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Friday, 17 August 2012

A New Airport Infrastructure Fund

By Chola Mukanga

The National Airports Corporation (NACL) last week announced the introduction of an infrastructure development levy to be paid by all departing passengers at airports. All domestic passengers will pay around US$6. All international passengers will pay around $11. these charges are in addition to existing taxes and charges. The levy comes into effect on September 1, 2012.

That announcement is not entirely surprising. NACL has recently announced that it is planning to take forward significant redevelopment of Kenneth Kaunda International Airport over the next few years. A new terminal building designed for International arrivals and departures would replace the current facility at a cost of about US$200 million while aprons and taxiways would also be constructed and a new control tower would be developed. Apparently the plans are based on a $725,000 American funded study by the aviation consultancy group, Leigh Fischer Associates.

Those plans have been on the table for a long time. The only question then was where the $200m was going to coming from. Who will pay for these redevelopments? The latest airport charges answer that question. NACL of course were always going to make consumers pay for any development as soon as they learnt that Zimbabwe was doing it. Zimbabwe has recently 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 Zimbabwe fee sees 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.

I'll leave you to make what you will of the differences in the level of proposed infrastructure charges between Zambia and Zimbabwe. And yet, the problem is not the idea of the charge per se. It is an approach has some attraction, though given the complaints in the past regarding visa costs, perhaps such charges are not off the back of totally inelastic demand as we may want to think. No surprise then that when Zimbabwe announced it the Zimbabwe Tourism Authority lamented 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 data on the sensitivity of passenger demand to such changes.

Well Zambia has now gone down this route. The problem though is that the NACL announcement has come out of the blue and with no details about "ring fencing" of the funding. The idea is only good in so far as money collected is used for what it has been collected for and Government gives a full and transparent accounting of those funds including the competitive 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.

But instead we are left with open questions. What kind of government announces such a policy without consulting the people? We all have many questions - why 1st September? How will this infrastructure fund work? On what? By who? Why $6 and $11? How much will actually be raised? Is there a sunset clause? How do we know the money is going to be spent properly? The Parliament Committee on Transport should immediately call a hearing into this policy and take evidence from NACL and the public. Ordinary Zambians deserve to know on what basis this policy has been taken forward. When are these MPs going to start doing their job and hold government to account?

Then there other serious concerns about NACL. Aviation demand in Zambia has been growing reaching 1.2m in 2011 across the four international airports. Led really by the international passengers traffic segment which accounted for 1m passengers, having grown by 17% in 2011 figures. And yet, this has happened not because of NACL but in-spite of a disorganised and corrupt NACL. Until the NACL problem is resolved the dream of the long promised “regional hub” remains a pipe dream. 

Financially, NACL is corrupt, mismanaged and 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 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 also identified 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....."
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. We are told this may happen soon. 

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. Pouring more infrastructure charges is not the long term solution to our problems. We need to go back to the drawing board and sort out the deep structural and corruption difficulties.  

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. Just let the private sector to build and own the airplane stations. One wonders why the Turkish company was stopped from rebuilding the Lusaka airport. Honestly I am sick and tired of these clueless Zambian govts.


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