Bulletin of Acts and Decrees of the Kingdom of the Netherlands

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1 Bulletin of Acts and Decrees of the Kingdom of the Netherlands Decree dated 7 July 2006 entailing rules regarding the operation of Amsterdam Airport Schiphol (Amsterdam Airport Schiphol Operation Decree) We Beatrix, by the Grace of God, Queen of the Netherlands, Princess of Orange-Nassau, etc., etc., etc. On the recommendation of the State Secretary for Transport, Public Works and Water Management, dated 26 September 2005, no. HDJZ/LUV/ , Legal Affairs Directorate, made in agreement with Our Minister of Economic Affairs; In view of Sections 8.25d(12), 8.25e(4), 8.25f(7), 8.25g(5) and 8.29a(2) of the Dutch Aviation Act (Wet luchtvaart); Having heard the advice of the Council of State (advice dated 25 November 2005, no. W /V); In view of the report to the Queen by the State Secretary for Transport, Public Works and Water Management, dated 6 July 2006, no. HDJZ/LUV/ , Legal Affairs Directorate, issued in agreement with Our Minister of Economic Affairs; Have approved and decreed: Chapter 1. General Article 1 In this Decree, the following words have the following meanings: a. aviation activities: the activities referred to in Section 8.25d(1) of the Act; b. allocation system: the allocation system referred to in Section 8.25g(1) of the Act; c. Airport: Amsterdam Airport Schiphol; d. Act: the Dutch Aviation Act; e. user: an airline, as well as a person or legal entity operating flights but not an airline; f. Board: the Board of Directors of the Netherlands Competition Authority, referred to in Section 2 of the Dutch Competitive Trading Act (Mededingingswet); Bulletin of Acts and Decrees

2 g. unuïteiten method: the method used for depreciating tangible fixed assets characterised by initial overcapacity (projected capacity less the expected demand for Airport air traffic, transport of passengers and cargo, in such a way that this results in a maintained amount of depreciation and cost of capital per unit of use for their expected useful life, as anticipated at the time of the investment decision); Chapter 2. Supervision of charges and conditions 1. General Article 2 1. Aviation activities are activities of the Airport operator for: a. the take-off and landing of aircraft, including in any case the use by aircraft of taxiways, runways and aprons, b. aircraft parking, including in any case the use by aircraft of parking facilities at the Airport, c. handling passengers of aircraft and their baggage in connection with the take-off and landing of aircraft, which in any case includes: 1. use of the passenger terminal and 2. use of the approach roads, d. the execution of passenger security and the security of their baggage, which also includes the facilities for border control. 2. The activities referred to in Section 8.25d(5) of the Act which are directly connected to aviation activities are: a. the granting of a concession for aircraft fuel supply, b. the granting of a concession for aircraft catering, c. utility services, d. activities by or on account of the Airport operator charged to aviation activities and made payable to third parties. 2. Determination of charges and conditions Article 3 1. Determination of charges and conditions as referred to in Section 8.25d(1) of the Act will be announced: a. by making the charges and conditions available for inspection, in any case at the offices of the Airport operator at the Airport, b. by announcing determination of the charges and conditions in at least one daily, weekly or national newspaper or in another appropriate manner, so that the users will be reached in the best possible way, and c. by sending the charges and conditions set to users on request at the addresses given by them. Bulletin of Acts and Decrees

3 2. The announcement referred to in (b) of paragraph 1 will include the date on which the airport charges and conditions were determined by the Airport operator, the effective date of the charges and conditions, the period in which the charges and conditions will be made available for inspection and where and when the charges and conditions can be inspected. 3. The charges and conditions will not take effect until five months after the announcement, as referred to in Section 8.25d(1) of the Act. 4. The Airport operator will ensure that charges and conditions, as referred to in Section 8.25d(1) of the Act, will take effect as from 1 April or 1 November. Article 4 1. A proposal for charges and conditions as referred to in Section 8.25e(1) of the Act will be announced: a. by making the proposal available for inspection, in any case at the offices of the Airport operator at the Airport, b. by announcing the submission of the proposal in at least one daily, weekly or national newspaper or in another appropriate manner, so that the users will be reached in the best possible way, and c. by sending the proposal to users on request at the addresses given by them. 2. The announcement will include the period in which the proposal for charges and conditions will be made available for inspection and where and when the proposal for airport charges and conditions can be inspected. 3. The proposal may be inspected for a period of four weeks from the day on which the proposal for charges and conditions was made available for inspection. The period in which the proposal for charges and conditions is made available for inspection will not commence until the day following the announcement. 4. The proposal referred to in paragraph 1: a. contains a substantiation of the proposed charges, in view of the requirements regarding the charges as prescribed in Section 8.25d of the Act, and states the time when the charges and conditions will become effective, b. gives a breakdown of the revenue from activities, as referred to in Section 8.25d(5) of the Act, c. states, in accordance with the allocation system, which tangible fixed assets will be used for aviation activities and to what extent, as well as which costs are caused by aviation activities and to what extent, d. contains, in respect of aviation activities: 1. the projected Airport air traffic volume, transport of aviation passengers and cargo in the next financial year and a projection for the current financial year and the intended investments based thereon for the next financial year compared with the current financial year, 2. the projected change in the use of the tangible assets referred to in Article 8, paragraph 6, which is in line with the projection and intended investments referred to in 1, compared with the current financial year, Bulletin of Acts and Decrees

