL. BIAL would submit that personnel cost allocation ratio has been estimated by considering bifurcation of expenses and department wise allocation of costs as part of a "bottom-up" approach, and the same has been certified by its statutory auditor..." 12.5.2 12.5.3 Order No: 18/2018-19 Page 154 of 264 Operating Expenditure rr. .. 1) CCS has requested the Authority to "reconsider" the operational expenditure for CSR as the same is high.

2) BIAL submits that CCS has not provided any justification or context for stating that the CSR is "high" and this is computed as per the provision of the Companies Act 2013. BIAL has also requested the Authority to consider CSR as an operational expenditure as it is an 'above the line' item and the same needs to be considered for tariff determination... /I 12.5.4 On Sanjeev V Dayamannavar's comments, SIAL has submitted as follows: between aeronautical and non-aeronautical components. The rationale for allocating these expenses as 100% aeronautical had been shared with the Authority as part of BlAL's MYTP submissions, as a certificate from BIAL's statutory auditor..." 12.6 BIAL's comments on Authority's analysis on 0p,c;!rating Expenditure 12.6.1 SIALhas submitted GIS foll ows"on AutHoritY's analy,sls 'QfOperating Expenditure "Approach towards projection of employee costs AERA's Treatment As per the CP, the Authority has stated os'below with respect to the projections of employee costs, "10.3.7 The Authority proposes to moderate the increase in employee costs considering 10% increase from financial year 2018 onwards instead of increase in rate that has been proposed by 81AL. /I Further, as per para 10.3.10 of the CP, the Authority has stated as given below: "10.3.10 The Authority proposes to reduce employee strength considering a maximum increase of 15% (Changes made to Grade 0) for Phase 1. Also, for the expansion, Authority Order No: 18/2018-19 Page 155 of 264 Operating Expenditure increase of 7 % towards incentive payments and 5% on other cost from financial year 2018 onwards and proposes to recalculate the projectedSalarycost accordingly. /I BIAL's Response Increase in manpower due to significant increase in traffic: - BIAL submits that passenger traffic at KIAB has increased at 10.5% p.a. making it almost 1.8 times higher in FY 2016-17 over FY 2011-12. Further, ATM traffic has increased at a CAGR of around 7%. Given this growth, the airporthas undertaken significantcapex at the airport. efficiently and has over the last five-six years managed with a lower headcount. However, given the significant increase in traffic and projected traffic growth, a headcount increase has been proposed. Please note that the additionalheadcount proposed is on account ofthe following: Carry forward t replacement . positions preViously.: approv.ed by Board - on account of multiple factors including rack of avaiabilit'y ofman owerwith requisite skitlsets Additional3% increase inmanpower is considered towards regularbusiness growth Manpower for NSPR - Headcount of.235number are estimated towards NSPR project from FY 2020-21 (post capitalization) Need for sufficient mcwpower:.{or;futureexpansion'projects - NSPR & T2 Phase 1 The Authority has proposed to reduce the proposed headcount for NSPR of 235 by 50%. We request the Authority to take into consideration that airports need to abide by various prescribed norms of different regulatory bodies like DGCA, BCAS, etc. and its manpower requirements are guided to ensure compliance with such regulatory requirements (e.g. a runway would require ARFF personnel as defined in regulations and reducing these Order No: 18/2018-19 Page 156 of 264 Operating Expend iture We would also like to highlight that works relating to Phase 1 of Terminal 2 are fully underway and it is expected that the project would be completed in FY 2020-21 and the Terminal 2 Phase 1 would be operational in the current Control Period. It may be noted by the Authority that a significant number of personnel for Phase 1 of Terminal 2 would be required much ahead of the scheduled commercial operations of Terminal viz. preparation of terminal operations, etc. Not providing the requisite manpower may lead to a significant impact on the day-to-day induction is becoming tougher, and hence the annual 10% increase and 2% market corrections are justified. BIAL would also like to highlight that the incentives and other costs (staff welfare, recruitment, T&D, etc.) are very conservative ~ estimated at 14% and 10% respectively - these are qaly. marginally higher than the past actuals. . BIAL submits tp th ~ Aut.lior;ty that it sbot.JId c'onsidetBIAt ''fj estimates of projected salaries towards the det(?rmil)atien offina/tariffsjor the Second Control Period. In the event BIAL is able to save costs and expense out an amount, which is below the estimates used in the final tariff order, a true-Lip of these expenses based on actuals financial results can be undertaken by the Aut!writvwhileyjetermlning tariffs for the Third Control Period. Finally, BIAL would like' to submit that the personnel cost allocation of 95% Aero is backed with Auditor certificate and workings and hence allocation should be considered at this ratio. BIAL'sSubmission BIAL requests the Authority to consider BIAL's estimates on manpower requirement as well as projects manpower costs towards the determination of final tariffs for the Second Control Period. Further, the Authority may consider true-up of these expenses on actuals at the time Order No: Page 157 of 264 Operating Expenditure As per the CP, the Authority has stated as below with respect to the projections of O&M Expenses: BIAL's Response Operating expenses at an airport are largely driven by the size / scale of infrastructure being managed and the volume of traffic handled at the airport. An increase in operating expenses is justified wherever infrastructure and passenger traffic increase. While the maintenance of such assets and hence higher maintenance costs. Increase in Minimum wages r 20%) and its impact on O&M costs Also, it may be noted that costs towards AMCs have already increased significantly and these are further expected to increase on account of higher labour / manpower costs [malnienanee >(equirement~ of airsid.ft/ ianastde 'assets are labour intensive). During the previous year the, rJinimum waflXs hove / ncreC/sed by .more that; 20% thus increasing the cost base, which would have a significant impact on maintenance expenses. Further, additional expenses like license [ee .for. lCTservices payable to DoT (under discussion by Ministry) have not been curreptJy qnd 'hence may have an impact on the expenses. Additionally, BIAL would like to highlight to the Authority that the mechanism of true-up these expenses at the time of determining tariffs for the Third Control Period is available to the Authority in the event that BIAL's actual expense is lower than that estimates considered in the tariff order. Not considering such expenses can have significant implications on the cash flows of BIAL. Accordingly, BIAL requests Authority consider the O&M costs proposed for the Second Control Period. BlAL'sSubmission mJ.~'"t'S'~I/itt.~'lf 0&M Expenses for the period FY tariffs for the Second Control Order No: 18/2018-19 Page 158 of 264 Operating Expenditure Period based on the size / scale of infrastructure being managed and the volume of traffic expected to be handled at the airport and true-up these expenses on actuals at the time of determining tariffs for the Third Control Period. Approach towards projection of Power and Water charges AERA's Treatment As per the CP, the Authority has stated as below with respect to the projections of Power and Water charges: line with the above. In addition, as per contracts, various third-party concessionaires are obligated to pay BIAL for the usage of infrastructurefor utilities in addition to the cost of utility charges as levied by various utility providers. We would like to highlight that the charges reduced from operating eXp'enses ,by the,Authority p'er~fJin ,to the .chargefof7. ,provision of infrastructure facilities. These qre i(lJact, revenues earned by B1A1.!. on OqCOUi)t of provision of the utility infrastructure and not on account of utilities usage. Further, as per para 4.24 of ICAD's Economic Manual (DoC; 9562)i p"ayments received for services such as heating, air conditioning, lighting, water, among others are a"nbn~'aeronautical in nature (Refer to para 10.2.1 for a detailed explana.tion on treatment of/utility'recoveries from concessionaires). Also, the Authority in its Consultation Paper for the Second Control Period of HIAL has provided a one-time increase in water charges by 25% acknowledging the fact that water charges do increase by such disproportionate amounts every two to three years. An extract from the aforementioned Consultation Paperof HIAL is presented below: "However, Authority proposes to allow for a one-time escalation in the unit rate by 25% in FY 2018-19 (mid-year of the current Control Period) to compensate HIAL for increasing water tariffs." BIAL's Submission Order No: 18/2018-19 Page 159 of 264 Operating Expenditure BIAL requests the Authority to reconsider its proposal to increase power and water charges by 7%. Further, in case power & water charges do not increase in line with BIAL's estimates, the Authority may true-up the excess expenditure allowed to BIAL at the time of determination of tariffs for the Third Control Period. Approach towards projection of General Admin Expenses AERA's Treatment BIAL's Submissions ~ ; ~. . BIAL would like to highlight ~trqt .: l~~l+th~ rease in traffic at the airport, there are growing business requiremen,1J~t '!'() ;~Pq.fp;igf,~f.l:fQddreSS these requirements, the estimates ~j'fC:':~i '& 1'",,#- j" ~ll'for Consultancy for FY 2017-18 ,;s ,slig!ji,flly.. 'f:iigher mainly towards various new digital initiatives / other business requireme.ntsQf/d,f3nere after annual increase of 10% considered ~4 " " ~ ~ ' J . "1~ I for Consultancy & Legal, Travel costs and Office costs as per the past trend. The Authority may note that office costs which are the largest contributor to General Admin Expenses, and the key driver for the same is again manpower / labour cost. As highlighted earlier, minimum wages have increased significantly (over 20% last year). Approach towards allocation of Personnel Costs. and General Admin Expenses AERA's Treatment ' As per the CP, th(? i;l.u:thqrity has stated as below with respect to the allocation of personnel costs and general admin expenses: "10.1.14 Recomputed Aeronautical Ratio of O&M expenses is as given belOw: BIAL's Response No basisfor re-allocation of expenses by Authority The Authority has recomputed the allocation ratio of personnel cost of BIAL based on the department-wise details of personnel cost submitted by BIAL. The Authority has taken its position based on the allocation of commercial, operations, business development, marketing & strategy and engineering & maintenance employees. The Authority has not considered a specific allocation ratio for the support service costs, which is approximately a Order No: 18/2018-19 Page 160 of 264 '~ ". k ( " ," -~ " Operating Expenditure BIAL however, has submitted an auditor certificate to the Authority, which takes into account all the departments while allocating personnel costs between aeronautical and non- aeronautical. The certificate infers that 95% of personnel costs should be treated as aeronautical expenses. A similar department-wise allocation was done for the purpose of general adm inistration cost. The results of the allocation were that 99% of the general administration expenses were found to be aeronautical. As per the CP, the Authority has stated as below with respect to the CSR Costs: BlAL's Response BIAL wishes to submit th gt the requirement to spend CSR amount is as per the Companies Act 2013. Th,elYlinistry dJi.Eorporate Affairs while issuing claritications to the Companies Act

1 " ", 2013, has throUgh FAQ held 'that CSR is to be 'calditated: by; taking Profit before tax. The same is reproduced for reference: Based on the above, ps tht? requirement to. spen,dCSR amount is before tax and is a mandated as per Companies'Act.vaerecuest AHthority to consider CSR for similar treatment to tax . Further if the Authority believes that it has to be spent out of return on equity allowed then the return on equity is to be grossed up to include the amount of CSR as it is not an appropriation of profits and spending is to be made before tax. Thus, it is clear that spending for CSR is not an appropriation of profits but it is an item which is in same line of tax, therefore we request Authority to kindly consider this for grossing up of equity return as wledged by the ICAQ Doc 9968 Order No: 18/2018-19 Page 161 of 264 Operating Expenditure Report on Environment Management System (EMS) Practices in the Aviation Sector following points can be noted from the Doc 9968 : There is pressure on the aviation industry to balance increasing global demands in air travel with environmental protection is at an all-time high. Local air quality, ambient noise levels, water quality, energy use, etc., are some of the most prom inent impacts of concern . respondents communicated env ironmental performance the Second Control Period. On truing up the operating expenditure for the current control period, at the time of determination of tariff for the next control period BIAL's Submission BIAL submits that. the Qp,er.qting EXP.P ldjture f,er the 'Gurr,ent..conJrol period may differ from the projections consicferedfor: the iieterm)nation of tariffs on account of factors such as changes in passenger trcffic, capital expenditure, scale of airport operations etc. Accordingly, BIAL is in agreement Vi(ith the Authorfty's proposal to true up the Operating Expenditure for the curren'tcontrDlperiod, ottne ~ime of determination of tariff for the next control period. On carrying out a study for allocation of expenses between aeronautical and non aeronautical and consider the results of the study, at the time of truing up. BIAL's Submission BIAL has noted the Authority's proposal to carry out a study for allocation of expenses between Aeronautical and Non-Aeronautical and consider the results of the study, at the time of truing up., At this stage, since we are not aware of the terms and scope of such Order No: Page 162 of 264 Operating Expenditure 12.7 Authority's examination of Stakeholders' comments on Operating Expenditure 12.7.1 The Authority has carefully reviewed comments from Stakeholders and BIAL on elements of Operating Expenditure. 12.7.2' The Authority notes comments from BIAL and certain stakeholders that CSR expenditure should be allowed as a mandatory cost of the Operator and since return at determined rate 12,7.3 the same in the Consultation PaH~r. ifB:e AQJ ~Oritlif notes that these would be reviewed and trued up based on actuals, considering evaluation of the reasonableness of the costs incurred. 12.7.4 On allocation of expenses between Aeronautical and Non-Aeronautical, the Authority has considered the allocation percentage based on its estimated computations and noted that a true up of the 'Costs consiaere9. 12.7.s The Authority had noted BIAL'ssubmission ofUtllltv recovery accounted as part of Non Aeronautical Revenues and that these are part of recovery towards Infrastructure facilities provided. Similar to considering 'Iease rentals from Aeronautical Concessionaires as Aeronautical Revenues, ~be Authority has 'considered infrast ruct ure recovery for utilities from Aeronautical serVice providers as Aeronautical and has considered this as deduction from Utility costs. 12.7 .6 Based on the above analysis, revised operating expenditure is calculated by the Authority as under: Table 49: Recomputed Operating Expenditure decided to be considered by the Authority for computation of ARR for the second control period (Rs. Crore) study will be conducted to evaluate the same whic,~ will be considered for the purpose of Order No: 18/2018-19 20~0 2021: 164.60 193 .92 125.82 144 .69 14.24 14.67 51.40 ' 60 .32 Page 163 of 264 Operating Expenditure P.articulars (Rs. Cror es)l 2017 2018 2019 202Qi 2021 Insurance 3.54 4.54 4.81 6.08 8.86 Rates & Taxes (other than IT) 8.72 8.80 8 .87 8.96 9.40 Marketing and Adverti sing 7.58 8.69 9.8 3 11 .12 12 .58 General Administration Costs 19 .66 10.56 23.79 26.17 28.78 Total Operating Expenses - Aero 283.67 312.64 366.11 408.38 473.23 Less: Disallowance -Interest/ Hotel cost etc . -0.20 -0.28 Concession fee 39.89 44.89 29.48 35.20 42.03 TOTAL OPERATING EXPENDITURE - AERO 323.36 357.26 395.60 443.58 515.2fi Decision No.9.

