The story of Mumbai’s second airport
Mumbai, India’s commercial capital, contributes over 20% to Maharashtra’s GDP. An important city by many measures, it accounts for 16% of India’s total airport passenger flows, 28% of total air-cargo flows and 15% of total aircraft movements. The connectivity is critical given the confluence of service and trade oriented industries. Yet it is a city that is constrained on airport capacity and the second airport has been in the planning and execution stages since 2008. 12 years later, what is the status of the second airport?
The Navi-Mumbai airport, a complex project on all fronts
The airport project traces its roots back to 1997 when the central government constituted a committee to examine a site. The proposed site was Eastwards in an area called Navi-Mumbai and after an extensive feasibility study, the project received in-principle approval from the Union Cabinet in 2007. Approvals from the state government soon followed and by the end of 2010 most approvals were in place. Yet the largest hurdles were still to come. These included land acquisition, the diversion of a river which otherwise would flow right across the airport runways, and also relocation of high-voltage lines – to name a few. There was also the challenge of environmental clearances given that the site was in marsh land and close to mangroves. Given the overall sentiment, stakeholders were optimistic that they would be able to drive consensus and take the project forward. However, the challenges had just begun.
Socio-political realities almost ended the project, challenges are ongoing
The Ministry of Environment and Forests (MoEF) gave its clearance for the Navi Mumbai airport project in 2008. Several objections were put up and the project awaited further clearances which only came in 2010. At which time new objections were put up.
The challenge was perhaps compounded given the complexity of the project. Given the nature of the land that included wetlands and mangroves in and around the airport site, even to get the land ready would include a host of measures. Starting froom flattening of a hill from 90 meters to 10 meters, land reclamation, diverting a river (the Ulwe river), widening the channel and making sure that the land does not settle upon construction (for which it needed to be raised by 3 – 5 meters). Much of this work has now been completed but each step posed new hurdles. Ironically, in a country that likes to debate all things, this engineering success was never celebrated.
Perhaps the greatest challenge that was faced was land acquisition – something common with most infrastructure projects. Mostly because of the social and political consequences and timelines. In an environment where there is always an election looming, the agendas simply done align. And a diverse political base translates to very different promises made too segments. Infrastructure projects often get caught up in narrative distortion where micro-narratives are built including how the project is detrimental for one or more citizen groups. In the case of Navi-Mumbai this was no different. Initially there were challenges on resettlement and quantum of payments. Then there were issues around livelihood and skill development. And then there was political posturing. As a result, several villages and inhabitants have held out until the last moment. One by one this was and is being tackled. Interestingly, one village was right in the centre of the runways and without this the project would have stalled.
Fast forward to today and different parties claim different figures for the available land-bank. These range from 80% – 97%. Satellite imagery shows that most of the land bank has been leveled (thus presumably acquired). That said, some structures do remain and it is imperative these be removed, planned around or relocated.
In between all this the project slowly crawls forward.
Attracting private bidders was a challenging proposition
The airport was proposed as a Private Public Partnership venture with the Maharashtra Government holding 26% stake while the private developer would be given 74%. Global tenders were invited in 2014. Nine were received and four were shortlisted.
The four bidders included Tata Realty and Infrastructure Ltd, Hiranandani Developers Pvt, GVK and GMR. The first two did not provide financial bids and thus did not make the final list. GVK which ran the Chatrapati Shivaji Maharaj International Airport in Mumbai offered to share 12.60% of the revenue of the new airport with City and Industrial Development Corp. of Maharashtra (CIDCO) as oopposed to GMR Infrastructure which offered 10.44%. GVK was awarded the bid.
With the bids complete, Prime Minister Modi was invited for the ground breaking ceremony for the Navi Mumbai International airport in Mumbai on 18 February 2018. The project had come to a stage where it could at the very least make its way to the runway. However, the clearance for takeoff still had challenges.
After being in the planning and execution stages for 12 years by 2018 the Navi-Mumbai airport project had cleared all the initial hurdles. Or so it was believed anyway. The next step was arranging the financing for the airport. Despite being the most expensive airport project till date estimated at USD 2.2 billion dollars, the cash-flows for the most part were secured against Mumbai’s growing traffic numbers and also its geo-strategic location as a key commercial capital. But this too would change in ways unimagined.
Project financing: from guaranteed success to now in question
Any airport project requires huge capital commitments. For the most part investors are not wary. This because regulated costs are recovered via pass-through charges to the passengers, while other costs would are recovered via items such as retail outlets, parking charges, commercial property development etc. It is a model that has provided for handsome returns to airport operators even while being misaligned to market demand and putting the burden of cost overruns and largesse squarely on passengers.
