AIRPORT CONCESSIONING: NIGERIA AT CROSSROADS
The Federal Government last year declared its intension to concession out the nation's airports to private managers who are expected to run them better.
According to the Aviation Minister Babatunde Omotoba, who dropped the hint on behalf of the Federal Government, facilities earmarked for this initiative include the international airports in Lagos, Port Harcourt, Kano, the Nnamdi Azikiwe International Airport, Abuja as well as the Margaret Ekpo International Airport, Calabar.
To realize this objective, a Ministerial Committee to midwife the concession deal was set up. The committee chaired by Capt Dele Ore, a seasoned pilot and Aviation Consultant was mandated to do a thorough job by working closely with consultants from the International Civil Aviation Organization (ICAO) to achieve the set target.
However, few days after that pronouncement, various aviation unions like the Air Transport Services Senior Staff Association of Nigeria (ATSSAN) and the National Union of Air Transport Employees (NUATE) fired a warning shot, advising the government not only to carry out the deal transparently, but also to be mindful of all labour issues involved before wrapping up the project.
However, as if the 'mild threat' had jolted administration, the government seems to have placed the concession deal in an incubator with no known or reliable hatch date.
Today aviation stakeholders, and indeed the Nigerian public are at a loss as to when the deal will eventually be wrapped up and unveiled for bidding by prospective investors.
With concerned stakeholders keeping sealed lips over the matter, fears are rife that underground manipulations are in high steam such that 'friends of the house, who may not be the best qualified' might eventually win the deal.
When Daily Sun contacted Capt Ore, on telephone to ascertain the extent of job done, he declared he was not in the best position to talk about the matter. 'Look, the Aviation Minister or the Permanent Secretary will soon brief the press on the matter. The briefing will be soonest. For me, I'm not in the best position to talk about it. It's purely a government's project and there is procedure. If it was my personal project, then I can tell you everything you want to know about it', he said.
As at the time of this report, there seem to be indications as to when the government would carry out the entire package openly to douse tension and clear the air on some misconceptions in respect of the project. Meanwhile analysts may be benchmarking the planned airport concession and indeed others planned in the aviation sector against the privatization of the Skypower Aviation Handling Company Limited (SAHCOL) executed last December.
For instance, an Aviation Consultant and former Airport Manager, Sam Akerele, told Daily Sun recently that the Yar' Adua-administration's best bet on the matter was to ensure that competent external investors with proven track record of competence and integrity get the concession deal to avoid burning its fingers in a bid to partner local firms that might eventually turn out to be a cog in the wheel of progress.
But observers still believe that adopting the concession option in addressing the infrastructural rot at the nation's airports has become very vital in view of the huge capital outlay the industry requires, particularly against also in view of the renewed threats in global terrorism.
The latest of such threats was the botched bombing of Northwest Airlines flight 253 in Detroit, USA on December 25, 2009 by 23-year old Umar Farouk Abdulmutallab. Since then, nations have re-doubled their efforts in enthroning safety and security. In some cases, governments are partnering the private sector to raise the level of aviation safety.
Security buoys high income earning because it guarantees passengers' safety and continuous patronage. Indeed, it has become imperative that countries must secure their borders, especially the international air gateways to prevent any form of terrorism assault. The foiled bombing sent jitters down the spines of many developed nations such that airports operations and facilitations have since been reviewed.
In addition to massive injection of funds channeled into the acquisition of modern screening and other safety equipment for deployment in their airports, the 3D Total Body Imaging Scanner Machines have been acquired by various countries. But the Nigerian story may not be completely the same with that of several other countries, as her airports infrastructural rot are yet to be fully addressed by the authorities thus posing severe threats to safety and fresh security challenges.
According to the Managing Director/Chief Executive of the Federal Airports Authority of Nigeria (FAAN), 'We need at least $12 billion for the development of the nation's airports to enable us compete with what you have in developed nations in the areas of security, facilitation, passenger comfort among others'.
By the time you address the needs of the Nigerian Meteorological Agency (NIMET), the Nigerian Airspace Management Agency (NAMA), the Nigerian Civil Aviation Authority (NCAA) and others, the government may then be spending trillions of naira periodically to support the aviation sub-sector.
This huge financial outlay has shown that aviation is a capital intensive sector of the economy that can consume a country's total budget, an indication that government alone cannot adequately address its current infrastructural challenges. This then leaves the concession/PPP arrangement as the next viable option.
In the light of the foregoing, both NUATE and ATSSSAN have advised the government to ensure that the concession deals are executed transparently, fair and legally. Indeed, the two assocaitions are already crying foul over the proposed concession, alleging that it was a ploy to sell the nation's airports to few powerful individuals.
Only recently NUATE alleged that, the management of the Federal Airports Authority (FAAN) had entered into an agreement with Messr Baltic Air and Maritime Cargo Services Limited on October 8, 2009 to take over the said airports.