iii. of truing up. Order No: 18/2018-19 Page 164 of 264 Non Aeronautical Revenues

13 Non Aeronaut ical Revenues 13.1 BIAL's submissions on Non-Aeronautical revenues 13.1.1 BIALhad submitted details of Non-Aeronautical Revenues in its MYTPsubmission as follows: "...4.9 Non-Aeronautical Revenues BIAL has entered into Service Provider Right Holder Agreement (SPRH) with service providers on gross turnover or this submission, BIAL has considered CGF as Non-Aeronautical Revenues. 4.9.3 Estimation of Non-C/gronautical Revenue in,hontrolPeriod 2 There ore bas{(;ally two p.ot~ntial revenue streams tQBIA' fram the concessionaires, i.e. (a) fixed percentage revenue share, cm.dIb) Minimum Annuq1 Guaran,tee (MAG). BIAL realizes whichever of these revenue streams is higher. As per previous experience, projections for most components have been made on fixe.dper(:entagerevenue share. As in the previous subrnission,. the projections arernC?jorly based on the business plan projections submitted Hy the-eoneesstonaire as penthe agreement entered into with BJAL for a tenure ranging between 1 to 15 years. The profile of the consumers plays a vital role in terms of actual realization of the non aeronautical revenue. The trend of the last couple of years shows that the major traffic increase is in the domestic traffic, while International traffic growth is as per estimates. Furthermore, the major growth of the passenger traffic (within domestic traffic growth) was observed from the increased share of LCC passenger as against FSC passengers. Traditionally, LCC passengers have a lower appetite for spending on non-aeronautical --"" ~sfJil!tliJ4t~r:QnS idered while arriving at the :vli- "'>" . , ~ . \ Order No: 18/2018-19 j~1;\ CS') Page 165 of 264 1I1'pl - " .-~ / , ~ / ',' '''0') _4>'<,' V ' ....... ~'jl ,. ~ f'J1,li,\ t' -. Non Aeronautical Revenues Terminal 1 was planned for a capacity of 20 mppa. However, BIAL is currently handling a traffic of 23 million, which is further expected to increase to over 32 million before Terminal

2 is commissioned. In order to accommodate this traffic, BIAL has introduced a host of temporary measures to sweat out the current Terminal. This has been done to increase the passenger area movement, check-in counters and security counters. Consequently, there has been a reduction in the space for retail and F&B outlets. On the other hand, while number of passengers is increasing, the capacity of existing NAR services will remain the of NAR along' with their respectiveThe below mentioned are , . I.\{~i .1)1 drivers. . ~~~,{I u1 n NAR c ~ , ! I I Primary DriversS. No. . omp~~rn~. , ~ " iI i;i 'v.! II I ".,\ }t5. tl4?!!,IX~ 1I .; :!l ~';t\ ..l\11 Landside Traffic CPI .j. -: ,"" ' . . ;,p:

2 CPIRetail/ Duty Free ~li 'J 'li1f"'!~{'J)\/m'u.t ~ _, :~ ~ . :\.~:/~~~,~~: .- .>: I ~' 'W~ r'

3 , ' } , ' I ' .' , ~.. . Food & Beverages ~~~;W CPI ~ ,' ,, 1"!" , "t'r~ ':"", '

4 Advertisement & Promotions . Revenue share , .: .,":: "- - , ,,,.,.'t!" . : ~ ~ "~""' r \.'1~ --1 'OT"'! 4 \ ..".Rent & Land leases Space5

6 Utility charges Consumption

7 Flight Catering MAG CGF Revenue Revenue Share8 Others (Lounge Revenue, Terminal Entry) CPI9 The major line items of tevenue streams, which eeastitute NAR and its percentage share to the total, NAR 1s detailed below: -".1 ",' " , I Particulars Gontrol Period 2 (Rs. Crare) Landside traffic Retail ;\ Food & Beverage l' ....~ Advertising and Promotions R . 'p\ 350.0 582.0 176.2

373 .5 Rents and Land leases 140.4 Cargo 237.7 Fuel Farm 456.3 Ground handling 24.9 ICT (including Cle) 285.7 Other Revenues 223.6 Total 2850.3 Page 166 of 264 Others includes LoungeRevenue, Ter 4.10 Other income Order No: 18/2018-19 Non Aeronautical Revenues Apart from the NAR discussed above, BIAL would also earn income from two other sources Interest income on Cash balances and on DSRA balances as shown below....II 13.1.2 BIAL had submitted that under Shared Till, 30% of Non-Aeronautical revenues were considered for adjusting against ARR to determ ine the tariff. BIAL had submitted details of the above revenue earned for Control period 1 and projected revenue for Control period 2 in their submission . A summary of Non-Aero revenue for first control period and revenue projections for Control period 2 is detgJled.Qelow: t ~ l .... ~ , I . .....~~: Table 50: Summary ofNon-Aeronaufica (Revenues j 6r Fii:1n:ontrol period as submit ted by BIAL (Rs. Crores) ( .:.....,~I f\:~-tJt"f~ ' '~}J""'::'\, ,,:'t " . , "!:t,.

20 1: 2 1~ , 20 :1:3 2014 2015 2016Particulars , .. : Of, '. '~~!I f. < :"'h~2~63 30.92 37.66LandsideTraffic 29.27 44.47 ..~..nIlI, I '0':2 6 0.240.25 0.23 0.23Terminal Entry/Miscellaneous Incorre U ~ if

41 .62 61.42Retail 33.92 88.60VI, 'A2 :~ . 7 3fA

13 .96 15.35 19.01Food & Beverage @:;f/,11~ 25.18J,\.~1 3~ 43 " ,' ii' ,: i1' "'" " 37.64Advertising & Promotions .&~ "j] 36.95 46.69 53.32d~~~\i3's'~~ 111~ I i'-,".;-" " 10i" ' _ ~i~=- . -..:.. ' I ) 21.25Rents and Land Leases ~~" .~,'("~'"/l); ~, ;:b 9 ! 94,v 20.47 22.68 26.05 . ,:,",;:'~'". .~""'l , ' 1Ul:..IJ" 5~:97 4.88 12.02Lounge Revenues 6.40 14.72 Utility Charges Bfqi 5.29 5.37 5.52 6.01','cl ~jr 5r~ ~ 6.11Flight Catering 5.65 6.615.22 8.26 120.60Non-Aviation Revenues - Others 93.91 92.55 98 .77 155.20 Total Non-Aero Revenues 229.03 244.72 262.15 332.43 422.03 Table 51: Summary ofNon-Aeronautical Revenuesfor Second control period projected by BIAL (Rs. Crores) 13.1.3 13.1.4 Order No: 'iarJ,) <;~ l a r s .~',~~:,~: ." ,~12.~7 "O Ol 8 .4-.Q19 2020 2021 l0.18 0.18 0.18 0.18 0.18 Retail :105.32 , , ~ n O.59 116 .12 121 .93 128 .02 , Food & Beverage -'' fl':88 ,f f f3} .48 35.15 36.91 38.75i I Advertising & Promotions l 71.77 70.QO 73.50 77.18 81.03 Rents and Land Leases 25.42 26.82 28.02 29.29 30.89 Lounge Revenues 19.76 20.75 21.79 22.88 24.02 Utility Charges 5.55 5.55 5.55 5.56 11.08 Flight Catering 8.45 9.25 10.10 11.01 11.94 Non-Aviation Revenues- Others 179.14 190.84 202 .73 218 .21 243.17 Total Non-Aero Revenues 510.82 533.96 562.97 596.46 646.09 18/2018-19 Page 167 of 264 Non Aeronautical Revenues ((...BIAL has conducted studies through International Property Consultants to understand the possible land uses for commercial exploitation, given the conditions provided in the concession agreement. The studies indicate that there will be a sustained demand over a phased period for different asset classes such as commercial office spaces, hospitality hotels and service apartments, MICE components - exhibition and convention centers, shopping malls, food and beverage, education institutions and hospitals among others. Furthermore, BIAL has identified 462 acres of land from the total land parcel of 4,009 acres 13.2 Authority's analysis on Non-Aeronautical revenues detailed in Consultation Paper 13.2.1 The Authority had carefully evaluated the submissions made by SIAL relating to Non Aeronautical Rev,enue. AuthQ,rity,'s analy,sis.of individual h~ads was as given below. ! ' . .. ' , ' 13.2 .2 Authority noted the trend of revenu'egrbwth in 'key head~ 'of Non -,Aeronautical revenue as follows: Table 52: Revenue per passenger analysis bY AtJthority!or key Non-Aero Revenue heads ) I 'n ",. \ I L I .. " .'i, ." \1, I A~~:'. 2015 2016Particulars _,. 2Q13!' l!i' , } 014 2017201~' :: ." Revenuesfor KeyHeads(Rs. Crore) LandsideTraffic 37.6622.63 29.27 30.92 44.47 63.34 61.42Retail 28.73 33.92 41.62 88.60 108.32 19.01Food & Beverage 13.43 15.35 25.1813.96 31.88 Flight Catering 5.22 6.615.65 6.11 8.26 8.45 12.02Lounge Revenues 5.97 6.40 4.88 14.72 19.76 Growth Rates (Value terms) LandsideTraffic 21.77% 18.10%5.65% 42.43%9.35% ./~~N 22.71% 47.59% 44.24% 22.27 %Retail lj~ V' ~~91~'\1 5 % 23.84%Food & Beverage {rtff:/ 9.94% 32.44% 26.63 % ifFlight Catering 8.19% 8.16% 25.03% 2.26%I .J~ ~ V. :~}e. 1\~~ .i~ /1) ,,' . \ "i':.Order No: 18/2018-19 ,~~ . ~~I Page 168 of 264" ~\ ~:,., Non Aeronautical Revenues 2012 2014 2015 2016Particulars 2013 2017 Lounge Revenues 7.32% -23.78% 146.31% 22.39% 34.31% Average Revenue per passenger Total Passengers (Mn.) 12.71 11.99 12.87 15.40 18.97 22.88 Revenue per passenger (Rs.) Landside Traffic 17.80 24.03 24.45 23.44 27.68 Retail 24.40 22.60 28.28 32.34 39.88 46.70 47.34 Food & Beverage 10.57 11.64 11.93 12.34 13.27 13.93 Flight Catering 4.75 4.29 4.35 3.69 Lounge Revenues 3.79 7.81 7.76 8.64 / .' ,i:,;:\ l. ~~.<~,f f/"' ( ' ~,': 13.2.3 tandside Traffic: - Landslide TraffIE.;cpn$lstli 'of,revenue from parking, taxi & limousine. The Authority observed that BIAL hcH3 I?r ~j ~cte i:l' revenues from each of the service with downward trend in revenue per p.~ssen,g eL' ~Llmmary of the revenue per PAX and % change was as listed below . t .~ ,JlI! . . ,T .J) ,JLlh \~ Table 53 ' Landside traffic trend anaIYJf4?~~ \\;,:~~~; .ger (Rs .) Particulars 2019 2020 I' 2021 Revenue Share 19.57 -4%% Change in revenue projections -13% -4% Taxi Services 29.12 27.92 26.84 -4% -4%41%% Change in revenue projections 4.69Limousine 4.89 4.51 -12% -4% -4%% Change in revenue projections 18.85 25.86 4.34 18.26 25.05 4.21 13.2 .4 Authority sou~ht ~I a r i f i c atl o n . an d basis for conslderit1g ,fall-In-r-Bvenue per passenger through the Control pertod 2. 13-,2.5 BIAL's response was as given below: "".Parking - The growth opporiunities in pqrking is constrained on account of landside expansion works - MLCP, roaC/ways, 'others: Taxi - The Airport taxi operators' business has reduced 'because of. competition from App based taxis. The parking space is constrained and not able to accommodate complete requirements ofApp based taxi. Limousine - This business is in MAG and may opt out of the Airport. Hence, annual increase in revenue estimated at 5%. Order No: .. ..... ... 18/2018-19 Page 169 of 264 Non Aeronautical Revenues 13.2.6 The Authority noted BIAL submissions above on Non-Aeronautical Revenues, the constraints faced in the Terminal Building and the change in profile of passengers. While it may not be possible to project a higher growth at revenue per passenger level, the Authority proposed to consider an increase in revenue by 12.5% per annum from FY 2018 onwards, broadly in line with the increase in volume of passengers and proposed to recalculate the revenues accordingly. 13.2.7 Retail: - Retail business of BIAL includes domestic, international, Forex & Others. The Authority noted that BIAL had projecte~;tJ.Qy.ter revenue growth on a year on year basis per e:..\.dlk ,' passenger. Summary of the re~~}i rtd!r&~1{tr-~ was as tabulated below: Table 54' Retail revenuetrend ana/~'sfiJR venilip~1.. pbs$.flr!def (Rs ) ~~l~'~~\lV '_~ . ' .. . Particulars !It 11,+ 2()liZ ' 2018 2019 2020 2021' ._" .s. Revenues Summary - Retail '[1 rr ~1) 'I\i ! I' Ii Total Revenues - Retail-Domestic ; I,A" ~ 18~3S I 17.59 16.91 16.29 15 .78 . 1. ; , - ~ \ \ % Change in revenue projections e:I ~fl,;r~ ~ R\~~ ~~" -4% -4% -4% -3%..,., ,.....} jl' -. "' ~y Total Revenues - Retail-Int'l. ,f ( i( J1K4i~}~ ~ l i l1f~ 9 5 . 2 1 380.00 366.05 354.24 " t ~' : - ; '" . -,-. ,?"..)..-, '4 ~: - Iii, % change in revenue projections ~,~;;;1r;i 1 0:~o/c ' ; !"r'iI -4% -4% -4% -3%'~ ~JA ' . I;", ...~ ..;JiJ~ " ~ (, . Total Revenues - Retail-Others w 1 lil: ~ W1I1:; 5 3li 1Jl' 1,47 1,41 1.36 1.32 % Change in revenue projections 'ff( l i.:n:rq14,~ , I ~ ct -4% -4% -4% -3% Total Revenues - Retail-Forex 31.90 30 .51 29.34 28.26 27.35 % Change in revenue projections 14% -4% -4% -4% -3% 13.2.8 Authority sought clarification and basis for considering fall in revenue per passenger through the Control period 2. 13.2.9 The Terminal is more revenues and thus an annual increase of 5% has been assumed.../I 13.2.10 The Authority noted BIAlfSuhmissi~msaboveonNoncA.eronautical Revenues, the constraints faced in the Terminal Buildi~g ana the change irl profile of passengers. While it may not be possible to project a higher growth at revenue per passenger level, the Authority proposed to consider an increase in revenue by 12.5% per annum from FY 2018 onwards, broadly in line with the increase in volume of passengers and proposed to recalculate the revenues accordingly. 13.2.11 Food & Beverage: - F&B business of BIAL is classified under 3 categories. i.e. domestic, International & Others. The Authority noted that BIAL had projected lower revenue per PAX ..... ........ for all the 3 categories of service fo r1-"Q;AM)l l ~~Summary of the revenue and % decrease was as tabulated below: / 1:;,'0<' /"":'1 ~ ~I '- I l\j, .

