1. INTRODUCTION The Abidjan Airport, usually called the Abidjan Houphouet-Boigny Airport, is the largest airport in Cote D’Ivoire and one of the most active in the West African sub-region. It handles over 95% of all passenger and freight traffic, generating around 98% of revenue from airport charges. It is also a principal international passenger hub airport in West Africa. In 1990s, West and Central African region embarked on a bold initiative to liberalize civil aviation. This initiative allows for more designation of airlines and increased traffic routes; fares and traffic frequencies decisions to be taken by airlines based on market condition. While it is expected that Liberalization will maximize benefits through a competitive environment, liberalization could also be a potential threat to some air operators within the region. For sustainability in the wake of this challenge, juxtaposed with the increasing demand for services from this airport, there was need to expand the service capacity and develop the infrastructural facilities of the Abidjan airport. July 1996, the responsibility to develop and manage the Abidjan H-B Airport was transferred through a 15year concession agreement from government to AERIA (a French consortium). The project was to be carried out on a Public-Private Partnership (PPP) based on a ‘Build Operate and Transfer (BOT) model. AERIA, a Special Purpose Vehicle (SPV) controlled by ‘Societe d’Exploitation et de Gestion Aeroportuaire’ (SEGAP), was selected through a bidding process, to be the concessionaire. While SEGAP remains the project sponsor,


an expansion of auto-parking for ground access. The project is to cover the construction of a new 23. The main features of the concession agreement include: • • The concession is for a 15year period Undertake and finance a specified program of investment for the first 4years of the concession. improvement of domestic and international freight terminal and runway extension and strengthening program. including other anticipated components of the investment program.AERIA is saddled with the responsibility to upgrade. the runway extension was suspended due to unexpected increase in investment expenditure on the international terminal and aircraft gates. The concession authority approves tariffs subject to a break-even financial position for the concessionaire. there are principles for such adjustment. However. it was also expected that the concessionaire pays the host government 1billion CFA francs as indemnity for workers layoff. • • Pay 20% of total turnover to the concession authority as concession fees. • • The investment cost is to be covered from air tariff charges. priority is to be given to laid-off workers when the need to employ labour arises. development of 21 new gates and Jet ways. However. In addition. AERIA has been obliged to transfer 140 workers from ANAM (former Abidjan H-B airport operator) to AERIA at pre-existing terms of employment. operate and maintain the airport assets over the 15years concession period. 2 . Labour redundancy. The concessionaire is free to adjust tariff price.000m2 International Terminal.

Pre-Completion Risk This refers to the uncertainty related to timely completion of the project within the budgeted costs. any such proposal can only be considered within the last two years of the concession. labour and/or other construction difficulties. CLASSIFIED POSSIBLE RISKS THAT EXIST DURING THE TIME PROJECT IS COMPLETED AND POST COMPLETION The risk from the Abidjan airport concession can be classified into 2 stages. where the lenders delay or fail to provide funds after terms and conditions have been negotiated. The pre-completion risks involved in this case are: Funding Risk. and renewal can only be formally approved by the concessioning authority in the final year of the concession. 2. and the post-completion stage (operation phase).The project was financed with 70% debt and the remaining 30% was equity. Finally. However. This may be due to technical.There could be difficulty in raising funds as planned. The funds were raised largely from AFD (Agence Française de Développement) 35%. BEI 17% and AERIA equity. It may be a syndication flaw. 3 . BOAD (Banque Ouest Africaine de Développement) 18%. 30%. the concession agreement allows the concessionaire to propose an extension to the concession period. the pre-completion stage (construction phase).

If cost of inputs increase more than projected. Market/ Off-take Risk: The main market risk for the airport project relates to demand risk. Supply Risk (Raw Material) . Post-Completion Risk (Operational Phase/ Force Majeure) This category relays the risk that some discrete events might occur which could alter the projected cashflow from operations after the project might have been completed. exchange rates increases and delay in project construction. supply of some vital raw materials may be impaired by factors which are not within the control of the concessionaire. This could be as result of supplier’s inefficiency in raw material delivery Technological Risk: since the airport was to be built with advanced technology. This is a major risk in the completion of the airport infrastructure.Investment Cost Overrun Factor. The post-completion risks for the Abidjan airport project are. For instance. Liberalization of civil aviation in the region calls for stiff competition in the industry.Project’s viability depends on the realization of projected cost of critical input.In the course of building the airport. customers might shift to other airports (as was the case in 1997 4 . this factor comes from surprises in inflation. a low traffic turnout relative to AERIA’s anticipated frequency of traffic may vitiate the profitability and debt service capacity of the project. it may affect the timely completion of the project. Usually. there is a risk that the technology employed may not perform optimally as planned or may become prematurely obsolete. If the Abidjan airport fails to provide outstanding service as compared to other service provider in the region.