Consequently, NUATE in a letter sent to the Managing Director of FAAN, Richard Aisuebeogun, through the union scribe, Comrade Gideon Ogbuji on October 18, 2009, quoted part of the agreement which stated that the lucky private company should pay the sum of N5.8 million as concession fees for three airports (Abuja, Port Harcourt and Kano) to FAAN monthly.
In the breakdown given by the union as contained in the said agreement, the concessionaire was expected to pay N2.2 million monthly to FAAN as concession fee on Nnamdi Azikiwe International Airport Abuja , and the same amount for the Kano airport while the Port- Harcourt airport may be concessioned for N1.8 million monthly totaling N5.8 million.
NUATE described the amount as paltry, arguing that FAAN workers already generate much more than that monthly, thus querying the rationale behind the planned concession.
The union further frowned at FAAN management's plan to concession of the airports, even after the concession deal involving Bi-Courtney Aviation Services Limited (BASL) over the MMA 2 is still in court.
'Again, you are aware that this issue of further concession/BOT is already in court. We have equally reported the matter to the Minister of Aviation, Committee on Aviation, and the House of Representatives which gave us two weeks to resolve the issues and report back to them for which your management has refused to call the union for a dialogue.
We have demanded that unless labour issues that will affect our members are discussed, we would not accept any concession in any of our airports. Inasmuch as we are not totally against concession, there is need to ensure transparency in the whole exercise. Therefore, by the copy of this letter, we have instructed all our members in the airports mentioned above to fiercely chase away Messr Baltic Air and Maritime Cargo Services Limited, be alert and resist them from operating within the airports and wait for further directive from the union headquarters', the union added.
Speaking in the same vein, the National President of the Air Transport Services Senior Staff Association of Nigeria (ATSSSAN), Benjamin Okewu, stated at one of it rallies that government should have a rethink in the concession as the decision was not in the best interest of the country. He also noted that workers' jobs and other welfare packages are usually not taken care of when such exercises are carried out. He cited the example of the former national carrier, Nigeria Airways Limited, as an instance where some of those who were laid off died while struggling to get their legitimate entitlements.
He also cited the crisis-riddled Murtala Muhammed Airport terminal 2 (MMA 2) as s typical example of poorly managed concession package. A number of other aviation workers seem to share the same fears the unions are asking to be addressed before the concession deal is sealed. While their grievances must be amplified for the government to hear, it is also pertinent to state here that only the dead woods and wrongly placed pegs in the system may be directly affected in the anticipated job cut.
Every professional worth his onions has nothing to fear because the aviation sector is highly regulated and more so, there is presently the dearth of professionals in the sector. So, the private investors are more inclined to use the good available hands around as 'importing' professionals may not be in their best business interest in terms of cost implication.
The first PPP project in the aviation sector as the rebuilding of the burnt Murtala Muhammed Airport terminal 2 (MMA 2) won and executed by Bi-Courtney Consortium. The terminal being managed by Bi-Courtney Aviation Services Limited (BASL) is still suffering a lot of post-concession headaches which aviation experts say arose from untidy business deals. Today, the Federal Government, FAAN and BASL are locked in both legal and business battle over the General Aviation Terminal (GAT).
While BASL claims the GAT was part of its agreement with FAAN, the latter is insisting that was never the case.
Daily Sun reliably gathered that with the development FAAN has been losing, rather than improve its revenue from the BASL deal. Aviation analysts fear that the same problems may arise if the government does not follow due process and carry out the concession deal transparently.
However, due to peculiar nature of doing business in Nigeria, it is pertinent that some vital issues be addressed before an airport concession deal is safely sealed.
The question now being asked by some stakeholders in the nation's aviation sector include; Who coordinates the security to avoid lapses as it is presently? Who has the controlling stake when the project starts? What will the composition of the board be? Which of the partners will have what kind of powers on the board appointments? What are the milestones which need to be tracked to ensure that the project is in line with expectations?
Unless sincere answers are provided for these questions, experts say it would be unwise to hurriedly package any concession deal.
But whatever sentiments any individual or group may express over concession, analysts say it remains the best option to address aviation infrastructural challenges.
In the beginning, the Federal Government Public Enterprises (Privatization and Commercialization) Act 1999 (Privatization Act) included the Federal Airports Authority of Nigeria (FAAN) in the first schedule of the Act. Parastatals listed in the first schedule are to be privatized by core investor sale, unless the National Council on Privatization (NCP) approves a different structure for the privatization of the parastatal.
Eventually, government took a decision in 2002 to implement the core investor of FAAN in one transaction (which would include all airports managed by FAAN), as stated in the privatization Act of 1999. What that means is that one strategic investor would buy the core investors' shares in FAAN and would manage the airports.