I . ' ~U. Order No: 18/2018-19 \ 1! ~ "OfIR\ ! J Page 170 of 264 \ '3> "'/\ ~ " 'It" '~ Q<;o. , '?I')/)} ~~":l.J ~ . . ic " /!!Jllkllof'l .,.,' '-~"" Non Aeronautical Revenues Table 55: F&B Revenues - Trend of revenue per passenger (Rs.) Particulars 201i7 2018 2019 2020' 2021 Revenues Summary - F&B Total Revenues - F&B-Domestic 15.20 14.57 14 .01 13.50 13 .08 % Change in revenue projections 9% -4% -4% -4% -3% Total Revenues - F&B- Int'1. 20.18 19.35 18.60 17.92 17 .34 % Change in revenue projections 0% -4% -4% -4% -3% Total Revenues - F&B-Others 11.82 11 .33 10.90 10 .50 10.17 % Change in revenue projections j";i":>r"1q 3% . .~r.o. . ,: ,' i -4% -4% -4% -3% 13.2.12 Authority sought clarification ir1J~~gr;l.~h:Ji~~jh g fall in revenue per passenger through ~. ,. " . ; . I~ l ", ~' ~ . '..' ~ the Control period 2. ' i ~J . " .17:'.~.;.r ~(~ ~ 13.2.13 BIAL's response is detailed below:., II . (( wt . bere i h . 'Ii Tr tA~ '''If&8 . t . . Th t, . I ." let ere IS growt tn passenf/e\1s,vJ., e I . space IS no increasmq. e ermtno is d d . 1 ' . ~ it ~. \ d ti Af . Icongeste an passenger IS constra! . ~ an time. ter a certain vo ume revenue.g~ {f;~g,e . " . ~ " < '. ,,~ ; ~ i " ' , . .. . . . . per pax cannot '"'?" cont'lrr:?~{/r.~ ~~~)W;'j!~~lil;ent constraints like co.mpetltlOn, p~/cmg, etc... Also, due to various eXp.dnslOn~actb/J tle SJfthe revenues from Ketoside outlets will get impacted in the next 3 years. .a~~ ~~~ n o t expecting more revenues and thus an annualincrease of 5% has bee JJttJ~{a...' )i r: 13.2 .14 The Authority noted BIAL submissions above on Non-Aeronautical Revenues, the constraints faced in the Terminal Building and the change in profile of passengers. While it may not be possible to project a higher growth at revenue per passenger level, the Authority proposed to consider an increase in revenue by 12.5% per .annum from FY 2018 onwards, broadly in line with the :increas in~olume of passengers ahd"proposed t o recalculate the revenues ' . .. . '. ~ . accordingly . 13.2.15 Advertising and Promotions: - BIAL had entered into contract with Advertisement Company with minimum Guaranteed .revenue plus % .of revenue share. BIAL had projected fall in revenue for 2018 by 2.5% from the previous ye~r and nominal growth thereon at the rate of 5% while the historical trend ' showed ' year on year growth of 13.52%. Summary of the revenue with % Increase / decrease was as tabulated below: Table 56: Trends in Advertising and Promotions (Rs. Crores) Particulars 2014 2015 2016 Revenues from Advertising & Promotion s 33 .62 37 .64 46 .69 53 .28 % of Increase /Decrease in revenue 38% 10% 2% 24% 14% Particulars 2017 2018 2019 2020 2021 Revenues from Advertising & Promotio 70.00 73 .50 77.18 81.03 % of Increase /Decrease in revenue ,...~ -2% 5% 5% 5% Order No: 18/2018-19 Page 171 of 264 Non Aeronautical Revenues 13.2.16 Authority sought clarification on negative projections for 2018 and reasons for considering growth of 5% for 2019 to 2021. 13.2.17 BIAL had responded as below: "...Based on higher actual turnover of concessionaire for FY2016-17, BIAL has considered 35% hike for FY 2016-17. This is not a regular phenomena and we don't envisage such higher turnover for subsequent periods. Also, the landside expansion (widening of roads Main access road, approach roads, forecourts and taxi holding areas) projects will have huge impact on outdoor advertisem~ v.e~ues. Hence, the revenue estimate for FY2017

18 is revenue share to BIA L; i~liJd':Q~ t~venue as per agreement and thereafterpr~J~i~ CJlii ~ ....-;\. ~ : r ~~ 'i',, ,. reason for significant fall in price for FY-2015 on Airside/Landside, PTB - Storage / GSE, & Cargo Warehouse / Offices . Also, the Authority noted that BIAL had considered conservative increase of 5% on year on year basis. 13.2.21 Authority also-noted tha tientals were received .from Variousservice providers who provided Aeronautical serVices. Authority proposed 'to consider revenue from Aeronautical service providers as Aeronautical Revenues. 13.2.22 Lounge Revenues: - Lounge revenue consists of rentals derived from domestic, international & day hotels. Authority :o p ~.e rve'd ~hat BIAL had projected revenues per passenger in decreasing trend on a.Year ony.earbasis. ;Sumr;na rv of ttt.e revenue and with % Increase / decrease was as tabulated below: Table 57: Lounge Revenue - Trend analysis of revenue per passenger (Rs.) 2018 2019 2020Particulars 20E7 Revenues Summary Lounge Revenues Domestic Rental per PAX 8.31 7.97 7 .66 7.38 7.15 % Decrease in revenue projection~~ 27% -4% -4% -4% -3% s _...,._ 59.69 57.40 55.29 53.51 -4% -4% -4% -3% 0.50 0.48 0.46 0.45 Order No: 18/2018-19 Page 172 of 264 .......... .. . .~ .- ' Non Aeronautical Revenues % Decrease in revenue projections

13 .2.23 Authority sought clarification and basis for considering fall in revenue per passenger through the Control period 2.

13 .2.24 BIAL had submitted as follows: /I... There is a constraint in seating capacity for lounges during peak period and this impacts revenue. Also, the lounge caters to niche travellers and does not increase proportionately . with traffic. Thus, an increase in annual growth of 5% revenue is estimated for CP 2. The day hotel is in MAG with/a 5i 7!i f s'f; 'on year increase as per Agreement. The higher ('> )l li I.,~ !~, ::;';:' passenger growth has resuht~ ~ '1'ln : ' ~:''d.;cr;ea~,r depax revenue. Hence, it is estimated that annual increase in revenues will c'qntinJ:{'8'to,grow at 5%.../1 1~(;I1>Jv ...:\ :i ' 13.2.25 The Authority noted BIAL sUbmi $~ionSi=ll:i o,iJE! d6.Non-Aeronaut ical Revenues, the constraints (, '. \ J : faced in the Terminal Building and! th1el\\//.:\~ It,I .)1o f ..proposed to recalculate the relJ.~ "q~~'~,~.g~.~V . -m~~ifuJ' 13.2.26 Utility Charges: - BIAL had considered:revenuecQllected from concessionaries on electricity, f4?~Rg , i"f -':J Apotable water and waste management services as part of ut ility revenue under Non- Aeronautical Revenue. The Authority had carefully examined the same and proposed to consider these recoveries as a reduction to utility cost (Operating Expenditure) and therefore consider the net costs relating to Utilities as Aeronautical after set off.

13 .2.27 Flight Catering: - BIAL had forecasted revenue considering higher of following use serv.ice's & "expected revenue per passenger

(ii) Minimum Annual Guarantee. Authority observed that BIAJ, had considered lower 'ut ilizat ion of services of flight catering considering its double-djgit growth in past; ,analy sis wil s .a~ tabulated below: Table 58: Proje cted PAX expected to utilize services of /light cater ing (Rs.)

(i).E:stimated PAX' expected to Particulars 2012 2013 2014 2015 2016 No. of passengers expected to avail FC service 2.42 2.55 2.99 3.64 4.57 % Increase/(Decrease) in Revenue 33% 5% 17% 22% 25% Particulars 2017 2018 2019 2020; 2021 No. of passengers expected to avail FC service 5.50 6.03 6.58 7.17 7.78 % Increase/(Decrease) in Revenue h.o;>\ \~ fi T ~ , "'~ _~4IRf'l:., 10% 9% 9% 8% ~/I' :\

1) Rent and Land Lease is reduced from BIALestimation as balance is considered as Aeronautical to be considered as reduction in ARR for determining charges viz. Landing, Park ing etc.

