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Thursday, 23 February 2012

Reflections on delivering new airport infrastructure

By Chola Mukanga

The amount of aviation passengers in 2011 reached 1.22m  across the four international airports. International passengers were 0.99m up by 17% on 2010 figures. Domestic passengers were 0.23m up by 11% on 2010 figures. Naturally, KK (Lusaka) accounts for the larger share of traffic (65%) but it is also encouraging to see SMK (Ndola) growing by 25% over the year, with equal share of traffic as HMK (Livingstone). Clearly SMK has benefited from increase in the international segment, driven by introduction of direct flights by both South Africa Airways and Kenya Airways.

Interestingly, the NACL’s focus has all been on pouring money in HMK. US$7.5m spent there for terminal development and already looking for an additional $5.1m arrivals hall and car parking facilities. The strategy for SMK is less clear, but with a dysfunctional NACL at the helm that might continue. Indeed, we may say that those aviation is growing the dream of the long promised “regional hub” remains a pipe dream. The first-order problem our aviation faces is structurally. The second-order problem is financial. Let’s take these in reverse.

Financially, NACL is corrupt, mismanaged and it is broke. A 2005 report of the Auditor General had some very shocking things to say about NACL. It noted the non declaration of dividends and non payment of taxes by the Corporation due to its poor financial performance. Mention was also made of the poor liquidity position, increased cost of borrowing, irregular payment of bonuses, outstanding pensions and failure to follow tender procedures among others.

The last review undertaken in 2009 revealed that NACL continues to be a poorly run organisation whose position regresses with every AG report. Between 2007 and 2009 NACL recorded a staggering loss of K20bn. The review period also irregular payments galore. The AG observed : "Forty nine (49) payment vouchers in amounts totalling K241,442,834 and four (4) payment vouchers in amounts totalling US$16,308.28 were inadequately supported in that they lacked receipts, acquittal sheets or other supporting documents".  It's procurement practices are particularly shocking.  The AG report observed, "On 3rd April 2008 NACL awarded a tender for the supply, delivery, installation, testing and commissioning of 800 KVA Three Phase 50Hz 1500 RPM Standby Generator Set at Lusaka International Airport to Sulmach Limited at a contract price of K1,410,000,000 with a delivery period of twenty (20) weeks. Works commenced on 14th May 2008 and were scheduled to be completed by 15th October 2008. A total of K1,142,003,600 (inclusive of an advance payment of K846,000,000) representing 80% of the contract price had been paid to the contractor as of August 2009 leaving a balance of K267,996,400 outstanding.....". A physical verification of the civil works carried out in August 2009, revealed that construction works had stalled as shown in the picture below and the contractor was not on site.

Simply put, the current leadership of NACL is not equipped to transform aviation in the country. Unfortunately, leadership change alone is insufficient, unless it is accompanied with a radical aviation policy that is built on more competitive airport landscape than is currently obtaining.

The obvious solution to the financial mess is to break up ownership of these airports and allow them to compete. Separate ownership will provide better incentive for improvement in service and so forth. The Chinese model for deregulation of airports started with handing them over to local authorities. I am not sure how that would work in our context (local councils suffer from corruption problems) but NACL has failed to deliver and we should now be thinking creatively around this. One potential sequence for restructuring is to follow the following steps : 

Step 1: Government restructures the Department of Civil Aviation into a properly independent industry wide regulator. This would in the tradition of civil aviation regulators world wide.

Step 2: We restructure NACL so that it becomes a company just like any - non of this “code” commercialisation. Proper restructuring we have heard is happening but without tangible results.

Step 3: Devolve ownership of the various airports to the relevant local authority with central government owning 50% and let them compete and attract players (This is very much the Chinese model).

Step 4: Move towards full liberalisation with private sector able to bid and own these airports.

The above could be a viable road map, where how much time is spent on each stage would depend on the progress made.

The alternative is to look to Zimbabwe and other countries experimenting with innovative ways of infrastructure funding for aviation. Recently Zimbabwe has moved to put in a place a new levy for air travellers dubbed the Aviation Infrastructure Development Fund levy to raise money to rehabilitate infrastructure. The fee sees basically domestic passengers paying US$5 while international travelers fork out US$20. The Harare government estimates this will raise US$400m, but that must be predicated on the assumption that demand is fairly inelastic.

It is an approach I am tempted to share, though given the complaints in the past regarding visa costs, perhaps such charges are not off the back of inelastic demand as we may think. No surprise then that the Zimbabwe Tourism Authority also lament that the new levy will reduce demand because passengers already pay airport service fees. This is a classic short term versus long term argument. Clearly a better infrastructure attracts tourists. You can’t have a successful tourism policy without infrastructure. So getting the charges right is key – and a key part of that is good date on how sensitive demand is to such changes.

If Zambia does go down this route, it would be important that such funding is “ring fenced”. The idea is only good in so far money collected is used for what it has been collected for and Government gives a full and transparent accounting of those funds including the competitve bidding process for the construction to be done. Crucially, there should also be a "sunset clause" for when these user fees would be stopped. That is to say when the projects  would be complete and have been fully paid for. Government around the world have used these mechanism but for it to work in Zambia it must be undertaken with maximum transparency.

Chola Mukanga is an economist and founder of the Zambian Economist which provides independent economic perspectives on Zambia's progress towards meaningful development for her people

Copyright: Zambian Economist, 2013

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1 comment:

  1. I first used Ndola Airport in 1994 and last time was just before Christmas 2011. The only change is the name. You still queue in a small hot arrival's hall and the bags are delivered using a tractor. The passenger handling infrastructure is simply not fit for purpose. It worked as an RAF airbase but not to handle passengers in 2012.


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