New entity proposed for state airport assets (1052 words)

Published: 7/10/2001

The long awaited and discussed restructuring proposal for the Ministry of State Property's runways assets at Moscow's airports appears to have finally materialized with the announcement by the ministry that they have submitted a plan to the government for the creation of a GUP (state unitary enterprise) to control state property in Moscow's airports as a pilot for similar holdings elsewhere in the country. The announcement comes after various reports as to the future of the state's airport assets. The strongest proposal being at the end of 1999, when an order was actually issued on FSVT recommendation, that Domodedovo's East Line Group would take control of state assets at Vnukovo along with those of Domodedovo, as the managers of an earlier GUP, Administration of Moscow Airports, a unified Moscow airport operator. The recommendation came from an FSVT report responding to a government enquiry as to what should be done with the Vnukovo assets. The proposed transfer was later blocked in the Moscow Arbitrage Court by the management of Vnukovo amidst considerable confusion at the FSVT as to who had made and approved the transfer proposal in the first place. The most recently proposed airport holding GUP will control the state's property at 3 Moscow airports - Domodedovo, Sheremetyevo, and Vnukovo and as previously discussed if it proves to be successful the structure will used to incorporate all the state's many airport assets. The basket of assets represents primarily runways left after privatisation of the airports that under Russian law could not be privatised. The state therefore in principle derives revenue for the use of state property by the airports or more correctly the airlines, that in Moscow according to the ministry, amounted to revenues of $50 m a year. The ministry's view however, is that the airports while taking the fees are not re investing them in the state's assets due to the fact they do not own them, and the GUP's role is to address the problem by collecting the revenues for specific use according to the ministry. The ministry's case however, that the airports are neglecting runways is however, not entirely proven, lack of government funding has meant that airport operators have had to commit investment to maintenance and improvements of runways. Such as the $6.7m Sheremetyevo reports it spent on runways in 2000. Whether this represents a match for the revenue the airport derived from runway fees however, is less clear if the ministry's estimate of revenues from runways for Moscow are $50m. It does suggest that revenue may not be matched by expenditure. Elsewhere particularly outside of Moscow, most government support for airports has come fromm the regional or local governments, although the Federal authorities have recently announced specific help for key airports particularly in Siberia including Tolmochevo Airport in Novosibirsk. Any changes in the current revenue arrangements, as they appear to deprive the airports of revenue, are therefore not likely to be greeted by airports or local government with any enthusiasm. The Deputy Minister of State Property Sergey Molozhavy however, believes that as the tariffs will now be standardised under the GUP, no individual airport will have a price advantage and use by carriers will be down to quality of service encouraging a lifting of standards across the sector. The decision to start with Moscow according to the ministry, was the fact that the market was already competitive and that competition had meant that fees charged for the use of state assets were 55% below the national average reflecting the competition between the airports to attract carriers. The state however, wants to increase rates by at least 30% as its has done at St Petersburg's Pulkovo Airport, with the expectation that the increased revenue can be used by the GUP to finance the state's airport assets. The changes if they are adopted, are going to be particularly unpopular with airport's such as Domodoedovo, that are currently trying to entice carriers away from Shermetyevo through a combination of better facilites and lower costs. To achieve a standardized charge, the Ministry of State Property wants the Ministry of Anti-Monopoly Policy to set a fixed fee for all airport runway use by airlines, the fee to be collected by the airports on behalf of the GUP. The Ministry of Property then wants the fees to be invested by the GUP in the maintenance and improvement of the state's assets at airports, with the objective of upgrading and replacing both runways and equipment. According to the GSGA's report for 2000 34 airports were in urgent replacement of the lighting and signalling equipment, in addition to runway reconstruction and other infrastructure. The Ministry of Transport has also recognised the need for greater investment in Russian airports. Sergei Frank, the Minister of Transport, is currently pushing a plan for Russia to spend 4.9 trillion ($160 bn) between 2002 and 2010 improving the country's roads, railways, airports, ports and urban transport systems. In the civil aviation sector, working in conjunction with the private sector, the ministry however, only envisions spending a rather paltry Rb 29.4 bn ($1 bn) by 2010. It's goal s however, are significantly greater than expenditure with plans for large increases in passenger capacity at major regional airports, build 52 new runways, taxiways and tarmacs and put 923 new Russian-made aircraft into operation. Frank as with other commentators realises that the system has started to show signs of cracking under the strong growth in passenger numbers and that considerable investment is required to meet the expected increase in passengers of 62.8% expected by the ministry by 2010. It would appear however, that he expects the private sector to shoulder much of the cost, in a policy move that appears to run somewhat contrary to the Ministry of State Property's GUP proposal, that rather than motivating airports to develop facilities independently, leaves much of the decision to the politicians. It therefore remains unclear whether this proposal will really answer the problem it was developed to address. The continued development of airport infrastructure. If the state takes the role proposed, it is difficult to see exactly how the private sector can be persuaded to invest without meaningful returns or access to ownership. Indeed the same issues that blighted the issue two years ago and from recent announcements, are no closer to resolution.

Article ID: 2635