2) Utility income reduced from Operating Expenses hence no income considered

3) Non-Aviation Revenues projected by BIALwas towards Cargo, Ground Handling, Fuel Farm; ICT and related services which are considered as Aeronautical, hence are to be reduced from ARR while computing charges viz. Landing, Parking etc. 13.3 Stakeholders' comments on Authority's analysis of Non-Aeronautical revenues 13.3.1 business practices and rates ifltP~,?~m~t.40p ~Ht~q region which eliminates the possibility of them being supplementary non-aeronauticalrevenues. In light of the above, we would request AERA to re-examine the manner in which notional revenues has been applied in the case of BIAL and yet not consider them for tariff determination...II 13.3.2 BPAC has stated as follows: "....KIAL has slJ J5 mitted to AERA thdr; .its ,100 per ,cent su.bsiaiary, BAHL, has estimated to undergo losses all through the second control period. The request of KIAL to take cognizance of the above fact that BAHL has. been in losses since. its inception while issuing the tariff order should not be considered; This is a hon-aero activity and if KiAL cannot find a way to make the hotel profitf/ple, AERA should tJirect KIA. Lto find other suitable investors who have specialized skills and can manage this profitably. Further, we would also like to highlight that the hotel occupancy can be increased when the surrounding areas of the airport are developed. Hence the KIAL needs to develop the unutilized land, which would also bring in investments for the state while increasing the occupancy of the hotel and benefitting the hotel establishment... II 13.3.3 CIALhas submitted as follows: "...Treatment of interest Income AERA's Treatment Order No: 18/2018-19 Page 177 of 264 Non Aeronautical Revenues "Authority proposes to consider Interest Income, without any exclusions as Non Aeronauticallncome" The interest income is primarily generated out of the company-wide surplus fund management activities of the company, which has no specific relation to any aeronautical or non- aeronautical services, rendered by the Airport operator. It is exclusively an activity falling under the investment activities of the company and carried out as per the approvals granted by the respective Board of Directors from time to time. security deposits. Moreover, in the recent TDSAI. Or.der..in.Lhezcase of DIAL, it was held that refundable :(:i~~ ("~ \J1" (' . security deposit cannot be considered as a zero-cost debt and its cost needs to be ascertained and made available through appropriate fiscal exercise at the time of next tariff determination. Hence; in view of the above facts, it is requested that Authority may consider security deposits as quasi equity and cost of equity may be allowed on the security deposits... II 13.3.4 "...To reconsider lounge and jlight catering services in the light of the fact that property development activities wJII,now fQII w.(rhin th(J ambit; oj non-aeronautical. Tariff based on 30% hybrid till -but cpnside,.ing, property development activities as non aeronautical - Woula be beneficial if this can be considered as a set off and the same reflected in reduced tariffs such as lounge services and utility services ...II 13.3.5 HIALhas commented as follows: . "...Notional Income on non-aero deposits: With respect to the deposit received by the airport operator from non-aero concessionaries, AERA in its order has considered notional revenue. Same has been considered as aero/Non - Aero in line with the .d.nature of service ~p r-GVi.d.r; Authority while considering notional /'....:\\ II~I<}; 1:)-[:,';',........ revenue has stated following view: 'it? q/? .ffri<> I I!:' ~./'1I(~ ,' " C( 1}.\ ,.. .. ' A . i Order No: 18/2018-19 \\~~. ~ ~ <;1 11'<1 '\,':..~/ Page 178 of 264 ' :,~ xeco oJ ., -o ..,(' .' .. "0 ' -, ," / , 'ri,e RClf" \l'IO" ... .. .......~. '::""""'Jj' Non Aeronautical Revenues The security deposits could mean a reduction in the Rentals/ Charges collected from the respective users. The Authority also proposes to consider notional revenue on the Security Deposit collected from Non-Aeronautical Service providers. The consideration of Airport operator from Non-Aeronautical contract is mainly revenue linked & rental being charged at the standard prevailing rates. The Airport Operator cottsiderinq the Security & performance aspect, which Is of utmost importance in case of Airport, has taken security deposit. By taking Security Deposit the Airport authority ensures return. Further, it is pertinent to note that the working coptta! requirement of the airport operator has been rq,duced"to t8e e.xtent of the gmo,!tnt ~ Z De~'l?8its, benefit of which has been reflected in the calculations.a/the AuthoritY. ". - " '. . ".. . Accordingly, we request AERA not to consider any notional return on Non-Aero deposits. Interest income being consideredfor cross subsidy purpose: AERA in case of BIAL cOnsfdereanotional fnterest Income on surplus cash available with the Company. Interest income relate to,investment of interim surplus funds & retention of the shareholders' funds in the business till the same are paid out as dividends. Such incomes do not form part of either aeronautical or non-aeronautical revenues. Accordingly, this is outside regulatory purview. Temporary surplus is primarily retained in the business for redevelopment at an opportune time. This is kept in the business by depriving the shareholders (without paying dividend) to meet future capital requirements. Hence taking away 30% of income from investment is Non Aeronautical Revenues efficiency brought in by the airport operator in managing working capital. It is very unlawful that the airport operator is being penalized for efficient operation..." 13.3.6 lATA has stated the following : "... We agree with AERA's amendments. However, AERA may need to consider adding an inflation adjustment to the percentage increases (i.e. 12.5% + CPI) since it would be reasonable to assume that the revenue growth would be driven by passenger growth as well 13.3.7 had an option to give extra land of 4/5 acres from 4000 Acres to solve the dispute. In fact, KIAL management acted irresponsibly by refusing to allocate the additional land and kept

400 Acres of land at Airpart'non-utilizedfor 10 years and also no plans for next 10 years. On consider revenue. Similarly, Non-Aeronautical Income projects',are qlr;nost flat like Flight Catering, Terminal Entry, Food & Bevetoqes, Rents & Land Lease. Request AERA to relook into the projections..." 13.4 BIAL's response to Stakeholders' comments on Authority's analysis of Non- Aeronautical revenues 13.4.1 On CCS's comments, BIAL has submitted as follows: "...BIAL is unclear on CCS's submission to "reconsider"lounge and flight catering services as Order No: 18/2018-19 Page 180 of 264 Non Aeronautical Revenues 13.4.2 On Sanjeev V Dyamannavar's comments, BIALhas submitted as follows: "...1) Respondent has inferred based on the perusal of the CP that the promoters of KIAB . have not shown adequate interest in developing economic activities around the airport terminal which could have generated additional revenues to expand the airport .

2) The above submission of Respondent has been addressed above in point 78 para 5 to 8.

3) The Respondent has raised a similar concern stating that even after having sufficient land of approximately 4,000 acres, BIAL has not come out with any real estate plans to generate increase in them are "almost flat". BIAL would highlight that it has already submitted a detailed response on the constraints on the growth of NAR such .asE&B and flight catering jn its response to the CP..." hotel but consider io Of the hotelis turnover as re~enuet(j be 'added into non-aeronautical revenues of BIAL while determining tariffs. BIAL submits that as per,$chedule"3 Part B of itLCA, commercial property development including hotels has clearly. hfen define(i as ci non-a 'rport activity. Further, the CA, LLD and other project agreements provides that non-airport activities of BIAL would continue beyond the concession period. The Clause 4.1 of the LLD clearly permits BIAL to undertake both airport and non-airport activities without seeking prior permission. The LLD does not envisage any form of cross-subsidization of airport activities and doing so will go against its principle objectives. Accordingly, the risk & rewards of the real estate business is to BIAL. The treatment of real estate as per the CA and other project agreements is detailed in BlAL's Order No: 18/2018-19 13.4.3 Non Aeronautical Revenues notional lease rental from the hotel as nonaeronautical revenue in the hands of BIAL, 30% of which is used to cross subsidize aeronautical charges. BIAL submits that notional lease rental should not be considered for cross subsidization as the same is outside the regulatory framework. However, BIAL submits that property development (including hotel) its corresponding income should be kept outside the purview of regulation and not be subjected to 30% SRT to respect the provisions of the CA and LLO, and commitments made in other project the initial phase and will spread across different phases of the concession period.

3) Further, BIAL has made detailed submission as part of the response to the CP wherein it has reiterated that the land utilization towards real estate and the corresponding income and losses are outside the purview of regulation by the Authority. Further, it is reiterated that the CA does not provide for cross su~~iaization of any income from Non-Airport activities and hence, does bot imoeet the aeroriCwticdl charges like UOF/PSF. B.PAC has requested that the Authority shbulddirect BIAL to firid other suitable investors who have specialized skills to profitably manage the Hotel, which has been making losses since its inception and is' estimated to CQoti'l'ue to'do so all through the Second Control Period. BIAL needs to "develop the unuti~jzed 'lar/(:!, which would also bring in investments for the state while increasing the occupancy of the hotel and benefitting the hotel establishment. BIAL once again submits that the issue of commercial utilisation of land is not within the purview of this regulatory exercise. Likewise, BIAL submits that profitability or otherwise of the hotel, whict: is a non-airport act ivity is also beyond the regulatory ambit. B.PAC's request to the authority to exercise the jurisdiction in respect of these two issues may kindly be refused as the same are beyond the jurisdiction of the authority. Order No: 18/2018-19 Page 182 of 264 13.5 Non Aeronautical Revenues services and, therefore B/AL submits that real estate activities are outside the purview of regulation. Without prejudice, B/AL submits that commercial exploitation of unutilized land has to be evaluated on the basis of investments, return and market condition....II 13,4,4 On lATA's comments, BIALhas stated as follows: "....IATA has requested the Authority to consider adding an inflationary adjustment to the 13.5 .1 response to the CP ;I ....... ' q -. .. Treatment of utility recoveries from concession AERA's Treatment As per the CP, the Authority has stated as below with respect to the treatment of utility recoveries: BlAL's Response: -We would like to submit thatas:,parto};our:,contracts with various third party concessionaires, B/AP. ~h a.rg e..s tlie Concessionqires for the provision of infrastructure for utilities in addition to recovering the cost of utility charges as levied by various utility providers. Accordingly, the amount of revenue recoveries & recovery of charges to the Concessionaires are asbeloi: Revenue recoveries[or. the provisionof infrastructurefor ;utilities Recovery of cost of utility charges as levied by various utility providers. These are in the nature of pass through charges As part of its tariff filing, BIAL had already considered the net cost of utilities as part of its Operating Cost projections after deducting any recoveries of pass through charges from the third-party Concessionaires. B/AL would like to clarify that the recovery of revenues reduced from operating expenses by . the Authority pertain to the charge for provision of infrastructure facilities as mentioned above. These are revenues earned by B/ t ,Q,n account of the utility infrastructure provided '. ~~'P I"~ . -up by B/AL, which are used by th . ~r ttfQ,? not on account of utilitiesusage. q' 9!' ... ~ ' , I;)- '~8 '. f2 Co' " 1 rlE ~''1 Page 183 of 264Order No: 18/2018-19 ~ ; ~. 7 ryy.) ' '3;, '?f)'ll t. "~ - (I~ ~ Non Aeronautical Revenues BIAL would like to highlight that even the Statutory Auditors have confirmed and accepted that utility recoveries towards provisioning of utility infrastructure is revenue in nature and instead of reducing utility recovery from operating expenses, the same needs to be accounted as revenue. Further, BIAL has been apportioning a concession fee on these recoveries. Hence, we submit that the categorization of the utility recoveries as revenues is the appropriate and consistent approach in terms of generally accepted accounting principles and also in the given general business/ commercialpractices. airportfor such services as he~,~~gilai ~o~~i!iQfJ/ng, lighting, water, cleaning and telephone use, provided they are not included in the rental or concession fees, and jor any services provided to non-aviation entities outside the airport. // Accordingly, BIAL requests the Authority to treat these revenue recoveries from various concessionaires as non-aeronautical revenues instead of reducing these revenue recoveries from utilityexpenses. BlAL's SubmifsiQnr- B/~~ requests the ""A't,lthority tQ qons'lqeKthe recoveries from third party Concessionaires on account ojprovis;on o'firfrastructure as non-aeronauticalrevenues. OnAuthority's consideration of notional revenues from SecurityDeposits AERA's Treatment As per the CP, the Ai..Jthorityhas stated' as belOW with respect to the consideration of notional revenues from security deposits: BlAL's Response: - BIAL would request the Authority to have reference to its Airport Guidelines on the matter of Revenues from services other than aeronautical services (NAR). Para 5.6.1 of the Airport Guidelines prescribes the manner in which NAR needs to be reviewed, and an extract of the same has been given below: //5.6.1. TheAuthority's review of forecast of revenues from services other than aeronautical Non Aeronautical Revenues forecasts for operation and maintenance expenditure, traffic and capital investment plans that have implications for such activities. II The Airport Guidelines as given above do not mention the concept of notional revenues. Therefore, the Authority's consideration of notional revenues while reviewing the forecast of non-aeronautical revenues is not in accordance with the prescribed procedures given in the Airport Guidelines. BIAL would like to submit that the reasoning provided by the Authority that the security worth mentioning that by investing the proceeds of security deposits into the airport business, BIAL has reduced its requirement for working capital. Accordingly, BIAL is already saving on interest, which would have been incurred on working capital loans, which the airport users would have otherwise had. to bear in the form of higher aeronautical tariffs. Despite the above, the AQtfJorityhaspropbsed t@ cqnsJrJer,a'notiona/iintefie{it on security deposit as NAR resulting in a two.-!qlfj,setback to BfAL. . , Impact of TOSA T Order - return to be provided on Security deposits BIAL would like to draw the Authority(s attention' towards the TOSAT Order, which has . , " , allowed the airport opefa'tor ci return ondeposits ,'o] N Rs. 1,471 crores used for funding .-. , ~ aeronautical assets, which Were earlier given ' zero return while computing aeronautical charges by the Authority. Vide the above judgment, the Hon'ble TOSAT has upheld that security deposits should be treated as funds of the airport operator, and in the event these deposits are invested in the aeronautical business, the airport operator should be allowed to Order No: 18/2018-19 Page 185 of 264 Non Aeronautical Revenues security deposits and treat the same as non-aeronautical revenues of which 30% is used to cross- subsidizeaeronauticaloperations is completely contrary to the TDSAT Order. Inconsistent treatment by Authority BIAL submits that the Authority's treatment of notional revenues has not been considered in tariff determination of other airports. BIAL requests Authority not to go ahead with above inconsistent approach and any contrary approach will result into discriminatorv treatment. Further, BIAL requests the Authority to not considernotional revenue on security deposit but As per the CP, with respect to the consideration of income: BlAL's Response: - BIAL would like to reiterate, and adopt, its r~sponse to Proposal 10 for PropertyDevelopment in Para 3.2.2.1. Hotelis part of Non-airport activity, as per Schedule3 Part B of the CA. It is reiterated that CA does not provide for cross subsidization of any income from Nor:hAirpo'rt oc'Nvates ,and also CA prov.ides. fO( non-airport activities to continue beyona the expiry of the' cohcessionperiod, 'they jail outside the purview of regulation. Therefore, any income from property development should not be consideredfor tariff determination. The Authority has considered a no. ~iO,nc:t llease reniat from the hotel as non-aeronautical revenue in the hangs. of BIA~, :30% of WhiGh is use.c! to cross-subsidize aeronautical operations despite acknowledging the fact that the hotel subsidiaryis currentlyin losses and such revenues are not accruing to BIAL. The approach of Authority to assume property development business will always generate profits and to assume notional revenues in absence of profits is not prudent. Such an approach affects the internal accruals that are available to BIAL. riiciritiJrr~l~~ion a l revenues that were arrivedas Order No: 18(2018-19 Page186 of 264 Non Aeronautical Revenues BIAL submits to the Authority that either basis or methodology of arriving at notional revenues with respect to land utilized for Hotel being provided in the CPo The potential of rentals from the utilization of the land can be varied depending upon the nature of the non airport / RE business. It may not be prudent to assume rentals of an arbitrary nature and considerthe same for Hotel. Treatment of Interest earned on SecurityDepositreceivedfrom Hotel BIAL would like to submit Authority that a Security deposit of Rs. 76.5 crore received from Hotel. An interest income of ~ Rs. 55"c/fores.was earned from the above deposit. The interest ~~, .Jo ' 1 ...:.~, ' si. t.~~/81:income earned on this securi Y ,c/'PP:O. !\.((jn ;id red outside the regulatory purview in the J~ '''')' .;;t .... ' . - '" ~ first control period but ho J,~i~ ~'tie, entit:e '[nteces t income generated is proposed to be . (~t ~ / considered as non-aeronautiCCir 5e.Ve;l')u,e.;.tJ'(I.cJ. ;~hereby 30%of same was consideredfor cross subsidization by Authority. . : ~i BlAL's Submission: - BIAL reque J~s ~fie A'uf,h~rity to consider any revenues and costs fromf. .... I. ' the Hotel business outside the :~~gY/9t'o fjYi P!J~~iew in line with the provisions of its CA and not to consider any notiona/~~'e;j.. . .l~~if;i~ ;;nVh e hotel while determining aeronautical. ..~~Ja . . ~ll l~ " ..L ~b/i~~ :1 },'" cW chargesfor the Second contro" l~d~~ . . On Authority's treatment of non-aeronauticalrevenues ..... r-:~I ..... C ', ' . AERA's Treatment As per the CP, the Authority has projected a few non-aeronautical revenues to increase by 12.5%, which is in line with passenger traffic. The position of the Authority in each of them has been reproduced below: BIAL's Respq[1se Regarding Retail, F&B ani;1 Lounge Rev,enues BIAL notes that the Authority has considered a substantial increase in the revenues pertaining to Retail, F&B and Loung~ servicf!s as compared to the revenues projected by BIAL. However, while BIAL would ideally like to ,enh6ride such revenues as much as possible, there are a number of constraints due to which our revenues may not be able to reach the levels provided by the Authority. Significant impact on provisioning of Non-Aeronautical services due to exponential traffic growth Firstly, BIAL has witnessed a substantial growth in passenger traffic over the last few years. Order No: 18/2018-19 Non Aeronautical Revenues the aeronautical area and consequently the areas given out on terminal concessions may have to be reduced. This is expected to result in a lower increase in select non-aeronautical revenues including retail, F&B and lounge revenues. Reduction in Dwell time in Security Hold Area impacting Non-Aeronautical revenues Secondly, CIS BIAL's infrastructure gets stretched more number of passengers would have to be processed through the existing terminal area. With constraints on check-in area / security processing area etc., the passenger queuing / processing time is likely to increase are forcing BIAL to bring down ',4~~lIG \ ,l y ~ Short term closure of Business to change in Contracts / Concepts Additionally, current lounge contracts are due to expire by March 2019. This will require fresh tendering process for selection of a new concessionaire; The on-boarding of a new concessionaire for lounge through market discovery and creation / implementation of new concepts by the new concessionaire is expected ta,)lOve impact on regularoperations of the lounge for a perioa of 6--9"m@nthS'an6 h ~nce ;impqct on t/1.f(nOFl aero revenue. In view of above; tht:; Autho"'!tyis t8rjqedtec!, to con~jder9rowfh i n retail, F&B and lounge revenues at 5% p.o. based on estimates of BIAL. In case BIAL is able to achieve higher revenue than estimates/ the same is availaDle for true up based on actuals at the time of determining aeronautical tariffstortl1e ThibCl .controlP"e'rJod. Landside Traffic revenues - Severe tonstrain'ts impacting the growth Impact on Landside parking revenue - Severe constraints on parkingslots BIAL as part of its responses has already shared certain practical considerations regarding revenues from parking, taxi and limousine service. The growth opportunity in the parking revenues of BIAL would be constrained on account of the landside expansion works such as the multi-level car park, roadways, others projects which are projected over the Second Control Period. It is likely that more than 50% of the parking slots maybe lost during T2 Order No: 18/2018-19 Page 188 of 264 l\Jon Aeronautical Revenues modes of transport due to inconvenience. Additionally, increase in city traffic is also likely to discourage passengersfrom travelling to the airportusing their own vehicles. Impact on Landside taxi revenue - Impact due to app taxi and publictransport services Further, the business of airport taxi operators has decreased due to competition from App based taxis and aggregators. The parking space at BIAL is constrained and willnot able to accommodate the complete requirements of App based taxi service providers as well. Also, taxi usage is likely to be adversely affected by rising cab fares (due to State government regulations) and competition from Rub.lic,transport systems such as BMTC-buses and direct A~ ~ ;0fii/ fil'YbUses. L' . . /f', ~f~t'~ :-: " t '::" bV f,eonsiderea. for

