ОАО Sheremetyevo International Airport Public-Private Partnership: Airport Infrastructure

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Sheremetyevo International Airport

    Aerodrome infrastructure and land plots are under public ownership OAO MASh – 100% state-owned enterprise – is the airport operator and terminal owner Numerous specialized private companies are involved in airport operations:  ОАО MASh daughter companies, and independent entities  With and without public participation The government regulates airport operations:  Certification  Slot allocation  Rate coordination 2

Sheremetyevo – the leading company providing regular international air services

   Sheremetyevo: Mainly regular air traffic operations, incoming and outcoming traffic (business and tourism, Russian residents and foreigners) Domodedovo: Regular air traffic operations across Russia and CIS, a considerable part of charter flights abroad, small number of regular international air companies, mainly outcoming traffic Vnukovo: Regular air traffic operations across Russia and CIS, government flights, no regular international flights outside the CIS, mainly outcoming traffic 3

Volume of Operations: Positive Dynamics

13 500 12 500 11 500 10 500 2001 Пассажиропоток, тыс. чел.

Взлетно-посадочные операции, ед.

155 000 150 000 145 000 140 000 135 000 130 000 125 000 2002 2003 2004 4

Profitability: Lower than in Comparable Airports EBITDA/ Turnover

Budapest Moscow Toronto Aeroporti di Milano Athens Geneva Manchester Los Angeles Ontario Zurich Aéroports de Montreal Chicago O'Hare Aeroporti di Roma Vancouver Munich Aéroports de Paris London-Gatwick Birmingham Washington Dulles Hong Kong Vienna Frankfurt San Francisco Calgary London-Heathrow Stockholm Washington National Oslo Copenhagen Perth Brisbane Melbourne Sydney Singapore Auckland Atlanta 0% 10% 20% 30% 5 40% 50% 60% 70% 80%

Comparison with Other Airports: Aeronautical Revenue/Total Revenue Ratio Aeronautical Revenue / Total Revenue

Budapest Ontario Perth Washington National Melbourne Brisbane Washington Dulles Atlanta London-Gatwick Aeroporti di Roma Singapore London-Heathrow Los Angeles Hong Kong Sydney Munich Oslo Aéroports de Paris Geneva Zurich Athens Vancouver Auckland Aéroports de Montreal Frankfurt Aeroporti di Milano Manchester Copenhagen Vienna Birmingham San Francisco Moscow Calgary Stockholm Toronto Chicago O'Hare -5% 5% 15% 25% 35% 6 45% 55% 65% 75% 85%

Positive Forecast of Traffic Demand

 Pessimistic scenario: traffic growing at rates exceeding the average ones for the recent 5 years, taking account of trasnfer of several air companies to Domodedovo and Vnukovo.

 Basic scenario: growth insignificantly exceeding the GDP, taking account of possible transfer of small air companies to Domodedovo and Vnukovo.

 Optimistic scenario: based on forecasted GDP growth in Russia and, in particular, GRP growth Moscow Region, equal to 6% per year, traffic demand growth equal to 2.5 GDP.

 All scenarios represent preliminary estimates, and take no account of constrained handling capacity of Sheremetyevo.

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Прогноз спроса на перевозки в Шереметьево, млн. пасс. в год 35 000 000 30 000 000 25 000 000 20 000 000 15 000 000 10 000 000 2004e 2005 2006 2007 2008 2009 2010

Underutilized Company Capacity

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Advantages:

     The largest volume of international air traffic operations Available space to expand the terminals and other infrastructure Closest distance to the center of Moscow Presence of a powerful air company – Aeroflot with alliance partners (AF, KL, AZ, DL, KE) Presence of leading companies from other air alliances (LH, OS, SK, LO, TK, JL, CA, AY) 

Disadvantages:

      Limited capacity of terminals, aerodrome pavement and airspace Inadequate transfer (about 8 km betweenТ1 and Т2) Low quality of external transport services Development program delayed for many years Ambiguous legal framework for using federal property aerodrome Difference in customs and immigration procedures between SVO and DME 8

OAO MASh Strategic Vision: What we are Striving At

     Rank among the world leaders in airport management Maximize equity value Build up trusting and transparent relations with partners Become an attractive and socially responsible employer Adequately represent Russia, become the main national air gateway 9

Essential Strategic Targets

    Increase the airport handling capacity up to 34 million passenger per year by 2025 Increase the share of transit passengers up to 30% by 2010 Increase the level of comfort and speed of transport communication with Moscow by 2007:  By railway: 30 min  By car: 10 min to the Moscow Ring Road  Taxi: fixed rates, standard quality “Immediate” improvements:  Reduce the maximum time of passport control to 20 min, increase the level of comfort  Reduce the maximum time of transfer between terminals 1 and 2 to 90 min  Improve illumination and convenience at the Sheremetyevo 2 arrival area 10

Essential Activities to be Implemented at the Airport

       Increase the overall handling capacity of the terminals and aerodrome Improve safety to comply with new international and Russian standards Improve the efficiency of enterprise operations Ensure transparency and investment attractiveness Improve corporate structure, quality of daughter company management Introduce concession mechanisms Ensure fair competition

Capital investment needs in the coming years exceed $1 billion. Calculations show that growing traffic and increased revenues will ensure investment payback within acceptable period

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Construction of a new terminal together with ОАО Aeroflot

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Construction of high-speed taxiways, aerodrome pavement development

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Essential “External” Activities

   Increase airspace capacity (requires investments and regulatory framework clarification) Provide railway communication with Moscow and other Moscow airports (requires coordination with OAO Russian Railways, regional and federal authorities, and investors) Build a toll road to Moscow (implemented by the “Roads of Russia” Federal State Department under MOT; in cooperation with Moscow City Government, it is planned to provide direct high-speed communication with the center of Moscow)

Efficient coordination with federal and regional authorities is required. The Airport is interested in speedy launching of PPP projects in the area of external transport infrastructure

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Provision of Railway Communication with Moscow

  Possible options:  From Savelovsky railway terminal  From Leningradsky railway terminal Results:   Fixed travel time: 30 min Comfortable conditions + additional services (Internet, newspapers, meals, drinks) 15

Construction of the New Toll Road

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Brief Conclusions

   The airport is an attractive investment project To attract investment, it is required, above all, to legally establish the principles of concession-based use of aerodrome infrastructure The airport is interested in the implementation of railway and highway PPP projects, and is willing to provide organizational support 17

Additional Comments on Infrastructure Projects

Infrastructure projects are noted for long payback periods, which complicates planning and increases investment risks However, transport infrastructure, especially located in economically and socially promising regions, also offers alternative opportunities for the owner, which, though hardly guaranteed at present, could be implemented in the future Project flexibility creates extra “option” value – if there is adequate management capable of making case-specific decisions Traditional techniques, even the Monte-Carlo simulation, ignore option value, and tend to systematically underestimate project costs leading to economic losses both for investors, and the government However, oil and gas industries, as well as hi-tech companies have long been successfully using

Real Options Valuation techniques

– this practice should be applied in transport infrastructure projects

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Thank you for attention!

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