Politically motivated violence has affected the operation of the airport to a large extent. Tariff Charge 5 . there is a risk of high taxation in addition to the 20% concession fees. Regulatory Risk: In most projects. For instance. Socio-Political Risk: The risk that an investment's returns could suffer as a result of social changes or political instability in a country. the level and continuity of cashflow is prone to the influence of regulatory authorities. Environmental risks may have a direct bearing on project returns when. Also. too much cutaway from cashflow may hinder debt servicing of the project.when freighters operated through the Accra airport). for instance. the life-expectancy of the airport is shortened by unexpected ecological processes like earthquake and other natural disaster. This has a sounding implication for the deal. expropriation is a common thing in most developing countries. It affects cash streaming and could affect debt repayment reschedules for non-recourse financing Environmental Risk: Large infrastructure projects often carry significant environmental risks that may not be immediately visible to the financiers. 3. the politically motivated civil crisis in November 2002 led to the closure of the airport during the period of crisis. For the Abidjan project. This is also a risk for the lenders because. THE MAIN RISK ASSOCIATED WITH THE PROJECT The main risks associated with the project include: a.

In a situation where the debt ratios are low. net cashflow is benefit minus cost. the worst traffic situation of the past may not come as the best case for the project. a change in tariff is expected to have significant impact on cashflows and other financial indicators such as debt service ratios. In other words. Capital Cost Overrun Changes in cost overrun have a negative impact on net cashflows from the project. When the forecast is too much based on the past traffic volume. it is better to be pessimistic in drafting plans related to traffic rate rather than being so reliant on the past events. Domestic and Foreign Inflation rate 6 . increased debt proportions all other things being equal. LLCR. If Capital expenditure cost overrun increase. This is because the debt repayment schedule for the airport will increase. For instance.The financial success of the project is fully reliant on the revenue from the tariff charges. e. This may result in financial failure and abandonment of the project. the financial NPV of the project also increase. d. b. Traffic Volume The demand forecast is an important factor in any transport sector concession. debt service ratios decrease. Basically. etc. imposition of some new conditions on facility usage may move beyond the forecast limit. cost of building and operating the airport increases and the net returns reduce. Capital Structure for Financing (Debt Proportion) The debt proportion in financing is a risk factor associated with the project. However. c. the project is not attractive to lenders. As the debt proportion increases. For this.

Interest Rate Interest rate has an enormous impact on the viability of the project. major part of its liabilities are in US$. GDP Growth Rate/Income Level This affects the demand and revenue for airport services. especially the dollar which forms a major part of the liability used by AERIA in financing the project. Debt service ratios will also decrease because debt repayment is expected to increases. most of AERIA’s assets are denominated in local currency (CFA francs). Exchange Rate From the financial perspective. This poses an exchange risk for the project. 4. income level also increases. h. If GDP growth rate increase. There is a risk of interest rate changes in the financial market. g. SECURITY ARRANGEMENTS The Security arrangements include: 7 .Increase in domestic inflation rate for instance would cause the value of the CFA franc to depreciate against other currencies. Incremental changes in exchange rate have resulted in declining financial indices for the airport. therefore the demand for airport services has a like hood of upward movement which transfers to improved financial NPV from the project. exchange rate has strong impact on the financial success of the project. This would result in reduced NPV for the project. the cost of capital also increases. Though. In a case where interest rate increases. f.

For instance. Guarantees: Also. This could be achieved with supply contracts such as future contracts and supply or pay contracts. Clawback Agreement: This is an agreement by project sponsors to contribute cash to the project in return for project-issued securities. lenders usually insist on this mostly because of ‘force majeure risk’. this is an additional cost for project sponsors. The commitment by the Ivorien government to be part of the financing is a shared risk that can assure a plain field for concessionaire to operate. Insurance: Although. The risk of natural disaster and unforeseen circumstances that may disrupt the viability sense of the project is covered. it is important to ameliorate this regulatory risk involved in the operation. Source of Fund: Juxtaposing the cost effect of regulatory policies and the financial goal of the concessionaire. guarantees can be used to mitigate airport completion risk like funding risk. the organization can mitigate against such risk. CONTINGENT LIABILITY 8 . Government can provide a guarantee for cover up of back logs and deficits in the event of insufficient funds in financing the project.Supply Contract: Cost overrun is usually due to unanticipated level of inflation. This also reduces the risk of raw material supply. funds were borrowed from local banks and ADB with guarantees from World Bank. AERIA cannot control the movement of these rates. The project can be carried out by sourcing for finance (liabilities) within the domestic market. Though. This spells limitation in regulatory recklessness. exchange rate changes and delay in supply. 5.

