Investment in Air Transport Infrastructure

Guidance for developing private participation Infrastructure Transport Air Investment in Investment in Air Transport Infrastructure Guidance for developing private participation Mustafa Zakir Hussain, Editor With case studies prepared by Booz Allen Hamilton Investment in Air Transport Infrastructure Guidance for developing private participation Investment in Air Transport Infrastructure Guidance for developing private participation Mustafa Zakir Hussain, Editor With case studies prepared by Booz Allen Hamilton © 2010 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Direc- tors of the International Bank for Reconstruction and Development / The World Bank or the governments they represent. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. CONTENTS ACKNOWLEDGMENTS i ABBREVIATIONS AND ACRONYMS iii 1. PREFACE 1 Details of the Study 2 Structure of this Paper 3 2. OVERVIEW 5 A. SECTOR BACKGROUND 17 3. AIR TRANSPORT INFRASTRUCTURE SUPPLY AND DEMAND 19 The Nature of Air Transport Infrastructure 19 Supply of Airport and Air Navigation Services 21 Air Transport Demand 28 Other Developments in the Nature of ATI Demand 35 4. THE CHANGING ROLE OF GOVERNMENT 51 Introduction 51 Motivation for Government Provision of Air Transport Infrastructure 51 Constraints Faced By Governments 53 Literature Treatment of Government Failings 54 A New Allocation of Responsibilities 55 B. POLICY DESIGN FOR PRIVATE SECTOR PARTICIPATION 59 5. MOTIVATIONS, VISION, OBJECTIVES, AND PROCESS 61 Motivations for Reform and Vision for the Sector 61 Objectives of PSP Policies 63 Process, Planning, and Consultation 67 Analysis Required to Support Decision Making 70 6. ALTERNATIVE FORMS OF PSP 75 Introduction 75 A Detailed Spectrum of PSP 76 Relative Merits of Different Levels of PSP 82 Contemporary Models of Public Provision 83 Expected Gains from Ownership By Private Firms 85 Political Economy and the Assessment of Policy Sustainability 92 7. ECONOMIC ANALYSIS OF PSP POLICIES 95 Introduction 95 Project Finance 95 Responsibilities and Risks 99 Management Incentives 108 Transaction Advisory Support 115 8. MARKET, INSTITUTIONAL, AND REGULATORY REFORM 117 Market Structure 117 Institutional and Regulatory Reform 122 Other Institutional Arrangements 129 Optimal Regulatory Contracts 131 C. PERFORMANCE ASSESSMENTS, DIAGNOSTIC TOOL FOR POLICY MAKING, AND SUMMARY OF KEY MESSAGES 139 9. PERFORMANCE ASSESSMENTS 141 Introduction 141 Performance Assessments 152 10. DIAGNOSTIC TOOL FOR EARLY DECISION MAKING: SELECTING THE APPROPRIATE FORM OF PSP MODEL 153 11. SUMMARY OF KEY MESSAGES 157 APPENDIXES I. Case studies 163 II. Lessons from Case studies 219 BIBLIOGRAPHY 239 ACKNOWLEDGMENTS This study was produced by a task team led by Mustafa Zakir Hussain of the Finance Economics and Urban Development Department of the World Bank. Other principal team members included Oliver Hogan, Edward Clayton, and (during an earlier stage) Mike Fairbanks, all of Booz Allen Hamilton. This study was conceived by a group that included Ellis Juan and Doug- las Andrew (initial task team leader) of the Finance, Economics and Urban Development Department of the World Bank, together with Jyoti Shukla and Michael Schur of the Public-Private Infrastructure Advisory Facility (PPIAF). Tomas Serebrisky and Charles Schlumberger of the World Bank and Clemencia Torres de Mästle and Paul Reddel of PPIAF provided extensive peer review. Claire Markgraf worked tirelessly to support delivery of the final product. i ii ABBREVIATIONS AND ACRONYMS ACSA Airport Company of South Africa ADC Aéroports de Cameroun (Cameroon Airports) AdP Aéroports de Paris (Paris Airports) AdR Aeroporti di Roma (Rome Airports) AFD Agence Française de Développement (French Development Agency) AG The Airline Group AIA Athens International Airport ANS air navigation service ANSP air navigation service provider AOT Airports of Thailand APEC Asian Pacific Economic Cooperation ASA air services agreements ASECNA Agency for the Safety of Aerial Navigation in Africa ATC air traffic control ATCO air traffic control officer ATI air transport infrastructure ATM air traffic movements ATNS Air Traffic and Navigation Services Ltd. BA British Airways BAA British Airports Authority BICIC [a bank] bn billion BOOT build own operate transfer BOT build-operate-transfer CAA Civil Aviation Authority CEO chief executive officer iii CFA Camaroon Francs CPI consumer price index CP1 control period 1 CP2 control period 2 DBF design build finance DBFM design build finance maintain DBFOM design build finance operate maintain DBOO design build own operate DBOOT design build own operate transfer DFS Deutsche Flugsicherung DfT Department for Transport EBIT earnings before interest and taxes EBITDA earnings before interest, taxes, depreciation, and amortization EIB European Investment Bank FSC full-service carrier FY fiscal year GA general aviation GDP gross domestic product ICAO International Civil Aviation Organization IATA International Air Transport Association IPO initial public offering ISO International Standards Organization JAL Japan Airlines LAA Loa Airport Authority LCC low-cost carrier m million MALIAT Multilateral Agreement on the Liberalization of Air Transport Navigation NATS National Air Traffic Services NBV net book value OAA Open Aviation Area ORSNA Organismo Regulador del Sistema Nacional de Aeropuertos (Regulatory Agency of the National System of Airports) PPI Public-Private Infrastructure PPIAF Public-Private Infrastructure Advisory Facility PPP public-private partnership PSP private sector participation RPI retail price index SAA Shanghai Airport Authority iv SACL Sydney Airport Corporation Ltd. SCACHL Southern Cross Airports Corporation Holdings Ltd. SIA Shanghai International Airport Co., Ltd. SOE state-owned enterprise Stg sterling WLU workload unit v vi 1. PREFACE This paper discusses the development of appropriate private sector participation (PSP) to optimize the provision of air transport infrastructure (ATI). It�� is aimed primarily at government policy makers in low- and middle-income countries and their advisors. This paper answers a number of questions, including the following: When is it appropriate to allocate the responsibilities involved in ATI provision to private firms rather than con- tinue to allocate them to governments and their agencies? If policy makers decide to vest certain responsibilities with private firms, what considerations are important during this allocation process? How is it best to achieve the transition, and what kinds of private firms should be involved? Given the characteristics of an airport and the institutions supporting it, this paper goes on to answer a question often posed by policy makers: What forms of PSP can be considered? The paper offers a diagnostic tool to support initial decision making regarding the most appropriate PSP options in a given situation. The paper discusses the successes and failures of PSP to date and reviews their relation to the institutional and regulatory framework, the impact of the political climate, the form of privatization contract, project economics, market conditions, the interests of the international investment community, and the financial structuring of the transaction. The analysis attempts to remedy the lack of information sharing that has afflicted policy makers and to contribute important lessons by establishing a knowledge base. Experience of PSP has been influenced heavily by local conditions that make it difficult to generalize and apply findings. Many of the advances in PSP have taken place in the developed world, and there- fore, the body of evidence from which we can learn genuine good practice is driven by these nations. Nevertheless, the aim of this report is to col- 1 lect this information in one paper that then can be used to develop policies for middle- and lower-income countries. This study will point to effective formulations that should result in better allocations of resources, more effi- cient use and development of infrastructure, and

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