13 .6.3 The Authority notes that BIAL, in its MYTP submissions for the first control period and second control period has considere d the same as "Non-Aeronautical Revenue" and seems to have, as an afterthought submit ted that the same should not be considered even as Non Aeronautical Revenue. 13.6.4 13.6.5 13.6.6 gearing wh ich is used to compute the Weighted Average Cost of Capital/ Fair Rate of Return. 13.6.7 Where the cash surplus is generated from Airport Operations and the incremental profit is part of the Shareholder funds used for computing FRoR, it is inco rrect to exclude the income earned from them. The AU1h.9rity proposes to ,consider such Interest Income only as part of Non-Aeronaut ~ be difficult tolqallncome rconsj dertng- t !'lat ,mor;ley is Tung il:> le and it could segregate the cash on h~nd l,between surplus generated .' , : , from J,Xeronaut ical Revenues and .. ' " ' ' Non-Aeronautical Revenues. 13.6.8 Considering the above, the -Authoritv. decides to consider 'Interest income as part of the "I\lon-Aeronautical Revenue s"] Notional Interest on security deposit collected from Concessionaires 13.6.9 The Authority has reviewed the submissions made by BIAL and the details provided by BIAL on the concessionaire wise Security Deposit. The Authority notes that these are general deposits kept as part of regular business in the nature of caution deposit. Accordingly, the Authority decides not to consider Notional Interest on Security Deposit for the present. Utility recovery from Concessionaires that has been included under "Utilit Infrastructure support provided Order No: 18/2018-19 Page 191 of 264 Non Aeronautical Revenues from Aeronautical Concessionaires, the Authority decides to consider the revenues from Aeronautical concessionaires included in the Utility Recovery (Approx. 60% of the total) as Aeronautical and adjust the same from Utility expenditure. Hotel Project - Consideration of Notional Lease rent and Interest income earned from Deposit 13.6.11 Authority's princ iples on manner of treatment of Land monetization income is detailed in Development. While the land monetisation and the activities relating to the same are not regulated by the Authority, the Authority notes that there has to be income earned by SIAL on such Land monetisation activities which would subsidize the Aeronautical charges. 13.6.13 The Authority notes tha trin 'l ine with the above approach, .anv income earned from Hotel project, including Interest earned o.n de.posit rec,eive,d from, the Hotel Project, would be considered for cross subsidisirig considering a deduction of 30% of such income from the computed value of ARR. The Authority notes that in the order for the First Control period, income earned viz. Interest ~Q n Deposit was set aside Ipending final decision on manner of treatment of revenues from ~and DgveJ9PI1leht activities. Since these are now decided to be treated akin to Non-Aeronautical Revenues, Interest Income earned on deposit is also treated as part of income for cross subsidisation. Incremental revenues considered by Authority in certain streams of Non-Aero Revenues 13.6.14 The Authority has noted comments from SIALon the changes in Airport layout, re-alignment of space in Terminal Building area and expansion plans, which could impact the Non Aeronautical Revenues. It is after considering the possible impacts of these that the Order No: 18/2018-19 Page 192 of 264 l\Jon Aeronautical Revenues detailed by BIAL. Hen ce the Authority de cides not to consider changes to the estimates detailed by the Authority in its Consultation Paper.

13 .6.15 Based on the analysis of the above comments, revised Non-Aerona utical Revenues calculated by the.Authority as under: Table 61: Non-Aeronautical Revenues recomputed by the Authority for the purpos e of adjustment to the ARR for the second control period (Rs. Crare) .,Part iculars Landside Traffic 1 :)m~:;Jj 3 .34 71.26 80 .16 90 .19 101.46 Terminal Entry/Miscellaneous Inc~~e,J. :)~): 1~~~~!<1 1o ;lr&') ~,' 0.18 0.18 0.18 0.18 ~ r,

i.1. Retail I ~~~~'~i''r 1~i.J~r08;~~~ ~;) 21.86 137.10 154 .23 173.51 Food & Beverage . :""": ~,~~~~rg:~ 35.87 40.35 45.39 51.07 In.... c'l~,{J'ryAdvertising & Promotions ~? 1!.'?'li' 78.00 81.90 86 .00 90 .29 ~> ~(lt ).-Rents and Land Leases 'IT tr I ;l 8lF 23.01 24.39 25.83 27.62 Lounge Revenues Utility Charges , J J(~ 9 t V 6 dA% 1.J1,2j ,g'.j ; t J,~

22 .23 2.22 25.01 2.22 28.14 2.23 31.66 4.25 'Flight Catering Afi~f't i: ~i~ , 't "~m'8t@ 'l i, 9.50 10.69 12.03 13.53 Non Aviation Revenues- Others ~" ~ ~ ~. 5 /8 ~tl ' h: r~'nt:~ " , ,,,,,,,,,~, 'J 17.89 5.89 5.89 5.89 ' QUl.U;.l !;l.I,tr ~329 ~9Total Non Aero Revenues 382.02 407.89 450.10 499.46 Add: Revenue considered for Land ~a~e f'j: -q ~if~~ ?f Hotel 9.26 9.26 9.26 9.26 9.26 Total Non Aero Revenues 339 .24 391.28 417 .15 459.36 508.72 Add: Interest Income on estimated cash 21.41 42.17 17.98 11.14 5.28 Total considered for computing 30% for adjustment 360.65 433.45 435.12 470.49 514.00 Notes:

1) Rent and Land Lease is reduced from BIALestimation as balance is considered as Aeronautical to be considered'q ~-~;duct ioh ~'~ ARRfor tieten~ihing Ch ~n~etviz. ~ahdi ng, Parking etc.

2) Non-Aviation ReVenu.es mainly projected by BI'AL was towards Cargo, Ground Handling, Fuel Farm, ICT and related servfces which are considered as Aeronautical, hence are to be reduced from ARR while computing other charges viz Landing, Parking etc. i i .. _I . , . l . Decision No. 10. Regarding Non-Aeronautical Revenues 10.a. Based on the material before it and its analysis, the Authority decides: To consider Non-Aeronautical Revenues as detailed in Table 61 Para 13.6.15 above for determination of tariff for the second control period. To review and true up the Non-Aeronautical Revenues on actuals, at the Order No: 18/2018-19 Page 193 of 264 Cost of Equity, Cost of Debt and Fair Rate of Return

