Asian Development Bank Tar:Fij 35493
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ASIAN DEVELOPMENT BANK TAR:FIJ 35493 TECHNICAL ASSISTANCE (Financed by the Japan Special Fund) TO THE REPUBLIC OF THE FIJI ISLANDS FOR PREPARING THE CIVIL AVIATION AND AIRPORTS IMPROVEMENT PROJECT April 2003 CURRENCY EQUIVALENTS (as of 14 March 2003) Currency Unit – Fiji Dollar (F$) F$1.00 = US$0.50 US$1.00 = F$2.00 ABBREVIATIONS AFL – Airports Fiji, Limited CAAFI – Civil Aviation Authority of Fiji Islands GCC – Government Commercial Company GDP – gross domestic product MOFPT – Ministry of Finance, Planning, and Telecommunications MOTCA – Ministry of Transport and Civil Aviation MPAF – Maritime and Port Authority of Fiji MPE – Ministry of Public Enterprises NOTE The Fiji dollar is linked to a weighted basket of currencies of the country’s major trading partners. This report was prepared by S. Jarvenpaa, Pacific Operations Division. I. INTRODUCTION 1. The Government of the Fiji Islands (the Government) has requested support from the Asian Development Bank (ADB) for a technical assistance (TA) to prepare a civil aviation and airports improvement project. 2. Fact-finding for the TA was conducted in December 2002. The Fact-Finding Mission reached understandings with the Government and its agencies; Civil Aviation Authority of Fiji Islands (CAAFI); and Airports Fiji, Limited (AFL) on the TA objectives, scope, cost estimates, financing plan, implementation arrangements, and terms of reference for the consultant services. These are recorded in a memorandum of understanding. The TA is included in ADB’s 2003 country strategy and program update for the Fiji Islands.1 This TA report was prepared based on the Mission's observations in the field and discussions with the Government and its agencies. II. ISSUES 3. Transport in the Fiji Islands is well developed and consists of road, maritime, rail, and air modes of transport. The gateway international airport is at Nadi, with regional air traffic handled by the Nausori airport near Suva. Domestic aviation infrastructure includes 18 airports. 4. The Fiji Islands’ economy relies primarily on tourism, agriculture, and manufacturing. Tourism is the primary source of growth and export income earnings. About 496,000 people visited the Fiji Islands in 2001, with 85% of these tourists, 5% business visitors, and the rest related to education and family visits. Visits to the Fiji Islands have grown by an annual average of 9% since 1961, and 5% since 1990. While the visits declined considerably in consequence of the two coups d’etat, in 1987 and 2000, the long-term annual visitor growth has remained at 5% for the past decade. Tourism also contributes about 20% to employment (or about 40,000 jobs) and 17% of gross domestic product (GDP), more than any other single industry. Over the years, the receipts from tourism have helped to reduce the impact of the trade deficits, contributing thus to the positive current account positions and stability of the local currency. 5. In its Strategic Development Plan (2003–2005) and 20–year Development Plan (2001– 2020), the Government consistently emphasizes its proactive approach to increasing tourism income through programs that support tourism development, including (i) implementing the current Tourism Development Plan 1998–2005; (ii) establishing new training facilities for tourism services; (iii) supporting private investments in the sector; and (iv) most importantly, attracting additional flights to new and existing markets. These documents emphasize the impact of tourism on poverty reduction through micro-business and employment. 6. The transport infrastructure and management, particularly the aviation facilities, are crucial for the Fiji Islands’ competitiveness as a tourist destination. Tourism is forecast to drive GDP growth under the Government’s medium-term development scenario, with tourist arrivals expected to exceed 500,000 in 2003 and double by the end of the decade. Through the secondary tourism activities, the Government has concluded that improvement in tourism catalyzes far-reaching positive impacts that are crucial for poverty reduction and improvement of welfare in the Fiji Islands. 7. The Government, however, has recognized that aviation facilities, particularly the airport infrastructure, constrains the development of tourism. Nadi International Airport, capable of 1 The TA first appeared in Asian Development Bank Business Opportunities (Internet version) on 17 December 2002. 