4 3. the projected change in total revenue and total expenses, with a detailed breakdown for the next financial year compared with the current financial year, 4. the projected efficiency gain that will be achieved in the next financial year compared with the current financial year, 5. the difference to be settled in accordance with Section 8.25d(9) of the Act, 6. the projected return for the next financial year compared with the current financial year, calculated with due observance of the Schedule to this Decree referred to in Article 13, e. contains the amount of the contribution, if any, by the Airport operator from activities other than aviation activities, referred to in Section 8.25d(7) of the Act, to be taken into account by the Airport operator in the determination of the charges for the next period compared with the current financial year, f. contains the projected quality development for the next financial year, based on the indicators defined in Article 7, compared with the current financial year. 5. With regard to a proposal, as referred to in paragraph 1, relating to the charges for passenger security and the security of their baggage, paragraph 4 applies mutatis mutandis. 6. The proposal referred to in paragraph 1 also contains: a. the projected traffic and transport and an investment programme based thereon for the next five-year period, b. information on the investments in infrastructural facilities of importance to aviation as included in the long-term Airport development plan. 7. Within four weeks of the day on which the proposal for charges and conditions is announced, users may express their views on the proposal for charges and conditions in writing to the Airport operator. 8. During the period referred to in paragraph 7, the users may, on request, give an oral explanation of their views. Article 5 1. Contrary to Articles 3 and 4, the following provisions apply if Our Minister of Justice has issued a special directive as referred to in Section 37ac(2) of the Aviation Act pursuant to which the Airport operator has taken measures, to the extent that such measures relate to passenger security and the security of their baggage. 2. If Our Minister of Justice, on a request to that effect by a foreign state or alliance or on his own accord, determines that a temporary measure taken in connection with the special directive is converted into a structural measure, the Minister will notify the Airport operator, the users of the Airport and, at the same time, Our Minister of Transport, Public Works and Water Management. 3. The costs arising from a structural measure will, as from the moment when the charges and conditions come into affect in accordance with paragraph 4, be payable by the Airport operator. Bulletin of Acts and Decrees

5 4. If Our Minister of Justice applies paragraph 2, the Airport operator will adjust the charge for passenger security and the security of their baggage in view of the costs arising from a structural measure, with due observance of the following: a. the relevant adjustment of the charge for passenger security and the security of their baggage can only take effect on 1 April or 1 November; b. Our Minister of Justice will announce the need to convert a temporary measure into a structural measure at least 21 weeks before 1 April or 1 November respectively, being at the latest on 7 November or 7 June respectively. c. within three weeks of the announcement referred to in (b), the Airport operator will notify the users of the relevant increase in the charge for passenger security and the security of their baggage; d. within two weeks of the Airport operator having notified the users, as referred to in (c), the Airport operator will consult with the users; e. for the consultation referred to in (d), the Airport operator will furnish the users with adequate information regarding the expected development in the volume of passenger transport, an estimate of the additional costs arising from the structural measure, an estimate of the revenue and the revenue required in this respect for the next financial year; f. within two weeks of the consultation referred to in (d), the Airport operator will determine the adjustment of the charge for passenger security and the security of their baggage; g.the adjustment of the charges for passenger security and the security of their baggage will not take effect until three months after the announcement referred to in Section 8.25d(1) of the Act. 5. Our Minister of Justice may determine that a structural measure will be cancelled with effect from a date to be determined by him. Our Minister of Justice will inform the Airport operator thereof and at the same time the users and Our Minister of Transport, Public Works and Water Management. 6. The Airport operator will discontinue the implementation of the relevant structural measure with effect from the date referred to in paragraph 5, as a result of which the costs involved will also cease to apply. 7. Should Our Minister of Justice apply paragraph 5, the Airport operator will redetermine the charge for passenger security and the security of their baggage; Paragraph 4 applies mutatis mutandis. Article 6 1. A request as referred to in Section 8.25f(1) of the Act: a. will be in writing and signed, b. will at least contain the date of the request and the name, address, telephone and fax number of the user; if the user is represented by an agent, the request will also contain the particulars of such agent, c. may be submitted in the Dutch or English language, Bulletin of Acts and Decrees