14 Cost of Equity, Cost of Debt and Fair Rate of Return 14.1 BIAL's submissions on Cost of Equity, Cost of Debt and Fair Rate of Return Cost of Equity 14.1.1 BIAL had submitted that Cost of Equity had been computed considering the Capital Asset Pricing Model. BIAL's submissions are detailed below: Rf (Riskfree rate) Logic/ Source of 10-year bond yield (2005 - 'Rev/sed ' ERP for India as per Aswath Damodaran 8.01% Equity Risk Premium approach (July 2015) (ERP) for India 0.51 As suggested by NIPFP and AERA in Order No. 8/Asset Beta (Ba) 2014-15 Debt (D) Equity Equity Beta (Be) Ke (Cost of Equity) 21.48% Risk Free Rate (Rf) As shown above, the Risk-Free Rate (Rf) has been considered as an average of 10 year bond yield of the past 10 years (01 January 2005 to 01 January 2015). This is the same as the methodology used by AERA and NIPFP in Order No. 8/2014-15. The Rfworks out to 7.86%. The Interest rates on Central and State Government Dated Securities - RBI have been provided in Annexure 6. Equity Risk Premium (ERP) Page 194 of 264Order No: 18/2018-19 Cost of Equity, Cost of Debt and Fair Rate of Return As per Aswath Damodaran (2005), the Equity Risk Premium (ERP) of a developing/emerging market (EM) is calculated using the following formula: ERP (EM) =ERP (Developed Market) + Default Risk Spread (EM) This is the same formula as has been used by NIPFP and AERA in Order No. 8/2014-15. Using the updated estimates by Damodaran (July 2015), the following is the revised calculation: ERP (India) =mp (US) + Default RiskSpread (India) ERP (US) Is 5.81 % and Default Risk SprJ:.ad[or India is 2.20% (given Moody's rating oj Baa3). Ill" ",::" . Thus the ERP (India) is consid~/lt(1;as ;8.{f),(%i ' k : f: J'J ~]t -'. ~ r: .., ,) ~ The revised estimates of fRP,!J.$, . e~ As'1!cith 8.~m.Ci.f (]ra n are provided in Annexure 7. in Control Period 2. Equity Beta (Be) Using the same approach as used by AERA in Order No. 8/2014-15, the asset beta is re levered using the Debt Equity Ratio asfollows: Equity Beta (Be), ;' .Bo/ ( l'~D:.fY , Cost of Equity (Ke) Using the above inputs and the CAPM model, the Cost of Equity for BIAL is calculated at 21.48%. Thefollowing forrn,u/a is used10r'thiscalculdtron: Ke=Rf + Be * (ERP (India)) BIAL's eligible cost of equity The Cost of Equity was also computed considering the latest available Equity Risk Premium and Asset Beta as per NIPFPApril 2012 Report and the Cost of Equity has been arrived at as 24.66% as explained below. Equity Risk Premium Using the updated estimates by Damodaran (11 February 2016), the following is the revised calculation: ERP (India) = ERP (US) + Default RiskSpread (In ~ ~ ~ Order No: 18/2018-19 Page 195 of 264 Cost of Equity, Cost of Debt and Fair Rate of Return ERP (US) is 6.25% and Default Risk Spread for India is 2.44% (given Moody's rating of Baa3). Thus the ERP (India) is considered as 8.69%. Asset Beta In April 2012, in its paper titled "Cost of Equity for Private Airports in India - Comments on DIAL's response to AERA Consultation Paper No. 32, and the report by SBI Caps': NIPFP calculates Asset Beta for selected airports. This is the same sample as was considered by the Cost of Debt 14.1.2 BIAL had submitted details of the loan taken for the initial project, T1 Expansion and other works and the proposed loans for the next phase of works. BIAL had submitted that initially a portion of funding was obtained through rupee loans with a small portion of the remainder amount from External Commercial Borrowings (ECB) loan from I(lCI Hong Kong in USD. This USI:atloafl,hi;ld ~een fully ~edged "until f inal repayment in 2018 to take care of the exchange andinterest rate risks assoclated with it. T .e T1 'exp'ansion loan was raised in If\1 R only. BIAL had proposed an Interest rate of 11.5% on the Rupee Term Loans proposed to be taken during the second controbperlod fertlie futlife ,expans'on works. Fair Rate of Return 14.1.3 BIAL had computed Fair Rate of Return by considering Cost of Equity and Cost of Debt as above along with considering the State Support Loan as a source of funding. 14.1.4 As per BIAL, the basis for estimating Fair Rate of Return is as follows: "...4.5.3 Fair Rate of Return (FRoR) Based on the projected Cost of Debt and Equity as detailed above, a combined weighted average is computed. Borrowing received from Government of Karnataka, as a State Order No: 18/2018-19 Page 196 of 264 Cost of Equity, Cost of Debt and Fair Rate of Return FRoR is computed asmentioned below: FRoR = (WG (Debt) * Kd) + (WG (55) * Ks) + (WG(Equity)*Ke) where, WG (Debt) - Weighted average gearing of Debt to Total Debt + Equity WG (55) - Weighted average gearing ofState Support to Total Funds WG (Equity) - Weighted average gearing of Equity to Total Debt + Equity ..." Accordingly, the FRoR computed by BIAL as part of the revised Business Plan submitted in April 2017 is as follows: ~~~l~~' 6 'l~~a;~'~ Table 62: FRoR computed by BIALkfse;~~;ar.cC~'7tr~f, ,.P ' 76ti 'ld. ~ ' .'!-.\'V,' -N!:' o,.,: " ', '''''' r . 'IZ,';J~: ~.:J ~ "" f. -...L"'~ .' r ~ Weighted average gearing (WG) of debt ~, . 36.10% 2017-18 2018-19 2019-20 2020-21 21.48% 21.48% 21.48% 21.48% 0.00% 0.00% 0.00% 0.00% 11.47% 11.47% 11.47% 11.47% 60.33% 60.33% 60.33% 60.33% 3.57% 3.57% 3.57% 3.57% 36.10% 36.10% 36.10% 36.10% 100.00% 100.00% 100 .00% 100.00% 4016i ~7

l .;I)':! '!. Y\,d(oo% ~ ,' 11 ,1.1 H.'l l l\ \ , ~ UI Ini I f Ji~4 8 %Ke Cost of Funding Sources Particulars Weighted average gearing (WG) of;'SS~~ ~.;~7>% FRoR 17.10% 14,2 Authority's analysis of Cost of Equity, Debt and Fair Rate of Return detailed in Consultation Paper 14.2.1 An overview of the shareholder's funds and loan funds of BIAL as of March 2016 was as below: Particulars 2008-09 200910 2010-11 201112 2'012-13 2013-14 201415 101516 Share Capital 384 .60~ 384.60 I.J 384:60 384 .60 384.60 384.60 384.60 384.60 Reserves & Surplus -159:~1 "\ "7~.so ~ l r '59.5?" t2~j " 324.67 391.78 467.09 904.72 Shareholder Funds 234,29 ' " 312.10 444.19'" . 1~0 4 ; 9 5, \ 709 .27 776.38 851.69 1,289.32. , Secured loans 1,408 .96 1,379 .91 1,285 .63 1,128 .02 1,816 .27 1,911.10 1,641.88 1,349.02 Unsecured loan State Support 330.52 333.50 333.50 333 .50 333.50 333.50 332.50 332.50 Others 3.04 1.76 0.13 0.03 0.D3 0.03 0.03 10.03 loan Funds 1,742 .52 1,715.17 1,619 .26 1,461 .55 2,149.80 2,244.63 1,974 .41 1,691 .55 Total Funds 1,976.81 2,027.27 2,063.45 2,066 .50 2,859.07 3,021.01 2,826 .10 2,980.87 Cost of Equity 14.2.2 Authority noted that BIALhad considered Co~~ty at 21.48% in its MYTP computations IA~ ~ 1 ' ?oJ iti fq/'1 _"'':'-. ' and as per the submissions made, Bfq'f". ;;~t 01 Equity to be 24.66%. The Order No: 18/2018-19 \ :: I}) Page 197 01264 & \.J. ~:;.~ ~~ ::: I '.,:.:" ~rj!'; -, '(', ~o " . : c'" ~,~ , "..~~~'(' ~q~ : -,\\1,1"1 ' / ~ ... Cost of Equity, Cost of Debt and Fair Rate of Return Authority understood that BIAL had applied the Capital Asset Pricing Model (CAPM) to arrive at the Cost of Equity values. . 14 .2.3 The Authority noted the request for a higher % of cost of equity as computed by BIAL. The Authority also noted that BIAL had established and had been running the airport for 10 years with consistent trend of profits. The Auth ority also not ed the increase in Passenger base of 14.2.4 on the risk assessment of 14.2.5

14 .2.6 With respect to Cost of Debt, tli' (Aut 6 r. i tV~' ha a: 50ugh t clarifications and details from BIAL on whether the funding had been tied up for the expansion project and the rate of interest at which loans are tied up. BIAL had submitted to the Authority that the funding for the planned expansions were yet to be tied up. 14.2.7 14.2.8 Also, the Authority n''oted that Reserve Bank of India had issued gUidelines for setting lending rate of loans under the name - marginal cost of funds-based lending rate instead of the base rate from April 2016. 14.2 .9 Considering the above/ttte Aut hQ,rityprQPosed, to consider an interest of 10.25% for the second control period. 14.2.10 The Authority understood that the funding for the Initial project and Terminal 1 expansion happened through Equity and Debt. The Authority also understood that an unsecured Interest free loan had been given by GoK called as state support loan, which was also used to fund the Initial phase of project. Fair Rate of Return Order No: 18/2018-19 Page 198 of 264 Cost of Equity, Cost ot Debt and Fair Rate of Return 14.2.12 The Authority understood that BIAL had invested in subsidiary Bangalore Airport Hotels Limited in December 2013. From the Balance sheet of BIAL as of 31st March 2016, the Authority noted that BIAL had invested an amount of Rs. 2 Crores in Equity of the entity. Also, an amount of Rs. 220.27 crores appeared as Long-Term loans and advances as being given to BAHL under "related party disclosures" in the Financial statements. The Authority noted that BIAL had invested funds as Long-Term Investments in other businesses not relating to Airport Operations. 14.2.13 The Authority proposed to re -coll"lPute;j~~,

I.. _FRoR /', ' L, 11:93,%.j L ,r , . ", - ~- , -, -.1114.2.15 The Authonty noted t1wt the .Ioan taken i by BIAl carnes a floating rate of Interest. The Authority was also aware that the actual Equity and Debt balances may change from the estimates based on various factors including Capital Expenditure, Revenues collected and other components of the ARR . The Authority accordingly proposed to true up the cost of debt, changes to cost of equity based on results of study, if necessary and the FRoR based on change in gearing, during the current control period. Order No: 18/2018-19 ' Page 199 of 264 14.3 14.3.3 Cost of Equity, Cost of Debt and Fair Rate of Return "...Capital mix for the funding of future expansion of the airport including additional runways should be more debt based..." 14.3.2 APAO has submitted as follows: "...The Authority has reduced BIAL's investment in its hotel subsidiary BAHL from BIAL's equity while computing a fair rate of return to be allowed on BIAL's aeronautical RAB. Wh ile on one hand the Authoritv has treated the revenues f rom BAHL as non-aeronautical 14.3.4 Sanjeev V Dyamannavar has stated the following: "...lnterest Free loan /r&m ,GOK: We would like to bring to ARA's attention that Karnataka Cabinet took decision oniline'22, 2018' to put off the loan'repayment of interest-free loan of , Ci , INR 333 .50 Crore, which was given by GoK to the BIAL as part of SSA during 2005. The repayment of this loan was supposed to start durinf12018 and the same has been put off by another 10 years. EffectilJely GoK has given interest .free loan of INR 333.50 Crore for 20 Years period. We request AERA to c.onsid~/ thls w.hile truiru; up of funds requirement for the current fiscal year and for subsequent periods totalling to next 10 years while fixing the tariff for second and third control periods. Payment 0/ Dividend: Already AERA has made provisions for return on Capitol and Equity investment, AERA should allow Dividend payment to shareholders after ensuring UDF is ZERO so that passengers are not burdened..." 14.3.5 FAIRFAX has stated the following : Order No: 18/2018-19 Page 200 of 264 Cost of Equity, Cost of Debt and Fair Rate of Return The success of PPP to a large extent depends on optimal risk allocation amongst stakeholders, robust enabling ecosystem, sound regulatory and arbitration framework to ensure smooth implementation of projects. It is important to note that the Concession Agreement has. elements to protect the economic interest of shareholders and lenders investing in the airport project. The shareholders/lenders committed their investment in the projec; based upon the fInancial model, whIch reflected an internal rate of return of 21.66%: The Regulatory approach of providing 16% ret urn on equity investments in aeronautical 14.3.6 important that the concession agreement has the elements to protect the economic interest of the shareholders and lenders investing in the airport project, the shareholders/ Lenders committed their investment based on the financial model, which reflected an internal rate of return of21,.66%.. The regulatory app.raach djp (o'liif;Jing-16%.return on Equity investments in aeronautical assets hQs tjanslated into an even lower retur on equity, which does not reflect the risks involved, and the high uncertainty in the projects. We request AERA to look at allowing reasonable returns, based on capital asset pricing models and prescribe ofott; rate q!.return to the aimdrtinvestors..." 14.4 BIAL's response to Stakeholders' comments on Authority's analysis of Cost of Equity, Cost of Debt and Fair Rate of Return 14.4.1 BIAL has concurred with the comments submitted by GoK and APAO. 14.4.2 On comments from lATA, BIALhas submitted as follows: "...1) BIAL has made a submission of Cost of Equity at 21.48% in accordance with CAPM methodology and the same approaches used by the Authority for the First Control Period Order No: 18/2018-19 Page 201 of 264 ..... ~ ' . Cost of Equity, Cost of Debt and Fair Rate of Return Order directing the Authority to improve their estimation of Cost of Capital through a scientific and objective exercise.

2) We also concur with lATA's view that based on the findings of such a study, the Authority shall accordingly true up during tariff determination for the Third Control Period. However, as has been pointed in BIAL's response to the CP in the absence of details on the terms and scope of such study, BIAL reserves its right to respond to such a study at a later date. 14.4.3 "...Infrastructure lending by b)a Jik~ , l b)e:'b~ eadmRBI guidelines, loan structuring, credit rating, and profitabilityof the Company among others. Also, banks would requirefor BIAL to maintain certain minimum financial covenants including: Interest coverage ratio, Debt service coverage ratio and Fixed asset c9vera,ge ratio. And, the Authority has ,af'red'dy cQn$iiJe~~d a h ifl~gear:(ng ' oJ 74% for future expansion projects while the po;sible debt funding by banks willbe in the range of 70%....II 14.4.4 On comments from SanjeevV DYi3mannavar(Respondent), BIAL has submitted as follows: "...Respondent has cominentedthOt based on" the moaner in which GoK and Gol have given concessions in terms "oj land, interest/ree loan, wavier 6f taxes during construction among others it appears that both the state and central governments would like KIAB to be developed and operated efficiently as a self-sustainable venture without being a burden on either the government or the airport users. BIAL submits that KIAB is a PPP project and is governed by the CA and other project agreements and operates within the regulatory framework as prescribed by the Authority and other government agencies. All the concessions that were provided as part of the award the PPP project appropriately. Order No: 18/2018-19 Page 202 of 264 Cost of Equity, Cost of Debt and Fair Rate of Return Respondent proposes that the Authority must aI/ow dividend payments to shareholders only when there is zero UDF at the KIAB. BIAL submits that the declaration of dividend is a decision oj the BIAL Board in consonance with the Companies Act 2013 and as per the provisions of the Shareholders Agreement as wel/. However, 92% of the internal accrual generated by BIAL is ploughed back into the airport business for capacity expansion, servicing debts or running the airport. Only 2% of the internal accrual generation has been disbursed to the shareholders as dividends.

