…A counter argument to World Bank’s advise to privatise HKIA
By Business Reporter
THE International Air Transport Association (IATA) 74th Annual General Meeting (AGM) has urged governments to take a cautious approach when considering airport privatization, a parallel view to the World Bank’s advice to Namibia to partner private investors to manage the Hosea Kutako International Airport to avoid using taxpayers’ money for costly airport upgrades.
In a unanimously passed resolution, IATA members called on governments to prioritize the long-term economic and social benefits delivered by an effective airport ahead of the short-term financial gains provided by a poorly thought-out privatisation.
“We are in an infrastructure crisis. Cash-strapped governments are looking to the private sector to help develop much needed airport capacity. But it is wrong to assume that the private sector has all the answers. Airlines have not yet experienced an airport privatisation that has fully lived up to its promised benefits over the long term. Airports are critical infrastructure. It is important that governments take a long-term view focusing on solutions that will deliver the best economic and social benefits. Selling airport assets for a short-term cash injection to the treasury is a mistake,” said Alexandre de Juniac, IATAs Director General and CEO.
Currently about 14 percent of airports globally have some level of privatisation. As they tend to be large hubs, they handle about 40 percent of global traffic.
“IATA research shows that private sector airports are more expensive. But we could not see any gains in efficiency or levels of investment. This runs counter to the experience of airline privatisation where enhanced competition resulted in lower pricing to consumers. So we don’t accept that airport privatisation must lead to higher costs. Airports have significant market power. Effective regulation is critical to avoiding its abuse particularly when run for profit by private sector interests,” said de Juniac who also noted that five of the top six passenger ranked airports by Skytrax are in public hands.
Speaking to Confidente this week, Finance Minister, Calle Schlettwein affirmed IATA’s position saying that government has never been of the view to privatise strategic infrastructure.
“When we approached the World Bank, our intent was never to privatise. We were just looking for diversified funding options. We are still evaluating their report with the view that PPPs do not only result in privatisation but can bring about other funding options,” he said.
Earlier this year, it was reported that the World Bank report titled ‘Assessment of Potential Financing and Investment Options to Implement the Envisaged Expansion of the Hosea Kutako International Airport’, said partnering private investors is an attractive and feasible option.
“A public-private partnership would allow for the required development and enhancement of the Hosea Kutako International Airport’s infrastructure, while generating budget efficiencies and fiscal relief for government to sustain the rest of the airport network,” the report stated.
The Namibian Newspaper reported that according to the bank, through operational efficiencies and commercial development, a public-private partnership would not only support the airport, but will generate extra money to the government while transferring knowledge and expertise to Namibians.
The report further said plans for the operation of Eros Airport should be addressed when evaluating a public-private partnership for Namibia’s largest airport.
The World Bank gave the government several options on how it can partner with a private company, namely through a sale of shares (privatisation), a concession, or a management contract.
The bank defined the sale of shares agreement as a deal where the government sells a stake in the airport to private investors (usually through public offerings).
“Some countries choose to set a maximum of 49 percent share sale to retain control over strategic decisions,” the report said, adding that more risks are thus transferred to the private sector.
According IATA however, transfer of control or ownership to the private sector should be avoided.
“There is no one-size-fits-all solution. A broad range of ownership operating models exist that can meet a government’s strategic objectives without a transfer of control or ownership to the private sector. Globally, many of the most successful airports are operated as corporatized entities of governments. Governments need to evaluate the pros and cons of different models taking into account interests of all stakeholders, including airlines and customers. The most important thing is that airports meet the needs of customers and airport infrastructure users, at a fair price. And to do that, user consultation must be an integral part of the consideration process,” said de Juniac.
De Juniac further urged governments to protect consumer interests by establishing robust regulatory safeguards to ensure cost efficiency in charges and improvements in investments and service levels.
“Efficient and economical air transport contributes directly to a community’s prosperity. Poorly thought-out airport privatizations put this at risk. The balancing role of effective and strong economic regulation is essential,” said de Juniac.
Confidente. Lifting the Lid. Copyright © 2015