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Airports for Concession, Not Privatisation

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John Ojikutu

The Honourable Minister of State for Aviation has recently briefed the public and industry stakeholders of government plans to concede certain airports to private investors as part of larger plans to privatise some public enterprises. Following the Honourable Minister’s briefings, there have been some emotional reactions from the public and more too from aviation stakeholders who ordinarily should be better informed of what has, over the years, been the financial travails of the sector but yet find the government plans of airport concession unacceptable.

The government probably decided on concession and privatisation or outright sale because of the failed commercialisation of most public sector services and enterprises. There were public enterprises that were fully commercialised like the NLG and the refineries which were expected to operate as profit-making commercial ventures without any subsidies from the government. These are expected to raise funds from the capital market for capital projects without a government guarantee and were expected to use private-sector procedures in running their businesses.

There were other enterprises like FAAN and NAMA which were partially commercialised and were expected to cover their operational costs from their internally generated revenues (IGR). This category of enterprises enjoyed grants from the government to finance their capital projects, just as the federal government had done in the past for them with the ₦19.5 billion aviation intervention fund in 2007, the grant of about $200 million from the BASA fund for the refurbishment of some airports, and the $500 million loan from China for the redevelopment of the major international airports.

Using the air traffic and passenger traffic statistics of 2014-15, the expected yearly revenue from FAAN in particular, whose facilities are planned for concession, is reported to be about N65 billion from both aeronautical (N61.5 billion) and non-aeronautical (N4.5 billion) sources. However, the chunks of revenue earnings generated have not substantially impacted on the airport infrastructures and services. For instance MMA alone that is reported to be generating about ₦2 billion monthly is worth more than ₦3 billion monthly or ₦36 billion ($100 million annually) in earnings from passenger service charge aircraft landing and parking, on both international and domestic traffic and various concession on non aeronautical services within and around the airport. Unfortunately, the airport does enjoy up to 5% of the revenue for the periodic maintenance of the airport infrastructure and services. If MMA is given out for concession today in the global market, it could generate conservatively about ₦110 billion ($300 milliom). Today the total IGR earnings on the twenty international airports is less than ₦70 billion ($190 million).

The problems of government enterprises in the sector are largely caused by the incessant huge debts of the domestic airline operators to the public operators and weak accountability of the regulator particularly of the NCAA, which has the critical role to play in checking the excesses of both the airlines’ operators and the public operators FAAN and NAMA.

The Nigerian aviation sector is just one of the three major means of transportation, providing air transport services to less than 10 million Nigerians, compared to the road and rail providing transportation services for over 60 million Nigerians annually. Air services enjoy government patronage the most, with various forms of intervention, grants, and guaranteed loans. All these are in addition to the huge revenues generated that have not significantly developed or improved the airports’ infrastructure and facilities for sustaining safe air operations. There has been no efficient and effective oversight by the responsible authority to ensure that the sector in the last sixteen years complied with a five-year budget plan as required by the Nigerian Civil Aviation Regulations 2006, Part 18.10.5.

What has developed over the years in the industry is a mixed system, one of partial commercialisation, where the government injects subsidies or intervention funds into the public enterprises, and full commercialisation, where the government gives autonomy to some public enterprises in the sector. What the government plans to develop now, and what is developing worldwide, is privatisation and concession, where the government extends partnerships to private enterprises and investors to develop the sector. This is a concept that is being adopted by most developing countries whose aviation infrastructures are expanding fast but whose development funds are limited, as with our own case. Most countries are finding it a positive advantage to adopt the policies of public-private partnership (PPP), full commercialisation, and concession of public enterprises. These options offer government savings for other social sectors of the economy and reduce unnecessary costs and duplication of efforts.

Privatisation or outright sale of public enterprises to private investors in Nigeria, as articulated by a Social group in 1988 as part of Structural Adjustment Programme (SAP), could be emotive and controversial “Privatisation is a means of exposing public enterprises to private investors or bringing private ownership, control and management into public enterprises. The objective is to increase productivity and efficiency, and to improving the financial health of the public enterprises with sufficient savings for the government from the suspended government subsidies.”

Broadly defined, privatisation could include concession and all forms of PPP; but if narrowly defined, it would exclude concession and could mean outright sales. However, whatever definition is being applied, the objective is securing private investors’ management and operational expertise and investment, Similar to the MM2 concession to Bi-Courtney.

It still seems to some stakeholders that the concession of MM2 was shrouded in some kind of executive secrecy. The government, therefore, needs to assure stakeholders that the planned concession is with better intentions. Generally, there are three key features of a concession. Firstly, it does not involve the sale or transfer of ownership of physical assets, only the right to use the assets and operate the enterprise. Secondly, agreements are for a limited period of time, up to or less than thirty years depending on the context, content, and sector. Thirdly, the government, the owner of the assets must retain much involvement on the oversight in the concession through regulatory agencies.

