Pilot entity should ultimately lead to improvements in service and facilities, although airports will be sorry to give up revenues (680 words)

Published: 10/18/2001

After much discussion, the Russian government has finally created the body to control state property at the capital's airports, with earlier indications that ownership should be shared with the airports apparently having fallen by the wayside. The new body, entitled GUP (State Unitary Enterprise) Administration of Civil Airports, was established on 16th October 2001 to take control of the State's holdings, primarily runways and taxiways, that were not privatised with other airport assets, at Moscow's airports, Sheremetyevo, Domodedovo, Vnukovo and Bykovo, and could potentially become the basis of national authority. The creation of the new body is the result of talks that have been going on since early 1999, following a request by the Presidential Administration for a review of the state's holdings at Vnukovo in November that year. This review reportedly proposed that the administration of Domodedovo Airport, controlled by East Line, could potentially incorporate all the Federal assets in Moscow's airports in a new FGUP (Federal State Unitary Enterprise) on the state's behalf. The most recent developments follow recommendations submitted in July 2001 to the government by the Ministry of Transportation, the Ministry of Property and the Ministry of Economics and Trade Development. The holding of the new entity primarily constitutes those assets whose sale was prohibited by law when the Moscow airports were privatised and are made up mainly of runways and taxiways. Revenue has, however, accrued to the airports although users have been charged a specific fee for the use of the state's assets. It is this factor particularly that has been the primary motivation for the government to resolve the lingering problem of how the revenues are deployed. The Ministry of Transportation's GSGA and its predecessor, the FSVT, have long contended that the revenues of $50m a year were accruing to the airports but were not being spent on preserving and improving the state's assets in the airport's infrastructure. The airports, however, argue that the importance of the runways to the operation of their business has often meant that they have had to find resources to maintain the state's assets, when the state has been reluctant or unable to provide funding. According to Sheremetyevo Airport, in 2000, it spent around Rb190 m ($6.7m) on the rebuilding state assets at the airport. East Line Group, that controls Domodedovo Airport, reconstructed the airport without any state financial support. The situation is repeated across Russia, where most airports receive assistance from local government rather than Federal, in order to upgrade or maintain runways. Despite the claims of lack of government assistance, it is still unlikely that the airports will be very pleased about the loss of the revenue from runway use, which will now be paid directly to the GUP. The new entity does, however, mean that there will be a unified tariff structure for use of the GUP's assets. This should have the effect of penalising substandard airport operators and supporting good management, given that service and facilities will become the key distinguishing features between airports, as opposed to whether or not the airport collected fees for the use of the tarmac. With this in mind, Sergey Molozhavy, Deputy Minister of Property, is optimistic that the new structure should generally improve the quality of service to passengers. Currently, Moscow airports charge fees that are 55% below the average given that, historically for the three international airports in Moscow to compete against each other, the reduction of the charges was considered an easy way of bringing down overall costs. The state, however, has made it clear that the charges are too low and they will be increased under the new regime. According to Alexander Borodin from the Ministry of Property, all revenues earned by the new entity will be reinvested in the airport infrastructure, although no revenues are expected until March 2002.

Article ID: 2833