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The evolution of UK’s BAA aptly illustrates how airports have attracted a range of investors over time, as well as signifying the critical impact of regulatory intervention on airport investors as the concession of Asaba Airport could bring exponential growth and more prosperity to Delta State. WOLE SHADARE writes
The Heathrow example
In 1987, the United Kingdom Government founded BAA Plc, now known as Heathrow Airport Holdings Ltd, to raise funds as part of a wider effort to monetise government-owned assets. Since then, the business of airport privatisation/concession has grown, mature and diversified to meet the objectives of governments and investors around the world.
After a lull, airport privatisation became particularly active again, between 2012 and 2015, with the most substantial activity seen in South America, the Middle East.
Europe. Key funding tool
The predicted exponential growth in passenger volumes worldwide will require improvements and expansions of aviation infrastructures for many years to come. Privatisation/ concession will be a key tool in securing funding for these types of projects. Airports that are well and professionally-run generally present themselves as attractive assets. They become even more valuable if they can also make business sense and demonstrate profitability as operational enterprises in their own right.
Being both operationally efficient and profitable is an enviable state for a modern airport to be in; where operational capacities are in equilibrium with profit generation; where there is sufficient plough-back potential to make the airport asset self-sustaining and viable as a going-concern. There is no-one size fits-all model given the large variety of social and economic circumstances, needs and objectives across the globe but positive lessons can be learned from existing privatization/concession processes, especially where they have been subject of stable, consistent and proportionate economic oversight.
Many airports across the globe require more capital investment to accommodate growing passenger and cargo traffic. When government’s fiscal constraints and are not able to fund the much needed capacity, the injection of private capital in the airport sector becomes a valid option responsive to needs of states and of the travelling public.
The world now has over three decades of experience with airport concessions. Private participation in the airport sector have proven to deliver tangible positive results in terms of building new infrastructure and increasing capacity, improving airport service quality as well as growth prospects and operational efficiency.
Delta concessions Asaba airport
In the context of an airport, the Asaba International Airport which was last week concessioned by the Delta State Government to FIDC-Menzies as the major concessionaire for an aerodrome that is strategically located to attract traffic and catalyse the local economic multiplier.
As usual with any laudable projects undertaken by governments at all levels, there seems to be cynicism against the concession deal, perhaps because of past experiences by the Federal Government.
But this arrangement the state government said was the best they could get in a bid to transform the aerodrome to international standard. The airport is the first Greenfield facility to be concessioned in Nigeria.
The airport is economically viable as United Nigeria, Aero Contractors, Arik, Overland, Air Peace, Azman and Overland operate to Asaba; an indication that the facility can double traffic and retain its position as Nigeria’s fifth busiest route.
The FIDC-Menzies consortium was selected as the preferred bidder to operate as the master concessionaire. FIDC is an emerging and fast growing Nigerian building, construction and civil engineering company.
Menzies on the other hand is one of the biggest airport operators in the world. It operates in over 200 airports around the world, showing dominance in most major airports in the United Kingdom, United States, Europe, South Africa and others. They are involved in airport and cargo handling and the entire gamut of airport operations.
The master concessionaire’s special purpose vehicle (SPV) has now been incorporated with the name-Asaba Airport Company Limited. his consortium has sub concessionaires like Air Peace as the anchor airline and MRO operator; Multifreight Cargo and Logistics, which will provide cargo and logistics services, Arbico Construction Company which intends to develop the business park, hotel and convention centre.
Rainoil Limited and Cybernectics Limited are to develop the tank farm and provide aviation fuel while Quorum Aviation Limited is poised to develop and manage the private jet and helicopter terminal.
Terms of agreement
The concession stipulates that the concessionaire will pay the state government N100 million royalty every year for the 30 years concession pact.
The concessionaire is mandated to pay the state government 2.5 per cent profit annually before tax just as the firm was given five years tax exemption to enable it stabilises to provide major facilities at the airport. The concessionaire was equally as part of the agreement expected to deposit N1 billion as concession fees within two weeks before commencement of operation.
The proximity of Asaba to the eastern commercial cities of Onitsha and Nnewi makes it commercially viable.
Although, there are airports in Benin, Enugu and Owerri, the deplor able state of the federal roads and the rising insecurity across the country further justifies the need for the development of the airport-Asaba International Airport, which currently offers a three kilometer runway with a width of 60 meters, 49, 500square meters, parking spaces for about 200 cars, taxi-way of 1.73km long and terminal building of about 3, 600 square meter space.
Delta State Governor, Senator Ifeanyi Okowa, at the agreement signing ceremony for the concession of the Asaba International Airport between Delta State Government and Asaba Airport Company Limited, said his ultimate intention was to make the aerodrome a credible aviation hub operated by first class professionals.
He further stated that the state government believes that to achieve “our lofty ideas, it must access the private sector skills, orientation and capital to sustain the momentum in the upgrade and expansion of facilities at the airport.
“Under the broad theme of public-private partnership, options include partial privatisation, management contract, concession as well as joint venture operations. Following extensive analysis of the options, it was resolved that a concession arrangement was the most suitable option open to the state government at this time.”
Okowa explains decision
Okowa disclosed that against this background, the Delta State Government sought to identify private investors who would complete the development and invest further in the expansion and modernization of the facilities at the airport to meet global standards in terms of efficiency in operations and security of passenger and cargo traffic under a concession arrangement
In articulating the approach to the concession of the airport, the consideration Aviation Metric learnt was basically to procure a consortium of concessionaire operators/investors with the technical and financial capabilities to re-develop, finance, design, operate, maintain and manage the airport for the benefit of Deltans.
The bid process spanned a period five years with two major consortia emerging in the last round of the bidding process. There is enough evidence supporting the thesis about private companies being more successful in managing corporate assets and assuring high standards of customer service. Private companies not only seek for the efficient sources of financing investments but are also profit oriented.
The profit motive is a natural incentive for effective costs management and ambitious revenue generation, especially outside the traditional aeronautical domain on the commercial side. Transfer of risk is another important feature of privatisation.
The notion of risk is especially relevant to new investments and infrastructure can be shifted from taxpayers to the private sector. Privatisation increases the likelihood that strategic decisions will be made based on economic considerations, rather than on the political basis.
Delta State Government may have seen the need like it happens in many parts of the world to finance airport infrastructure to meet future demand and if government spending cannot be relied upon as it has been in the past, there is increasing recognition and ample evidence of the value created by private investment in airports around the world.Google+