www.ifc.org/ThoughtLeadership Note 35 | April 2017 Queen Alia International Airport – The Role of IFC in Facilitating Private Investment in a Large Airport Project In 2007 Jordan lacked the financial resources and experience to embark on a renovation and expansion of its international airport, a colossal public-private undertaking. Yet by 2013 it was able to successfully complete the complex endeavor in collaboration with a private sector concessionaire, and without a sovereign guarantee, setting an example for countries and public-private project practitioners confronting similar circumstances. IFC played multiple roles in facilitating private investment over a 10-year period. Jordan’s Queen Alia International Airport, located in Amman, International Airport, which was built in 1983 and accounted was named best airport of its size in the Middle East by the for 97 percent of all air traffic in Jordan, with the aim of Airports Council International three years in a row, in 2014, constructing a new terminal. 2015, and 2016, thanks to a 25-year renovation and expansion public-private partnership (PPP) project that was co-financed Hoping to realize the country’s full potential for tourism and by IFC and the Islamic Development Bank from 2007 to 2016. economic development, the government considered private sector participation in order to construct a new terminal with During the process IFC assumed three distinct roles: First as a expanded capacity. In preparation for this project the transaction advisor to the Jordanian government, then as a government appointed IFC in February 2006 as lead advisor to senior lender and lead arranger of the financing to the analyze private sector participation possibilities. concessionaire, and finally as a portfolio manager during the implementation of the project. Figure 1 below expands on these IFC recommended structuring the project with a 25-year build- three roles. operate-transfer contract. Instead of a using negotiated arrangement with an unsolicited proposal, IFC instead assisted Role One: Transaction advisor ensuring reasonable risk the government in conducting the competitive tendering allocation and a transparent bidding process (2006-2007) process which involved five bids from consortia of In the late 1980s Jordan experienced a major economic international, regional, and local investors, including the major downturn that drove government debt as high as 174 percent of airport operators. GDP. With the Executive Privatization Commission, the Ministry of In order to reduce its debt, from 1998 to 2008 the government Transport, and the Civil Aviation Authority, IFC’s PPP privatized 14 state-owned enterprises in telecommunications, advisory team designed a Rehabilitation, Expansion & electricity, air transport, and mining, and other sectors, mostly Operation Agreement, or concession contract. through technical assistance and financing from the World Bank and the United States Agency for International In May 2007, the Airport International Group, an international Development. By 2000, government debt had fallen to 100 consortium composed of construction group Joannou & percent of GDP, and further to 60 percent of GDP in 2008. Paraskevaides Ltd., airport operator Aéroports de Paris Management S.A., and regional financial investors Given the progress made, the government maintained its (Engineering and Development Group Investment Holdings commitment to privatization by enacting the 2000 Privatization Ltd., Noor Financial Investment Company KSCC, and Abu Law, as well as establishing the Executive Privatization Dhabi Investment Company), won the bid and signed the Commission, a centralized privatization unit for future Rehabilitation, Expansion & Operation Agreement. As part of transactions. its bid the Group offered the government a 54.6 percent share With advice from the World Bank, the government launched a of gross revenue. A critical issue was to determine the size of second generation of privatizations through public-private the new terminal, and the initial plan was to expand capacity partnership agreements in mega infrastructure projects. In 2005 from about four million passengers per year 12 million, the government turned its attention to the Queen Alia substantially greater than required at the time. The government subsequently approved a significant resizing nine million passengers per year for the new terminal, to be of the conceptual design in consultation with IFC’s advisory expanded in a second phase to 12 million passengers per year team, which advised on a phased implementation approach. The to accommodate future traffic growth. project was split into two phases, the first yielding a capacity of Figure 1: IFC’s Multiple Roles to Facilitate the Delivery of the QAIA Rehabilitation and Expansion Project Source: IFC Project Documents arranged a syndication of $160 million from international Role Two: Senior lender and lead arranger securing long- commercial banks, or B lenders. term financing (2007) Considering the political and commercial risks of the project, IFC helped raise $100 million in a parallel loan from the Islamic international commercial banks were reluctant to participate in Development Bank through an Islamic financing facility. This the financing without the umbrella of a development finance provision of long-term senior loans was critical to ensure the institution such as IFC. As a result, in the same year IFC was financing of the project. The financing plan comprised long- appointed as senior lender and lead arranger, where it arranged term debt from both the Islamic Development Bank and IFC, as long-term financing for the 25-year concession. well as equity from the Airport International Group’s shareholders, in addition to cash generated from the existing IFC’s investment team worked with the Airport International terminal, which was operated profitably by the Airport Group to structure a financing plan with long-term maturities International Group during the construction of the new adequate for the project and its cash-flow profile. In November terminal. 