22 .06.2018 to defer the loan repayment of interest-free loan by another ten years while determining tariffs. As per the Authority's working inCP, BIAL would require an equity infusion of approximately Rs. 413 crorefor future e.,xRonsion and operationpl requirements during the Second Control Period. In support ot '8(AL's current capitatexpansion and funding requirements, the repayment of -int eres,t free 'ldan lias been defrred!or q'1tmfier period of 10 years (vide Government Order no. /DO -l l l DIA 2017 - dated 29.06.2018). The same is to be considered by the Authority for tariffdetermination..." 14.5 BIAL's comments on Authority's analysis on Cdstof Equity, Cost of Debt and Fair , I- ' Rate of Return 14.5 .1 BIAL has submitted as follows: "...Cost of Equity being considered at 16% instead of BIAL submission at 21.48% as per CAPM approach" AERA's Treatment As per the CP, the Authority has stated as below with respect to the cost of equity: Order No: 18/2018-19 Page 203 of 264 Cost of Equity, Cost of Debt and Fair Rate of Return need to submit an assessment of cost of equity based on Capital Asset Pricing Model (CAPM) with supporting evidence including: The risk-free rate The equity market risk premium Equity beta BIAL has gone precisely by the requirements of the Authority and computed its Cost of Equity using CAPM and submitted the same along with all supporting information. A summary of BIAL's computation of CO,tmnEauity is as given below: 1':''-' } ( ""..... r.:\ \ .. -. "l" l .....ft: 'h '... ~ 'l- As BIAL's approach to computing its Cost of Equity is exactly as per the approach adopted by the Authority, there is no reason for the Authority to deviate from its guidelines and propose a lower Cost of Equity for BIAL. Accordingly, BIAL request the Authority to allow it to revenues. At this stage, since we are not aware of the terms and scope of such study, BIAL reserves its right to respond to such a study at a later date. Further, till the time such study is completed, BIAL requests that the Cost of Equity as per BIAL submissions above is considered for the determination of aeronautical charges. Any surplus or deficit resulting from the proposed study may be considered at the time of true AERA's Treatment As per the CP, the Authority h Order No: 18/2018-19 Page 204 of 264 Cost of Equity, Cost of Debt and Fair Rate of Return BIAi's Submission: - BIAL would submit to the Authority that interest rates are uncertain and fluctuate based on market factors . BIAL assures the Authority of its best efforts of trying to confine its interest outflows to a rate below 10.25% p.a. However, in case the interest rates for BIAL harden over time, BIAL requests the Authority to be considerate on that account and allow a true up while determining tariffs for the Third Control PerIod. On Authority's proposal to consider the FRoR as detailed in Table 61 Para 12.2.14 of the the following ways : Security Deposit of Rs. 76.5 crore received from hotel is considered as part of tariff .determination. A notional interest on these security deposits have been factored in as a non aeronautical revenues and subjected to 30% SRT. In the normal regulatory-:practice,investments in noa-aeronauttcot businesses were never ring-fenced /exc/uded ftcrmEqultvwhile C;Qmp,.utingPFUJR. Further, equity investments ot\BiAIJ in'thehotekore;ring1enced for the purpose of computing FRoR. However, the basis for such treatment not explained by Authority in the Consultation Paper. BIAL may have to interpret that investments were excluded from Equity computation as hotel is a non-airport / RE business. The treatment of considering hotel revenues as non aeronautical and not considering investment in hotel business is a contradiction and Cost of Equity, Cost of Debt and Fair Rate of Return this posit ion of the Authority is despite the fact that funds collected from the security deposit of the hotel has also been deployed back into the airport business. Such a treatment is inconsistent and to the detriment of BIAL. Arbitration award involving the hotel BIAL would like to highlight that it had to adhere to arbitration award under which it had to acquire hotel Bangalore Airport Hotel Limited ('BAHL'). The Authority is requested to take cognizance of the fact that BAHL has been in losses since its inception before finalizing its control period..." 14.6 Authority's exarnlnatlori of Staketiol~ers ! comments on Cost of Equity, Debt and FRoR -. , ' \ :' ~ 14.6.1 The Authority has carefully reviewed comments from SIALand other stakeholders . 14.6.2 The Authority notes that SIAL has submitted that the Cost at Equity may be considered as per BIALsubmission. The Authority notes that the Authority had considered cost of equity at 16% in the Order of the First Control period. BIAL has used the same formula and considered the current Risk Premium for India and Equity Beta and computed the Cost of Equity. Authority notes that there are no adverse changes to the risk profile of Indian Airports; in Order No: 18/2018-19 Page 206 of 264 Cost of Equity, Cost of Debt and Fair Rate of Return decides to consider Cost of Equity on the same basis as that proposed in the Consultation Paper. 14.6.3 The Authority notes BIAL/s request for true up of debt based on actuals. The Authority will review the reasonableness of the cost of debt contracted by BIAL and based on the evaluation, true up the same.

14 .6.4 The Authority also notes that BIAL and other stakeholders have indicated that since the income is considered as " Non-Aeronaut ical Revenues" the investment in such operations, 14.6.5 net value is taken into consideration by the Authority in the final Order. 14.6.6 The Authority, during reconciliation of model for Final Order with BIAL had noted that the cost of debt in 2016-17, before re-financing was higher at around 11%. The Authority has considered the actual cost of debt for 2016-17 and 2017-18 and trued up the cost of debt. 14.6.7 The AuthoritYilhas, also QOl'l5:ia~'ted t he '<:J ct y.al J9ositid~ 1 of Debt: and Equity in 2016-17 and 2017-18 basedonuRi;latiqn ();f; ';8ctual'r~~~nues and pr6JectiOnsbased on projected revenues . ,. . ' : , ' , , ~. for the balance years in the control period and computed the Equity Debt Gearing. 14.6.8 under: Fair Rate of Return as computed by the Authority Percentage I Cost of Funding Sources 16.00% '0 .00% Ks 10.39%Kd

37 .06% Weighted average gearing (WG) of Equity 5.23% Weighted average gearing (WG) of State Support (Soft Loan) Weighted average gearing (WG) of debt 57 .71% FRoR 11.93%II} .,i r,~ o..~;" - ~~

i. To exclude "net investment" made by the Airport on Projects other than Airport as a reduction from Equity deployed for Airport Project, for computing gearing used to calculate the Fair Rate of Return.

ii. To consider Cost of Equity at 16% for computation of Fair Rate of Return.

iii. Order No: 18/2018-19 Page208 of 264 Taxation matters

15 Taxation matters 15.1 'BIAL's submissions on Taxation matters 15.1.1 BIAL in its submissions had stated that they were entitled to a tax holiday under Section 80 IA of Income Tax Act fo r 10 years in the period of first 15 years of operations. During this period, they were required to pay the Minimum Alternate Tax on the Book Profits of the company. BIAL had submitted that they propose to avail this tax holiday from the Financial Year 2012-13 fo r a period of 10 year '. During the 5 years of the control period, BIAL proposed that they would be R;:l: lj'~g ~MI~K~ ,~jl}l.imUm Alternate tax (MAT) as applicable. Jf ~.'"~ ~ \ ' ''41.E3:,.-' a The company had considered rate :dfrv1 \4;:T;:a t~20% ' J.us surcharge for the control period . ' '" _, "J. ,', . f ' fl ' 15.1.2 BIAL had submitted as follows: Tax Computations also conside!Je.d.iM~J p r...o.vJ~ilJns and BOlA of Income tax act. BIAL is ~, ("".., ~ \31 C1 eligible for Income Tax holiday for a continuous lO-year period, starting FY2012-13, in the first 15 years since ADD. BIAL plans to avail the benefit during the second control period also. Accordingly, the tax payment projections for the second control period is based on Minimum Alternate Tax computed on Book profits, as given below... JJ 15.1.3 Table 66: Tax outflow considered as part of ARR computations under Shared till by BIAL for second control period (Rs. Crores) , Particulars 2020 2021 Aero PBT 1,360 1,287 Effective Tax rate 22.10% 22.95% IT Reimbursement 205.85 241.47 256 .32 300.46 295.29 21.41% 1,195 21.45% 15.1.4 BIALhad also submitted as follows: "...As the financial projections are based on Indian GAAP, the tax computations are also based on the same income base with adjustments required under the Income tax provisions. Order No: 18/2018-19 Taxation matters 15.2 Authority's analysis of Taxation matters as detailed in Consultation Paper 15.2.1 The Authority noted that Minimum Alternate Tax (MAT) was the minimum tax outflow that the company had to make, on the book profits. The Authority also noted that MAT paid could be carried forward and be adjusted against the normal tax payable by the entity on the tax computed on profits from the year after the tax holiday period. 15.2.2 The Authority noted that the Authority's guidelines detailed that tax payments would be 15.2.5 The Authority noted that similar to other numbers, the tax cost estimate also had to be trued up based on actuals, which would be carried out by the Authority at the end of the current control period . 15.3 BIAL's comments on Authority's analysis on Taxation matters 15.3.1 15.2.3 15.2.4 2019 20212020 TaxOutflow IT Reimbursement 0.00 0.18 0.00 "...On tax out!IQ\tI ,est1mbte of Aggregqt,e Revenue Requirement AERA's Treatment that it is covered untier sectibfJ '8(P1A ittcome 6f the lttcome Tax Act, 1961. Accordingly, Minimum Alternate (MA T) payable on reported profits will have a matching MAT credit (asset) creation available for set off in the next 10 years as per the current applicable provisions of Income Tax Act, 1961. On Authority's proposal to true up the projections based on actuals, at the end of the control period, in computation of tariff for the next control period BIAL Submission: - BIAL submits that the taxes paid for the current control periodmay differ from the projections considered for the determination of tariffs on account of various factors. Order No: 18/2018-19 Page 210 of 264 Taxation matters Accordingly, BIAL is in agreement with the Authority's proposal to true up the Taxation for the current control period, at the time of determination of tariff for the next control period.../I 15.4 Authority's examination of Stakeholders' comments on Taxation 15.4.1 As part of updation of the actual revenues for the year 2016-17 and 2017-18, Authority noted that the Aeronautical P&L resulted in Profits for the year 2016-17 and 2017-18. The Authority decides to consider the actual MAT based on Aeronautical P&L for 2016-17 and 2017-18 as reimbursable to BIAL~!~tk~~.).... . . d ~! tf-I,j~~& t:jl"': I " ~ d b h hort d15.4.2 B d on teabave, revise t~~Jl~..pws'~re $ GUJ }e y t e Aut orttvas unase h ~ er : "~"~':'l~ . \ " " ...~ Table 68: Taxoutflow computed by the A 'Uthb'iit'l 'to :ite ~ir'lclui;/ed as part of ARR (Rs. Crores) ' .~ " " >' f~. ""~\ \ I ' " . " Decision No. 12. 12.a.

l. To consider tax ot.ttf{d*is.tirn

ii. To true up the projections based on actuals, at the end of the control period, in computation of tariff for the next control period. Order No: 18/2018-19 Page 211 of 264 Working Capital Interest

16 Working Capital Int erest 16.1 BIAL's submissions on Working Capital Interest 16.1.1 BIAL had submitted the following, in case of Working Capital Interest: "...Working capital requirement is considered and the cost of funds is estimated at 12% per annum..." Table 69: Working Capital Requirement projected by SIAL (Rs. Crores) Particulars (Rs. Crore) ~;,~ \ ~~ l~i . , F,Y,~ 01 8 f-Y L019 145.14 FY 2020

150 .19 FY 2021 152.36 17.42 18.07 18.28 16.2 16.2.1 16.2 .2 was as deta iled below: Table 70:Working Capital Interest/ Lender Fee estimate considered by the Authority in Consultation Paper 05/ 2018-19 (Rs. Crores) Working Capital! l!ender Fee 2019-20 2020-21 2.73 Lender / Engir)~er Fey 2.73 WCInterest 10.86 10.25 Total 13.59 12.98 16.2.3 The Authority noted that t he actu al WO fkin ~capi tp ltfacility availed and the Interest rates could vary considering t~,e cash ffdw of ttJe: ehtity. if he Authority hence proposed to true up the actual borrowing and Interest at the end of current control period, based on actuals. 16.3 Stakeholders' comments on Working Capital Interest 16.3.1 lATA has stated the following: "...IATA commends AERA for recognizing the need to adjust the we Interest from the current 12% to 9.5% from 2018-19 onwards..." 16.4 16.4.1 Order No: Page 212 of 26418/2018-19 Working Capital Interest "...BlAL observes that while lATA has commended on the Authority's proposal to revise the working capital interest from the 12% p.a. submitted by BIAL to 9.5% p.o. starting from FY 2018-19, it has not providedany justificationfor the same. BIAL does not support lATA's submission and would like to reinforce its submissions made in its response to the CPo In its response, BIAL has highlighted that while typically, interest rates on short term financing (working capital) is higher than on long-term financing, the Authority's proposed interest rate for the former is even lower than that allowed in case of . 16.5 16.5 .1 capital : ' "; 1 ., On Authority's proposalfor treat I eri~t bl Wi rp