In furtherance of this decision, an advert was issued in August 2002, requesting interested advisers to express interest in implementing the core investor sale of FAAN. The advert also asked interested advisory consortia to submit proposals in early 2003 in response to the advertorial.
However, before the process of FAAN core investor sale began, government again took a strategic decision in early 2003 not to sell shares in FAAN, but instead to concession the airports, either individually or in groups of airports such that a hundred percent ownership of the airports remain with the government but the concessionaire has right to use or develop the airport with private sector capital over the concession period. Also, at the end of the concession period, the airport(s) reverts to the Federal Government and can be concessioned again.
But any attempt to carry out FAAN privatization exercise in tandem with the provisions of the Act, always met the brick wall due to clash of interests among the top government officials, the aviation workers and the private investors. Investigations by Daily Sun show that Ministry officials usually frustrated efforts of the private investors who desire a concession deal with the government whenever they discovered that there is no avenue for regular kickbacks they considered a birthright.
For instance at the Murtala Muhammed International Airport (MMIA), Lagos, no major expansion work has been done since it was built about 30 years ago. This is despite the remarkable upsurge in passenger and cargo traffic within the last decade. Perhaps the best the Federal Airports Authority of Nigeria (FAAN) has done so far was to carry out one or two minor adjustments inside, but it is yet to deal with the perennial problem of congestion at the terminal.
In aviation, changes are effected in anticipation of likely upsurge to avoid being caught in web of confusion. That explains why there is one form of adjustment or expansion going on internally and externally in major airports in the world like Heathrow in London, Schipol in Amsterdam, O'Hare Airport in the United States among others.
The MMIA and other international airports should witness the same regular expansion and facelift because as an airport still toying with the idea of being a regional hub in Africa, shoddy approach to airport management will naturally scorch that lofty dream.
The MMIA as the destination of over 40 foreign passenger and cargo airlines should as a matter of necessity, ought to have gone far beyond its present state.
In concesioning as it is in the BOT, a firm, company, federal establishment, parastatal or any other business entity contracts with an offshore company to build or manage a shared service or services and operate it for a fixed interim period in sacrosanct with all parties' agreement.
The difference between BOT and concessioning often lies within the terms of agreement.?
While in concessioning, the client remains the full owner of the facility, the third-party vendor builds the facility, hires the employees, gets the operation running and later on hands over the operations to the client after an agreed period. During the contract period, the vendor and the client work closely for the success of the project at hand after which it may be re-concessioned again.
Organizations embrace this option with the expectation that the offshore partner can initiate operations and reach operating stability much faster than it can with an in-house effort?
Concessions, like in BOT, are exceedingly complex from both financial and legal point of view.
Both models have a common denominator- they are private sector driven.
In concession, the advantage is that it combines responsibility for usually disparate functions—design, construction, and maintenance—under a single entity. This allows the private partners to take advantage of a number of efficiencies. Apart from the aforementioned, it also attracts both big and small companies to be involved in the running of the project.
More so, in concessioning, the sponsors' commitment of substantial equity to the project assures that they will also remain committed to the project's successful operation over the concession period. Their investment provides a strong incentive to have the project perform well above its minimum expectations in order to ensure good returns on investment.
Throwing more light on the gains of airport concessioning, Olumide Ohunayo, an Aviation Analyst said: 'Airports are the gateways that will open major cities in Africa for the development of tourism and investments. In Europe, there are other alternate modes of transportation, but here we have no option than to develop the airports as the alternate modes are extremely time consuming, stressful and risky for serious investors or tourists. Globally, national and local governments worldwide are abandoning responsibility for costly airport development, while filling the treasury coffers, by either concessioning or privatizing to bring in outside operational expertise, and this is practically obligatory in all cases.
Expertise is required in airport management and in generating non-aviation income. One of the main reasons why BAA is seen as a model is its success in bringing the contribution of non-aviation income to some 70 per cent of total turnover which presently is 15per cent in FAAN. Airports world over are seeking to increase non-aviation income. The UK experience of privatizing worked well in a very mature and regulated environment.
In less developed countries like ours, governments should be tilting towards building and enhancing the transport system rather than just offloading the assets. This is to avoid a situation whereby we move from ugly state-owned airports to even uglier privately owned airports. It is noteworthy that most reputable private sector investors would not consider buying an airport with fewer than 1 million passengers. This is why airports have often been sold as a package - good and bad, small and large, domestic and international.
By setting up the Infrastructure & Regulatory Commission, the government has made it clear that it is taking a concessionary posture through PPP is about the only option open to government, considering FAAN has never made profit, publish an audited account nor invested financially or managerially beyond Nigerian shores when compared to their counterparts in South-Africa, Ethiopia e.t.c.