It is expected that whatever the government would give out for concession would be well defined along these three features in order to avoid the pitfalls of past attempts. The government must bear in mind existing agreements or concessions with the Chinese government on the development of the four airports of Lagos, Port Harcourt, Abuja, and Kano, ditto with similar agreements with Bi-Courtney. The government must also be mindful of the fact that about twelve out of about twenty federal airports are joint users with the military, these include the international airports.

The government should be very clear in its plan as to what assets or infrastructure it would give for concession without disrupting the agreements with existing private operators and joint-users arrangements with the military. The plan for airport concession now should not include those aeronautical infrastructures, facilities, and systems that are necessary and critical for the conduct of flight operations, rescue operations, emergency management services, airport security systems, and national security. These are the state’s responsibility and mandatory obligatory functions to the ICAO as contained in various annexes to the Chicago Convention, essentially on aerodrome standards, air traffic control services, and airport security and so on. All these could be fully commercialized, as they are the practices elsewhere. The concession, on the other hand, should not be different from the one between the government and Bi-Courtney, and essentially for non-aeronautical infrastructural facilities and services which includes operations and management of the passenger, cargo terminal buildings and the handling facilities; aircraft parking areas with handling facilities, car, trucks, parks and toll gates.

All aeronautical facilities that are left in FAAN’s assets after the concession of non-aeronautical facilities could be merged with NAMA assets. Runways, taxiways and their associated lighting, and emergency and rescue management systems could remain part of the universal air traffic services systems. NAMA could, therefore, be fully commercialised like the ATNS of South Africa. FAAN, on the other hand, should function as a commercial holding company to oversee the management of the airports under concession.

The government should ensure that future management of the remaining domestic airports is included in the concession plans. In other words, none of these domestic airports should be left behind; otherwise, the initial reasons for the concession would be defeated. Therefore, for every international airport terminal available for concession to a company, three to four of the domestic airports should be given along with the concession.

The concession of airports, like that of the seaports in 2006, will increase capacity, invariably increasing air, passenger, and cargo traffic. It will reduce budget allocations to airports and increase revenue generation. The ports’ concession increased the capacity by over 300%; the cargo has increased from 7 million tons to about 25 million tons, and it has reduced budget allocations but has increased port revenue generation.

In addition to all these, the government should concern itself with the designing of achievable policies and programmes that would enable it to meet contemporary visions for the industry in this twenty-first century. Such policies should ensure that the responsible aviation authority provides the baseline for implementation of the concession, and the investors provide regular business plans every five years to meet the requirements of the Nigerian Civil Aviation Regulations, 2006, Part 18.10.5. The first-line approach is to ask: has the NCAA been ensuring that Bi-Courtney Airport Services complied regularly with the NCAR provision?

(Group Captain John Ojikutu (rtd) is an Aviation Security Consultant and Secretary General of the Aviation Safety Round Table Initiative)

This opinion article was written in May, 2016.

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AIB-N, NAF Collaborate for Improved Air Safety

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 Group Capt. B. A . Usman and COMM/CEO, Engr. Akin Olateru, at AIB Head office, Abuja.

Accident Investigation Bureau Nigeria (AIB-N), has reiterated its commitment to maintaining partnership and institutional collaboration with the Nigerian Airforce (NAF).

This is part of its drive to ensure sustainable cooperation with relevant authorities for safer airspace in Nigeria.

The Commissioner AIB, Mr Akin Olateru, who stated this while receiving the newly appointed Abuja Military Airport Commandant, Group Capt. B. A. Usman says the NAF had the Bureau’s full support and cooperation in ensuring air safety in the country.

He disclosed that AIB-N, as a government agency, has a strong relationship with the NAF, which was sealed with a pact between the two government establishments.

“AIB-N cannot do it alone. A strong collaboration must exist among relevant agencies in order to ensure the continuous safety of the Nigerian air space,” the Commissioner said.

While soliciting the Bureau’s support, Group Capt. Usman said, his team were seeking ways to consolidate the existing synergy between the agencies to ensure maximum safety and security within and outside the airport’s environment.

The Commandant further urged the Bureau not to hesitate to call NAF in times of distress, assuring the Bureau of readiness of a rapid response at all times

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DEFINING A NATIONAL SELF INTEREST-LESSONS FROM A BASA AGREEMENT GONE SOUR

By Tunde Adeniji

The DG NCAA Captain Musa Nuhu recently issued a Press release, conveying the decision of the Honourable Minister of Aviation Sen. Sirika Hadi to replace the operating schedule approval for 21 frequencies/week given to Emirates airlines with 1 weekly Frequency. He had relied on the spirit and letter of the Bilateral Services Agreement (BASA) between the two countries in responding to the single slots weekly offered to Air Peace at Sharjah Airport. The DG’s letter ended with his assurance to members of the public that national interests in all Aviation matters will be jealously protected.

The Aviation Policy and Strategic group discussed the fallout from this decision exhaustively, deconstructing the issues involved, even as its erudite members put forward many good suggestions about how to proceed. The engagements have been rich and enlightening and our intention in contributing to this discourse is to focus on the need to define a National Self Interest in a robust policy framework to guide future BASA/external Aviation relations engagements.