The concession is still in its operating stage and is expected to terminate this year. 6. there have been frequent political violence in the region. the project was successfully contracted to AERIA a SPV for SEGAP. concession authority is to compensate the AERIA for this cost. The conceding authority is required to authorize any adjustments proposed by the concessionaire as being necessary to secure the concessionaire’s financial equilibrium. RECOMMENDATION AND CONCLUSION 9 . airline service inefficiency. Unamortized investment cost. This is an instance of explicit-contingent liability. CHALLENGES. issues of insecurity. regulatory complexity and traffic growth rate mismatch.Tariff adjustment. part of the contingent liability in the Abidjan airport concession is the cost that results from unanticipated investment which would be stranded if concession was terminated after 15years. However. Even though at the time it was set up it appeared to be a very sound project. SODEXAM (concession authority representing government) would become liable to compensate AERIA. In a situation where authority to vary charges is unduly not approved. On the basis of recommendation from an independent expert(s) valuation. 7. IMPLEMENTATION OF THE PROJECT In June 1996. the contingent liability in this instance is from the cost of service regulation. the structural synopsis tells that it has not been business as planned for the project sponsor.

Even though the project was a good volition for excellence in air services and private participation in the economic restructuring. The attacks also created a strain on the sponsor’s budget. theft has been concern in the passenger terminal. Although. Factors such as political risk and environmental factors got paved with minimal attention. The low turnout of bidders may have been due to the complexity of the concession contract or. In 2001 more than one million 10 . the Abidjan airport had to shutdown the operation site for several weeks. Following the violence. • 15year period is relatively short compared to the concession period for typical projects in other countries like Lima airport (Peru). In January 2003. The ex-ante factor was low. several hundred young Ivoirians stormed the international airport early in the morning as groups of French citizens were seeking to leave the country. probably the project is not financially viable to most potential bidders. the main source of contingent liability to the government was in respect of unamortized investment which was not explicitly stated. Carrasco airport (Uruguay) 20years. Other defects of the concession are: • • No ‘off-take’ feature in the contract to guarantee minimum return on investment. 30years. just 2 bidders couldn’t have reflected the full essence of competitive bidding. Airport officials are known to be corrupt due to their low salaries. the concessioning and implementation had some defects. • There was no provision for ‘force majeure’. steering up itches in the operation strategy and financial cross position of the project. The political crises that have eroded the region in recent times have created the most pronounced challenges for the project. the contract recognized a financial equilibrium position for the sponsor. Moreover.

making it difficult for Insurance to cover. Also. the project has cost the contractors more than they forecast.passengers used this airport but in 2003 that number had fallen to less than 775. Reference Strong J. This would help in effective pricing of the project. A brace up of the challenges and incorporation of new strategies as suggested above can get good results for both the government and the private parties. The AERIA/SEGAP experience is not a good one and it tells on future PPP plan of the Ivorian government.000 passengers. Government should place more emphasis on attracting investors in the airport sector and encourage private participation in economic reform programs rather than just focusing on getting the job done. Although. a special contract which spells out such liability on the government may be reasonable. To recreate a substantive evidence of private participation in public service provision as we have in the Abidjan airport case. government should try and ensure a fair bidding process to avoid the ‘ex-ante’ factor. a special body could be set to look into the operations of airlines as regards efficiency in service delivery. Furthermore. such violent risks are enormous in the region. Conclusively.S (2002). there is need for a congruent public policy process that will encourage private sector participation in public infrastructure business. in subsequent PPP. even though the Abidjan project sponsors have been able to adjust to new realities in the project implementation. Government should be ready to bear part of the risk. The Abidjan Airport Concession: Facing Regional Aviation11 .

9-12. Website: http://www. Chapter 3. Airport and Air Traffic Control Report.N (2008). Asian Development Bank (2005).org/documents/books/developing_best_practices/airports/ (1996).mayerbrown. New York John Wiley & Sons. pp. pp.pdf Mayer Brown (2003). Website: http://www. Special Challenges in Financing Airport Concessions in Emerging Markets. Project Financing: Asset Based Financial Engineering.Liberalization. Vol. Website: http://www. “APPENDIX 2”.pdf Asian Development Bank (2004). 28. pp 1-15.asp?id=7451&nid=6 Ashok K. 42-49. 52-66.adb.adb. 29.3. Website: 12 . Examples of Private Sector Participation at Commercial Airports Worldwide.riskraft. “The Journal of Structured Finance” Issue “ADB Article”.pdf Finnerty J. Risk in Infrastructure Project Financing. pp. 36.