One thing is certain, airlines, regulators, agencies and other airport users need to get used to the idea that airports are shifting away from the traditional concept of public entity and moving into private ownership in whatever form this might be. Presently, there are over 40 airports in the stock exchange world over and the number is increasing', he explained.
Global statistics shows in most airports where concessions were done within the dictates of international best practices, traffic into those airports have increased a great deal.
In some developed economies, the Civil Aviation Authority has a department that carries out airport concessions since the CAA is in charge of the overall oversight functions of the industry. For instance, in Orlando, USA, there is the Greater Orlando Aviation Authority Concessions Department headed by a Director of Concessions.?That department is responsible for awarding all concessions and consumer service privileges in the Terminal Complex of the Orlando International Airport.
The Terminal Complex consists of approximately 150,000 square feet of Food & Beverage, Retail, and Service space. It is the goal of the authority to provide the traveling public with a first-class shopping and dining experience as they travel through the Orlando International Airport. A major rehabilitation of two of the Authority's airside terminals (Airsides 1 and 3) is underway. When completed there will be additional square footage for concession opportunities. Additionally in partnership with our Master Retail Developer, Westfield Corporation, the Authority is launching a pilot program to bring new retail opportunities to the airport through Retail Mobile Units (RMU's). RMU's provide an excellent venue through which small businesses can participate in the airport business community.?
The Authority awards concessions through a competitive procurement process, which involves requests for proposals or competitive bids. On very rare occasions, direct negotiations may take place for unique services. In the case of requests for proposals, the concession is awarded based on the evaluation of each proposal with respect to specific selection criteria deemed appropriate for the available concession or consumer service privilege.
Whereas, for competitive bids, the award is based on the highest dollar bid and competence?
However, Aviation Minister, Babatunde Omotoba has emphasized that there is no going back on the concession of the airports in Nigeria starting with the international ones viz- The Nnamdi Azikiwe International Airport, Abuja; the Murtala Muhammed International Airport, Lagos; the Mallam Aminu Kano International Airport, Kano and the Port Harcourt International Airport, Omagwa, Rivers State.
He went ahead to assure that airports that cannot be concessioned will be given back to its host state to manage.
Hear him: 'Now for the international airports, we are also going to roll out the road map for the aviation sector very soon which is almost completed.
Some of the airports we can't concession will probably give them back to the state government while we'll be will be performing the regulatory and the security functions and the states managing the airports. And of course you will have been seeing the signal that Sokoto State governor came on air to say that he is very interested in the Sokoto Airport. The Kaduna State government also said they are very interested; Rivers they are very interested. You see, that is the trend, and so what we need to do is to do a guided and transparent process to transfer these airports. And with our regulatory oversight you can be sure that the infrastructure will be improved', he said.
Already, the Chairman, House of Representatives Committee on Aviation, Hon Bethel Amadi has assured that his committee would provide the necessary legislative fibre to ensure the success of future concession deals. He said the committee is fully aware of the gains of PPP, but added that such gains can only be sustained if the package is done transparently.
Amadi added the any attempt to encourage a foul play in the concession deal means the government will drive away, rather than encourage private sector participation in the development of the aviation industry. He said the crisis that greeted the first ever PPP in the aviation sector, the rebuilding of the terminal 2 by Bi-Courtney Consortium, should not be allowed to resurface in the concession package.
Commenting on the ongoing concession plans and the involvement of the House Committee on Aviation, the Aviation Minister said: 'On the issue of concessioning, the way I see the House Committee on Aviation is that we are partners in progress—we work very closely together.
I know that after their review of all the parastatals in the industry they still call me what they have found and what they have seen and I also promised them I am going to carry them along on the issue of concession and in other things I am doing. But we all must remember that issues that are under executive functions cannot be taken over by the legislature, so when it comes to me taking executive decision to represent Mr. President, I will not allow anybody to take that away from me.
The issue of concession will be driven by the executive and they are going to maintain their oversight function. For us we are going to go ahead to concession those airports. We are going to follow transparent procedures. This is the reason why I put up a small committee to help me and I put an independent person, the chairman of Aviation Round Table (Captain Dele Ore) to be the chairman of that committee so that all of you can see what we are doing. So we are very transparent. We are open to criticisms. We are going to take suggestions and we are going to look at every suggestion carefully and we are going to make sure we carry along the House of Representatives members in the concession programme. But we are going to go ahead to concession.
The existing GAT will be destroyed and a new one erected that will take about two to three million passengers a year. We have received approval from Mr. President to build this project. Also Mr. President told me that for the four major airports in Nigeria we have to build brand new terminals—for Port Harcourt, for Kano, for Abuja and for Lagos. In Lagos we are looking for two new terminals— a terminal to the right and a terminal to the left. We are expecting that these terminals will take at least 48 aircraft at a time with s