2 handling 747s, is an international gateway to the Fiji Islands. Nausori airport—a second international entry point and critical for domestic and regional traffic—is capable of handling 737s. The national carrier, Air Pacific, Qantas, Air New Zealand, and Korean Airlines land at Nadi airport, with domestic air services provided by Air Fiji and Sunflower Airlines. These airlines are planning aircraft upgrades in response to their business growth. Aircraft movements in Nadi numbered 42,282 in 1999, with 54% domestic; 19% international; and 27% private, military, freight, and training flights. The cargo traffic amounted to 20,000 tons in 2000. In 2002, 1.2 million passengers transited through the Nadi airport; 85% of them were international passengers. While the passenger traffic and cargo handled at Nadi airport declined as a result of the political events of May 2000, passenger arrivals bounced back in 2001 and 2002. The Strategic Development Plan provides a policy framework for upgrading the aviation and airport sector infrastructure and management to meet international standards and practices. 8. The 2002 masterplan for Nadi airport forecast the long-term (20 year) increase of the international and domestic passenger at 5% and 3% per annum, respectively. The forecast correlates growth in air cargoes with the national GDP, and these are projected to grow by 3.5% per annum. The international aircraft movements are forecast to grow by 7% per annum. Australia, New Zealand, and United States continue to be the main origins of passenger traffic to the Fiji Islands, and the demand for airport services relies on developments in these economies. The Nausori airport handled 190,000 domestic passengers in 2002, and this is forecast to grow by 4% per annum. Nausori airport also serviced a small number (24,000) of international passengers. 9. The airport terminals at Nadi and Nausori were built in the 1960s and are having difficulties handling the current aircraft traffic. The facilities do not provide services at international standards. Space required for airport operations at Nadi and Nausori airports exceeds that available; by 2009, 53% more space will be required at Nadi and 131% at Nausori airports. In addition to the forecast air traffic growth, both airports could increase their income from retail businesses, which would increase employment and contribute to poverty reduction. The Fiji Islands National Transport Plan and its 2001 review and policy update detail the need to examine the condition of the current airport facilities including the adequacy of the international and domestic runways, ground handling facilities, air terminals, and sector organization. The aviation industry has expressed the need to assess the runway conditions. 10. The Fiji Islands has 16 domestic public and 2 privately owned airports. The public airports have been maintained only on an ad hoc basis. The facilities cannot serve high-end or high volume traffic. Funding for maintenance is insufficient and has not been disbursed in full. Increased user charges and community engagement in the maintenance could help improve the maintenance conditions. As a part of the TA, the Government will assess (i) domestic airport conditions; (ii) traffic and demand forecasts; (iii) contracting arrangements for air services and for infrastructure maintenance; (iv) the regulatory framework for the domestic aviation, cost recovery, and landing charges; and (v) effective strategies for providing remote air transport. 11. In April 1999, self-funding airport operations of the Government’s statutory authority, the Civil Aviation Authority of Fiji, were reorganized into operational functions of Airports Fiji, Limited (AFL).2 AFL was established as a state-owned commercial entity with merit- and market-based personnel policies and powers to propose, set, and collect fees. AFL reports on the achievement of its performance indicators to the Ministry of Finance and Planning and the Ministry of Public Enterprises (MPE), representing the government shareholding. The civil 2 Reorganization Charter approved in February 1998 under Public Enterprise Act 1995. 3 authority’s regulatory functions were allocated to the new Civil Aviation Authority of Fiji Islands (CAAFI). The Government’s obligations under international aviation conventions remained a responsibility of the Ministry of Transport and Civil Aviation (MOTCA). Additionally, the Airport Terminal Services, 51% owned by CAAFI and 49% by the employers, provides ground handling services at the Nadi airport. 12. MOTCA is responsible for the legal framework of the sector, traffic rights, conventions, and treaties including relations with international agencies. CAAFI became responsible for personnel, operator certification and licensing, aircraft airworthiness certification, and meeting the Fiji Islands’ obligations under international aviation conventions. AFL is licensed by the Government3 to (i) manage air traffic services in the Fiji Islands’ flight information region; (ii) operate, maintain, and manage the 16 public airports, including the 2 international airports; and