1. . t .. : . .. . . : ; On Authority's propos.a/ :to' true ujJfhe projections baseci' dn actuals, at the end of the , ... . !{ ~ control period, in computation of tariff for the next control period BIAL's Submission: - BlAt submit~ thqt t he working-capital requirement / interest for the current control period mo'!. ciiffer;from fhi{ proje c ~io ns, considered for the determination of -; . tariffs on account of faCtors sucfias .changesinlpassenger traffic, O&M expenditure, non- aeronautical revenue etc. Accordingly, BIAL is in agreement with the Authority's proposal to true up the working capital interest for the current control period, at the time of determination of tariff for the next control period...." 16.6 Authority's examination of Stakeholders' comments on Working Capital Interest Order No: 18/2018-19 Page 213 of 264 16.6.1 Working Capital Interest be based on actuals. Accordingly, the Authority decides to consider working capital based on its estimated in the Consultation Paper and true up the same based on actuals . . 16.6.2 Based on the analysis of the above, revised working capital/lender fee is calculated by the Authority as under: Table 71: Recomputed we Inte rest I Fee considered by the Authority for computation ofARR(Rs. Crores) Working Capital! Lender Fee 2016-17 2017-18 2018-19 2019-20 2020-21 Lender / Engineer Fee 21.54 2.73 2.73 2.73 2.73 we Interest .QiOfh:'1' ~ . :. ; ~ , ~ 0.00 10.75 11.03 10.37 Total ('~, ~i{ $4 ;; \V "2.73 13.48 13 .76 13 .10 , ca p ' i ~"fu,(, ~~~i.:t~'l:' ;~'~.r .,,\1- V .1 ~ ~~ , a.. .f:\~ . : . ..~: ~ ;,) ' ., "'" : . " "'9 .. - . .' -.'" Decision No. 13. Regarding Workm ~ ~4ir B.a. Based on the mat' ~.nd Its analysis, the Authority decides:

i. To consider WOrkin&"capJfall:t ~1 ~ ~est I Fee as detailed in Table 71 Para 16.6.2 ,~;4"R,tJI ~ U! ' 'h' above for computa~.()n .~f\~~g~~~~~ Revenue Requirement. fJ:1 ~.\ ;y-:~ "Yti'fml li, To true up the p r~j.~~~ii;n.s}pi ji ~(i !~ctuals; at the end of the control period, 'if I :.:.." ");~ "- ! il"''' : . ' . ' L:'Il. ' . ." ~i'('O,.TIrii:i:i*tt't:l"in computation of tarj.fflf~ r;;fhl~he)(t control period. -, ' . ~ ,ii"'"40 Order No: 18/2018-19 Page214 of 264 Wholesale Price Index

17 Wholesale Price Index 17.1 BIAL submission on WPI 17.1.1 BIAL has submitted as follows: "" .The WPI and CPI projections are based on a review of two key government sources namely the Reserve Bank of India (RBI) and the Office of Economic Advisor, Ministry of Commerce and Industry. 17.2.2 s of the Survey of Professional Forecasters on me ian percentage change in WPI over the succeeding five years is projected at 3.9% p.a. 17.3 BIAL submission of Authority's analysis of WPI 17.3.1 BIAL had submitted as follows : 17.4 Authority's analysis ofStakeholCJercOrrlme'htson WPl 17.4.1 The Authority had reviewed the comment submitted by BIAL. 17.4.2 The Authority had also noted that as per RBI issued results of the "Results of the Survey of Professional Forecasters on Macroeconomic Indicators - Round 45", the mean WPI inflation is forecasted to be 4.2% for the next 5 years. The Authority has proposed to revised WPI for the 2nd control period to 4.2% and true up the same based on actuals. Decision No. 14. 14.a. Order No: 18/2018-19 Page 215 of 264 Wholesale Price Index

i. To consider Wholesale Price Index at 4.2% for all the years of the 2nd Control Period based on the results of the latest survey by RBI.

ii. To true up the projections based on actuals, at the end of the control period, in computation of tariff for the next control period. Order No: 18/2018-19 Page 216 of 264 Quality of Service

18 Quality of Service 18.1 BIAL's submissions on Quality of Service

18 .1.1 BIAL had not made any submissions related to Quality of Service as part of its MYTP submission dated 25.03 .2016 and its revised submission in April 2017. 18.2 Authority's analysis of Quality of Service detailed in Consultation paper 18.2.1 Authority had, in MYTO-CPl noted the provisions of the Concession Agreement with respect to performance standards (par~iGUJa~r~lcl "",9 and Schedule 9 Part 2 thereof). The ....\ ...' t-~ ' ~ ,,;:,j~; l ( :~ Authority noted that these st~~d~~~5 ,~~~W~~se i~J1 lATA Global Airport Monitor service standards. The provisions of th~ .C;;oneessib[i l "gl'setnent also indicated the consequences of ". ' ,) l,. ,~ " .4 not coming upto the prescribc ';l evl ot.~~ f ':\hia nce standards. Therefore, the Authority felt that the scheme of performalilb~tt~ da ds as indicated in the Concession Agreement would be reasonable for this purpo~m ~ .ll~' ( "#'4 ,,I,, ,t Ii , ' ,'-" \ ",t." 18.2.2 Hence the Authority decided aSlf~.I!~~~S iCW~Rlt~:~ ~ l ,l: . ~l l ~ :~-' ~;Y~;;'Uf f: : p "...The Authority decides tha, JffJ], 1'1, . 'Sh'~fAJ!ilfe that service quality conforms to the performance standards as indicated inflie Concession Agreement... " ;z.r~+:fCf ~ 18.2.3 Concession Agreement of BIALstated as follows : "...Monitoring of Performance Standards 9.2.1 Throughout the term of this Agreement the Airport's performance shall be monitored by passenger surveys in accordance with this Articfe 9. The criteria used to measure the Airport's performance slt~lfbe the lATA GloballAlrpqrt Monitor service standards set out in Schedule 9, Part 2 ar su ~h .Cfiteria QSm Clybe mutually agree'd upon from time to time (the Standards). 9.2 .2 BIAL shall participate in lATA surveys and shall ensure that a survey is conducted each year in accordance with /ATA's r~quirem~n ts't9 di?te-rh;line the Airport's performance. The first such survey shall j e condl!ctedJi..U,[.if7,9jtli 't~i,/;L(3r:~) .year after AirportOpening. 9.2.3 If three (3) consecutive surveys show that the Airport is consistently rated in respect of the service standards under BIAL's direct control, as lower than lATA rating of three and a half (3.5) (in the current lATA scale of 1 to 5), BIAL will produce an action plan in order to improve the Airport's performance which must be implemented within one (1) year..." 18.2.4 The Authority understood that BIAL had got an ASQ rating of 4.85 in the year 2016 and 4.83 in the year 2017 . Hence, the Authority was of the view that BIAL was meeting the required Order No: 18/2018-19 Page 217 of 264 Quality of Service 18.2.5 Similarly, for the 2nd Control period, the Authority proposed that BIAL should ensure that service quality at Kempegowda International Airport, Bengaluru conformed to the performance standards as indicated in the Concession Agreement . ' 18.3 Stakeholders' comments on Quality of Service 18.3.1 lATA has stated the following: "...IATA's best practice approach to quality of service is summarised in our "Airport Service transparency regarding objective measurement is a major concern. These issues need to be resolved to ensure the airport is held to account 'and users need delivered..." 18.3.2 BPAC has stated the follQwirU5: ~_!I"j' , I "". We request 'AERA to appoint a Cpnsurrer Oml;JUQsman to,; ,};,prove the quality ofservice in KIA and provide a~/atf6 rm for consum~r grievances. XERA may also direct KIAL to publish enhance the transparency in the independent member to the Board of KIAL. Inducting such an eminent person on to the Board will help in ensuring service delivery at the most optimal cost which is in the best interest of the air commuters and the development of the city ..." 18.3.3 Consumer Care Society (CCS) has stated the following: "" .There must be a number of parameters to assess QoS. No such parameters nor any numbers associated with the parameteo;.~n provided. AERAIhave concluded that no /~.~\\'l..l q, r'l1 "' ?l~ . penalty needs to be imposed on ,lyp.f',.r;nte~~y with their concession agreement (CA) and AERAl's analysis appe 'J. ha~; " to determine whether penalty is to~t In~n ~ ~ . II ' r .~ {Order No: 18/2018-19 .~. ~~t ~If, Page 218 of 2611 \ ':" ~~ \ ~ ..~ \ .* ~~ l'O ~~ , 'Ilofhic RP..!1 '\\\~~~ ..__..... Quality of Service be imposed or not. Perhaps it may not be wrong to say that in the minds of the public and customers QoS determines the reputation of a service entity such as an airport even more than cost. It is not also not clear whether during the years that BIAL has been in operation, BlAL's QoS has shown an upwards trajectory or not and whether further improvement is possible or whether BIAL has reached the pinnacle. Here again how does the QoS of BIAL compare with other airports nationallyand internationally?.../I 18.4 18.4.1 initiative to of over 321 various aspects of an airport'sservices. Thesurvey is circulatedto departing passengers and asks them to complete it based on their experience at the airport. The CA mandates the maintenance of a minimum rating of 3.5 on a scale of 5. BIAL has been consistently scoring over 4.5, ensuring the quality standards/ service levels are maintained. f rMjle(/"theAU~~?Jli"ity C$m;j,rered ,tMflt:::: tAL shal(:@5ure that service quality at KIAB conforms tq ttie p"er'fprmance ~tqrfCfpri:Jsps 'in'ijieqted !n the:CA over the Second Control . , iI Period. Lastly, KIAB has been ranked second in the list of 2017 ASQ Award winnersfor "Best Airport by Size: 15-25 Million Passengers;' wit~,.Denppsar, Haikou and Sanya Airports tied in first place. Also, Sectios 1'3MJ Pcfjenvisd ' (?s:,,;olim'fted role of monitoring of performance r: : '~ ' standards that have aJreadyAJeen set The CAhds:set/prescribed quality standards, which BIAL is adhering to. In that light, lATA's comments travel beyond the jurisdiction of the authority.../I 18.4.2 On comments from B.PAC, BIAL has submitted as follows: "...BIAL notes B.PAC's request to the Authority to appoint an independent Consumer Order No: 18/2018-19 Page 219 of 264 Quality of Service BIAL submits that the AERA Act does not have provisions for appointment of independent Consumer Ombudsman. Further, the monitoring of performance and customer satisfaction is undertaken by BIAL as provided by the CA and the same is being shared with the Authority. Further, BIAL observes B.PAC's suggestion to the Authority for directing BIAL to nominate an eminent citizen of Bengaluru as an independent member to the Board. BIALsubmits that the Appo intment of Directors is governed by the Companies Act 2013 and the same has been 18.4.3 "...CCS has mentioned that wh it t ere mil t!Be-- a number of parameters to assess QoS, no numbers associated with any such parameters have been provided by the Authority (while analysing the QoS of KIAB). Accordingly, CCS has commented that it is not clear whether in the years BIAL has been in operation, its QoS has shown an upward trajectory, whether any further improvement is possible or whether it has reached the pinnacle. CCS has also ra ised questions on: hQW airports nationally and ~ , . . ! ' . BIAL would like to highlight that its CA mandates maintaining a minimum Airport Service Quality (ASQ) score of 3.{i.on a . S l;.Q {~ 91-5.,.. /1AL has keen consistently performing over 4.5 ( , ., . and above, ensuring tf:lqt thequq/ity 5,tandar'ds! serVice levels at KIAB are maintained. . - , Further, the Authority. has 'plfEp ()Sf3d~in tr~ CR thgt,BIAlqhall ensure that service quality at KIAB conforms to the performance standards as indicated in the CA over the Second Control Period. Finally, on comparative performance with other airports, BIAL would like to submit that KIAB has been ranked second in the list of 2017 ASQAward winners for "Best Airport by Size: 15-25 Million Passengers" with Denpasar, Haikou and Sanya Airports tied in first place. Therefore, the airport is continuously wining accolades for its quality of performance and customer satisfaction...rr 18.5 18.5.1 Order No: 18/2018-19 Page 220 of 264 Quality of Service I/... On Authority's proposal that BIAL shall ensure that service quality at Kempegowda International Airport conforms to the performance standards as indicated in the CA over the 2nd Control Period AERA's Treatment As per the CP, the Authority has stated as below with respect to service quality: 1/16.2.4 The Authority understands that BIAL has got an ASQ rating of 4.85 in the year 2016 and 4.83 In the year 2017. Hence, the Authority is of the view that 13/AL is meeting the etc. The inability to take up capital investment due to cash flow issues may hamper operations and ability to handle such high growth in traffic, which may impact the service quality levels...1/ 18.6 18.6.1 The Authority has carefully evaluated 't'he comments from StaKenoiaers and BIAL on Quality of Service. 18.6.2 The Authority notes that '~IA~ is consm.lc~Jrlg .a '9;ew :Runyvay and the Authority expects that the same will be put to use'from thettme l(is cprnmj'Sstone,d.

18 .6.3 The Authority is in the process of establishing methodology for evaluating Quality of Service and in the first phase will collect the data on defined performance parameters from the Airports and after due analysis, will take the process further.

18 .6.4 The Authority notes that the existing resources have been fully stretched at Bengaluru Airport and expect BIAL to take all necessary steps to ensure that service quality level conforms to the levels indicated in the Concession Agreement. Decision No. 15. Regarding Quality of Servi~.--.." ' , /'" ~\~lil , f') ('h ", /,....#' ' II~ I~\'w. l\I, r ~ " ~ s. IOrder No: 18/2018-19 '~ 1~' ~ ; J Page 221 of 264 '11- . ~~~J ~'o .....~'l -e-- '?cn"'~"O~/ ......... _~ ...,. Quality of Service