This need is justified based on our experience as a Nation which seems to suggest that we may be haunted yet again by the many decision makers who fell into the trap described below by Jon Moen:

“People who are managing a (financial or economic) crisis are not immune from personal motivations…Sometimes the people in charge don’t know at first that their personal motivations and past experiences might not be compatible with what is best for the greater good.”

We view National Self Interest ‘’As the overriding purpose governing the state’s relationship with the outside world, it serves two purposes. It gives policy a general orientation towards the external environment. More importantly, it serves as the controlling criterion of choice in immediate situations. The dominant view of national interest, in other words, dictates the nature of a state’s long-term effort in foreign policy and governs what it does in a short-term context’’.

The concept of Bilateral Air Services Agreement (BASA) is the outcome of the compromise between the Open Skies advocacy of the US and the strong opposition by the UK and European countries, as a protection from their inability to compete with the formidable dominance of the US in post WW2 world. The delegates at the Chicago convention therefore agreed to a regime that allowed every country complete and exclusive sovereignty over its airspace with the provision that permissions were to be negotiated between contracting states on a bilateral basis. There are at least three different models of BASA, with varying levels of liberality, as may be agreed by the parties to it. We may therefore consider is a contract that should be mutually negotiated like any other

Slots on the other hand ‘’is the most emotive subject in civil aviation. It is the approval from an appropriate authority to take off at a particular time at one airport and land at its destination at another time. The difficulty arises in so called coordinated airports i.e., congested airports where there are severe capacity limits at certain times of the day. It subsequently dictates the difference between operating a route or not’’-D.H. Bunker

The Adam Smith model of Self-interest as the motivator of economic activity with competition as regulator to ensure the market runs efficiently without intervention, is situated below:

“It is not from the benevolence (kindness) of the government (of UAE), Its flag carrier (Emirates), or Airport (Sharjah) that we expect access to Air Peace, but from their regard to their own interest.”

It is important to state at the outset that the self-interest we advocate is (in the words of Lauren Hall) consistent with the demands of justice and becomes the germ from which virtuous, fair behaviour grows, to drive the larger economic engine of society.

In clear economic terms slots represents a barrier to entry and airlines awarded slots benefit from an economic rent. A system established to ensure stability has slowly become the property of the airlines. Slots are sold at a remarkable premium or used as a tool to exert unfair competitive pressures. It has been reported that many European countries who oppose the sale of slots, do so on the principle that, a private firm cannot benefit from a public good (Mackay 2008)

The decision to operate slot system or not remain those of the relevant airport and can be considered “its own internal cuisine‘’ just as ‘’A country’s motivation is its own concern, but the righteousness of its actions is the concern of all’’.

Nigeria like other states deliberately follow certain policies in pursuit of their national interest. The current face off with UAE, shows clearly that we have been a bit too eager to give than to receive or at least gave out before we received.

Our BASA is seemingly driven by the needs and ease of other countries. We have offered multiple entry points to countries, even where our own carriers have faced issues with slots for decades. These incongruities have never been convincingly explained to operators and other stakeholders

We have a unique opportunity to review our thinking and position in this area, especially as our slow adoption of Single African Air Transport Market (SSATM) and African Continental Free Trade Areas (AfCFTA) is totally in sharp contrast to our rush to embrace these dominant international brands

Our policies can start by ensuring that the investment by Nigerian carriers is complimented by access to the best of our facilities as no other country will ever offer them same.

A crisis, they say, is a terrible thing to waste, and so we suggest  that the minimum positive outcome from this saga should be a comprehensive policy paper that will spell out in clear terms, how Nigeria will take actions that will reduce to the barest costs and increase to maximum  benefits its engagements to further our National Aviation Interests.

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NiMet warns of Imminent Temperature Across Northern States

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The Nigerian Meteorological Agency (NiMet) has in its ‘High-temperature outlook’ issued yesterday in Abuja predicted that most parts of the northern region will experience temperatures greater than 35°C and less than 40°C between November 30 and December 1. Pervade

It also stated that northeast – Borno, Yobe, Bauchi, Gombe, the eastern part of Jigawa, Northern Adamawa, and Northern Taraba are all expected to have temperatures in the excess of 35°C.

Similarly, Sokoto, the western part of Zamfara, and the Eastern half of Kebbi, in the North East, are all expected to experience temperatures in the excess of 35°C during the forecast period.

In the central part of the country, Niger, Northern part of Kwara, west of FCT, southern Plateau, northeast of Kogi, and northwest of Benue are all expected to experience high temperatures.

In its forecast for December 1, the agency predicted high-temperature greater than 40°C over parts of Niger State.

However, other parts of Niger, FCT, northern Kwara, Kogi, Benue, Nasarawa, and eastern Plateau in the central states are expected to experience temperatures above 35°C.

Similarly, Sokoto, Kebbi, and Zamfara in the northwest as well as northern Jigawa,  southern Yobe, Borno, Gombe, eastern Bauchi, northern Adamawa, and northern  Taraba in the northeast is expected to record temperatures greater than 35°C.

Also, parts of Ogun State in the southwest could experience 35°C.

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