in Features / Airports

Transparency key to any privatisation

Posted 27 September 2016 · Add Comment

Chukwu Emeke talks to the experts to explore privatisation options for Nigeria's airports.

Since Nigeria attained its political independence in 1960, construction of airports and maintenance of their facilities have gulped up enormous resources from government.
Such capital injections, however, have often turned out to be drops in a mighty ocean, due to the capital-intensive nature of airport investment.
The Federal Airports Authority of Nigeria (FAAN), the government’s sole airport management agency, has not been able to attract reputable investors to its airports because of the absence of reliable financial statements, frequent changes in management, a lack of transparency in business transactions, and frequent interference in its operation by the supervising ministry, among other factors.
Out of the 22 airports managed by FAAN, only Nnamdi Azikiwe International Airport in Abuja, Port-Harcourt International Airport, Murtala Muhammed Airport in Lagos and Mallam Aminu Kano International Airport, have been able to generate enough traffic and revenue over the years to qualify them as viable.
Modern global trends in airport business indicate that a country like Nigeria, with more than 80 million people, many enjoying a leisure and business travel culture, requires significant private sector involvement in ownership and management of its economic gateways to achieve the expected level of airports’ input in national economic growth and development.
The advantage of air transportation system over the road is, particularly, its ability to link up the entire country within a very short time. Consequently, airports should exist with the primary objective of opening up the country for rapid development through the provision of facilities that ensure fast and direct access to the hinterland.
In the process of off-loading government-owned airports, or its facilities, to private concerns, the central features in agreements usually include capital injection, annual financial returns to government, airport facility improvements, protection of public interest and other key factors. Airports all over the world are, today, seeking and embracing strategies for expansion of non-aeronautical revenue sources. This is being achieved through the adoption of various approaches to private sector involvement.
Olu Ohunayo, business development manager at Zenith Travels, proposes two privatisation options. “The existing FAAN should be transferred to a private organisation, which should be mandated to turn it around under a 10-year plan, after which the mandate should be reviewed,” he said.
“The UK experience of privatisation worked well in a mature political society. In a less developed country, like Nigeria, the government should be tilting towards building and enhancing the air transport system, rather than just offloading the assets. This is to avoid a situation whereby we move from ugly state-owned airports to even uglier privately owned airports.
“Most reputable private sector investors would not consider buying an airport with fewer than one million passengers. The government should, as a first step, invite reputable international airport management companies, who will often achieve what government can no longer take care of – improvements in capacity, efficiency and safety. They will act as advisors or management consultants to government within a limited timeframe. During this period, the bid winner should be given a free hand to manage, restructure and position FAAN for either a private-public partnership or a partial privatisation.”
Ohunayo equally recommends the clustering option of airport privatisation. “If we insist on privatisation, then we should consider the clustering option, whereby a major airport is taken along with other unviable airports within the zone by a private concern. Clustering takes the airport in totality rather than the cherry-picking option.
“The Argentine took the 30 airports in totality, using funds from the viable to support the unviable ones.”
He added: “The Indians divided the airports into green field and brown field before privatising. To protect the public, airlines and other airport users, the Indian Government established an independent regulatory body to monitor and regulate the public and private airports. This ensured compliance to benchmark service levels and generally resist any form of monopolistic tendency.
“They also set up a scheme called ‘viable gap funding’ to protect and support investors for non-viable airports. The government provides funds which can only be accessed by interested investors through a bidding process.”
Tunde Fagbemi, chairman of Maevis Aviation, agrees that: “Nigerian airports can be developed only when they are kept under private-public partnership arrangements.” He added that there was a need to prepare every state enterprise for privatisation in order to prevent conflict of interest in the process of implementation.
“Even if you engage the best technocrats in the current development process, it will fail because it is structurally ineffective,” commented Dr Wale Babalakin, chairman of Bi-courtney Aviation Services, which operates Murtala Muhammed Airport2 (MMA2) – the only existing private airport terminal in Nigeria.
He proposed a division of the nation’s 22 airports into four zones.
“Lagos zone, under a concession arrangement, can develop Lagos, Ibadan, Benin and Ilorin simultaneously,” he said. “Abuja zone can develop Jos, Abuja, Kano and Minna. Port-Harcourt zone can develop Enugu, Owerri and that axis, while Kano zone can develop Sokoto and Maiduguri. All these should be done under a negotiated concession,” he suggested.
Captain Roland Iyayi, CEO of Topbrass Aviation, believes that the management of various airports in Nigeria should be concessioned, while an Airports Commission should be established to supervise such private concerns.
The number of domestic airports ought to be an advantage, according to Engineer Sani Baba, CEO of the Nigeria infrastructure advisory facility, HRS Sabbar, and former CEO of FAAN. “MMA will stop being viable if you close the domestic airports. Airports should be planned around passenger needs rather than political motives,” he said.
Stakeholders also suggest that government agencies like the Bureau of Public Enterprises (BPE), Infrastructure Concession & Regulatory Commission (ICRC), National Council on Privatisation (NCP), Nigerian Civil Aviation Authority (NCAA) and the Federal Ministry of Aviation should ensure transparency in any privatisation processes in order to attract more investors to the sector.


 

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