In the case of Navi-Mumbai airport, fairly certain of success, financiers were comfortable with the associated risks. The GVK group that at the time was operating both Mumbai and Bengaluru’s airports had a good credit rating. Overall there was no cause for concern. By July 2018 the project had achieved financial closure via a consortium of banks. The initial phase would require 10,000 crores. The lead arranger was Yes Bank. Ironically in 2010 when Yes Bank ran into liquidity constraints, the State Bank of India had to step in to take over as the lead arranger. This also resulted in further delay to the project.
As of now, the 26% equity holder (CIDCO), a Maharashtra owned corporation, has raised concerns about breach of certain agreements. This is delaying the financial closure that is critical to the new airport. While the new arranger, namely SBI, has taken over the loan portfolio, however, it has put preconditions. Critical amongst these is that the full land-bank of 1160 hectares should be put up as collateral so that the bank can take a first-charge and structure the financing accordingly.
Overall, given the broader outlook both for aviation and infrastructure, it is likely that bankers will revisit all the projections. Further delays on account of financing cannot be ruled out.
Parallel infrastructure: critical to the project is also delayed
The Navi-Mumbai project was and is dependent on transportation links being developed in other parts of the city. These included Extending the Bandra-Worli Sealink via a 42km costal road; the construction of a trans harbor link connecting Mumbai and Navi-Mumbai; a proposed 7.5 – 10 km bridge connecting Mumbai with Navi Mumbai; widening the existing highway; building waterways & related infrastructure connecting Navi-Mumbai; and a metro-link direct to the airport.
These above links are critical for project success given that airport traffic flows have destinations that include large parts of the primary and secondary business districts, majority of the hotels and most of the sites of historic and cultural importance. Thus without these many segments of demand will simply default to the current airport (impacting project viability).
That said, many of the planned infrastructure upgrades find themselves delayed and awaiting decisions. And with cumulative costs in excess of USD 12bn (by conservative estimates), the jury is out on how soon these see light of day. Each passing day impacts project returns and thus it is in the best interest of all parties to come to consensus and take binary decisions. Yet that is easier said than done and much like earlier socio-political realities continue to impact progress.
Whether Mumbai needs a 2nd airport is not even a question…
Given the challenges and delays, and now the pandemic, a question that is coming up is whether the 2nd airport is even needed. To understand why this is not even a question, one has to examine the city and trends that have seen the emergence of secondary business districts. These are emerging to as important centers of growth due to presence of well-maintained spaces, rental and fixed costs less than 45%-60% as compared to primary business districts, incentives and subsidies offered, as well as proposed proximity and connectivity to the upcoming airport.
Residential real-estate prices have also led to much of the population spreading to outward areas which includes first-time homebuyers, young families, first-second generation, students and the growing middle class. In addition to real-estate prices, transport is a key determinant of where populations reside. This because ~45% of Mumbai’s working population uses public transit. It is said that Mumbai is a city that operates on a handful of train-tracks. Thus it is imperative, that to leverage these dynamics, connectivity links also evolve.
An airport forms part of the overall key value proposition of the city which then translates to growth and jobs. This has already been witnessed in cities like Delhi and Mumbai. In Delhi the National Capital Region (NCR) has seen disproportionate growth in Gurugram in the state of Harayana which is in proximity to the airport. Similar growth has not been seen in areas such as Noida in the state of Uttar Pradesh which earlier had the same level of development including proximity to a Special Economic Zone. The new airport in Jewar is an attempt to correct this imbalance.
For Mumbai, real-estate prices coupled with connectivity woes have already started to impact decisions taken on where to locate business. Technically, Mumbai airport is fully saturated and not able to accommodate any new flights. And real-estate prices, while depressed, continue to be unviable for folks that choose not to move out to the greater metropolitan region.
Finally, Navi-Mumbai as it stands will be the costliest airport project the country has seen thus far. Which also means it will likely have high user charges. These would otherwise have been managed as the owner of both airports was common, but the industry is now factoring in a presumable change in ownership of Navi-Mumbai. This based a letter written by an entity of the Maharashtra State government (CIDCO) to the promoters of the Navi-Mumbai airport asking for proof of the financial capability to see the project till completion within the stipulated deadline.
As of this writing, the story of the second airport in Mumbai remains unfinished.