2007, IFC provided $120 million in loans to the Group and 2 In addition to this base financing, contingent financing was overruns or other contingencies, a necessity for unforeseeable agreed to by the Group’s shareholders to cover any cost changes during the construction of the new terminal. Figure 2. QAIA project contractual structure Source: IFC Project Documents Role Three: Portfolio manager facilitating construction From 2008 to 2013, IFC’s portfolio management team adjustments (2008-2013) developed an extensive relationship with the Airport Construction of the new terminal was completed in 2013, two International Group and the other parties involved through years later than scheduled, due to two significant changes—a close monitoring and supervision. Building upon this design variation and the need for a construction re-staging. partnership, the Group invited IFC to lead the existing lenders to provide additional capital to finance an expanded version of The design variation was requested by the Airport International stage two—designed to enable the airport to continue to meet Group due to space shortages for commercial activities in the traffic growth. new terminal. The construction re-staging addressed construction and operational issues that occurred in the course In mid-2014 IFC committed $68.8 million in additional senior of the new terminal’s completion. loans (comprising $21.2 million of own-account financing and $47.6 million in syndicated loans), to finance the expansion of The Airport International Group proposed to phase the project’s the new terminal’s related facilities, including a full extension construction into stage one, construction of the new terminal of the piers. This expansion was fully completed in December and related piers, and stage two, demolition of the old terminal 2016. and extension of the piers with additional contact gates. In 2016, 7.4 million passengers traveled through the Queen Alia These changes required a careful review by the project’s International Airport, compared to 3.9 million in 2007, when stakeholders and involved a revised cost and financing plan, as the PPP project was launched. Despite regional turmoil since well as an update of the traffic and financial projections. The 2000, passenger traffic grew at a compound annual growth rate additional funding needed to make these changes was provided of 9.05 percent from 2003 to 2016, equivalent to 1.8 times by the sponsors and by cash generated from the existing Jordan’s GDP growth during the same period. terminal’s operations. Jordan’s economic growth and the increase in destinations and The Airport International Group, its sponsors and lenders, as frequency of routes served by the Queen Alia International well as the government, all worked together to review and Airport jointly contributed to this significant traffic growth. The ultimately approve these changes. two financing rounds of the project resulted in an airport that IFC’s portfolio management team played an instrumental role can handle up to 12 million passengers a year, fulfilling the in supporting the approval process by all lenders. The Airport government’s objective of boosting Jordan’s tourism industry. International Group adjusted the original design and successfully completed the new terminal, which opened in March 2013. 3 Figure 3. GDP growth versus QAIA traffic growth in Jordan, 2003-2016 GDP Growth vs. Traffic Growth 8.0 90.00 7.4 Annual GDP, PPP (constant 2011 billion international $) Arab 7.1 7.1 7.0 Spring 80.00 Gaza War and 6.5 6.3 6.1 Global 5.9 70.00 6.0 Financial Crisis 5.6 5.4 Annual Passengers (million) 5.4 5.5 5.2 2006 60.00 5.0 4.8 4.8 5.0 Lebanon War 4.5 4.6 4.3 50.00 Iraq War 3.9 4.0 3.5 3.3 40.00 3.0 3.0 2.4 30.00 2.0 20.00 1.0 10.00 0.0 0.00 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Actual Traffic Traffic Projected in 2007 GDP Source: IFC Project Documents, World Development Indicators, The World Bank, 2016 Conclusion Bibliography The successful completion of the Queen Alia International IFC, Fast Takeoff, Steady Flight for Jordan’s Airport, IFC, Airport—Jordan’s largest private sector investment project to February 2017 date—demonstrates the value of private sector capital in http://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_e infrastructure financing, the complexity of implementation, and xternal_corporate_site/news+and+events/news/impact- the role that multilateral development banks can play in stories/jordan-airport facilitating private investment. IFC, Jordan: Queen Alia International Airport, Public-Private Tremendous effort by the government and financial institutions Partnership Stories, June 2009. supported upstream reforms, fair concession design, a http://www.ifc.org/wps/wcm/connect/73c497804983917d84cc competitive tendering process, and a flexible transaction d6336b93d75f/PPPStories_Jordan_QueenAliaInternationalAir structure, all of which were essential to improving the project’s port.pdf?MOD=AJPERES creditworthiness. Website Queen Alia international; Airport, Jordan (QAIA) Given the $1.5 trillion infrastructural financing gap (per annum) http://www.qaiairport.com/en that developing countries need to fill to meet the Sustainable IFC, Jordan: Queen Alia International Airport, Public-Private Development Goals established in 2015, IFC and other Partnership Briefs, May 2015, Publication No 96902. development banks are expected to assume multiple roles to http://documents.worldbank.org/curated/en/779881467986290 help countries effectively use private financing for key 505/pdf/96902-P3Briefs-IFC-26182-JordanQueenAliaAirport- infrastructure projects. Box391454B-PULBIC-Colltitle-PPP-BRIEF.pdf Lin Shi, Strategy Analyst, Thought Leadership, Economics and World Bank Group, Jordan: Queen Alia Airport, Multilateral Private Sector Development, IFC (lshi1@ifc.org) Development Banks’ Collaboration Infrastructure Investment Project Briefs, April 2016. Thomas Rehermann, Senior Economist, Thought Leadership, http://documents.worldbank.org/curated/en/115491468196146 Economics and Private Sector Development, IFC 210/pdf/104850-BRI-ADD-SERIES-PUBLIC- (trehermann@ifc.org) JordanQueenAliaAirport.pdf