6 d. will contain the grounds for the opinion of the user that the charges and conditions are contrary to the rules laid down by or pursuant to the Act, e. will specify which charges and conditions set by the Airport operator are concerned and f. will, if applicable, specify other bodies whose opinion on the charges and conditions has been requested. 2. The charges and conditions referred to in Section 8.25f(3) of the Act will be determined within three weeks of the decision by the Board. 3. Quality indicators Article 7 Indicators of the quality level of the services offered by the Airport operator relating to the use of the Airport, referred to in Section 8.25e(4) under (c) of the Act, include at least: a. the capacity on an annual basis and the peak hour capacity of the available runway system, measured in the number of air transport movements, b. the number of passenger and cargo aircraft stands and the number of buffer stands, c. the total area of the terminals for aviation activities and the number of seats in the terminals, divided into square metres for departure hall, arrival hall and circulation areas and lounges, d. the piers, measured in the number of piers and gates, divided according to category and size, e. the capacity on an annual basis and the peak hour capacity of the baggage system, measured in the number of baggage items, as well as the number of reclaim belts, f. the number of buses on airside, g. the number of check-in facilities and according to type (desks, self-service or otherwise h. the number of checkpoints in connection with passenger security and the security of their baggage, the deployment of the number of security guards deployed for this purpose by the Airport operator and the annual capacity and the peak hour capacity thereof in number of passengers, i. the number of approach roads and the annual capacity and peak hour capacity, j. the availability of the services referred to under (a) to (i) during the financial year of the Airport operator, where possible expressed in a percentage and related to the development of the volume of Airport air traffic and the transport of passengers and cargo. 4. Allocation and financial accounts Article 8 1. The costs of aviation activities are allocated as follows: a. all costs of aviation activities, with the exception of the costs of interest-bearing debts, are allocated to these activities, Bulletin of Acts and Decrees

7 b. the costs of operating assets used only for aviation activities are fully allocated to these activities, c. the costs of operating assets, none of which are used for aviation activities, are not allocated to these activities, d. the costs of operating assets partially used for aviation activities and partially used for other activities are allocated based on the actual use of these operating assets for the aviation activities. 2. The allocation system defines the principles on the basis of which is determined to what extent operating assets are used for aviation activities. 3. The tangible fixed assets deployed for aviation activities are divided into assets solely used for these activities and assets partially used for these activities and allocated accordingly. Tangible fixed assets are not used for aviation activities until such time as they are put into operation for that purpose. 4. Goodwill is not included in tangible fixed assets as referred to in paragraph Tangible fixed assets already partially deployed for aviation activities are allocated based on the relevant formulas which are included in the allocation system. 6. The value of the tangible fixed assets allocated to aviation activities on the basis of paragraph 3 is determined based on historical cost and using the depreciation method specified by the Airport operator, in accordance with acceptable business economic principles. 7. Contrary to paragraph 6, the value of tangible fixed assets allocated to aviation activities on the basis of paragraph 3, exceeding EUR 100,000,000 in value, with a production time exceeding one year and in respect of which, at the time of the investment decision, initial overcapacity is expected after putting into operation, is determined based on historical cost and the assets are depreciated over their usual useful life based on the unuïteiten method. Using the unuïteiten method, the amount of depreciation and cost of capital is determined four years after Sections 8.25d to 8.25h of the Act have come into effect and otherwise redetermined every five years by the Airport operator. 8. In respect of the tangible fixed assets allocated to aviation activities on the basis of paragraph 3, which were deployed before Sections 8.25d to 8.25j of the Act came into effect, paragraph 7 applies mutatis mutandis to the assets concerning the fifth runway. In this respect, depreciation is determined based on the book value as at 1 January of the financial year for which the charges and conditions are determined, at the weighted average cost of capital (WACC) applicable at the time, the expected initial overcapacity and inflation. The useful life anticipated at the time of the investment decision is a given factor in this respect. 9. The value of the tangible fixed assets of aviation activities referred to in paragraph 3 is referred to as Regulatory Asset Base. Bulletin of Acts and Decrees

8 10. The formulas referred to in paragraph 5 and the formulas of other operating assets are used for the allocation of costs to aviation activities, in which respect the following applies: a. the costs will be allocated directly or, if this is not possible, directly to the extent possible, by means of allocation formulas based on the relevant activities, with due observance of the principles of proportionality and market conformity, and b. the costs that cannot be allocated to a certain activity on the basis of (a) will be allocated proportionally on the basis of the share of the costs of aviation activities in the total costs. 11. Revenue from aviation activities and revenue from the activities referred to in Section 8.25d(5) of the Act which are directly connected to aviation activities are allocated as revenue from aviation activities. Article 9 Article 8 applies mutatis mutandis to the costs related to the execution of passenger security and the security of their baggage referred to in Section 2(1) under (d). Article In preparing the financial accounts referred to in Section 8.25g(3) of the Act, the allocation system adopted pursuant to Section 8.25g(1) of the Act is applied. 2. The explanation referred to in Section 8.25g(3) of the Act includes: a. a breakdown of tangible fixed asset categories, specifying which allocation formulas have been used in accordance with Article 8 and the extent to which they have been applied to aviation activities, b. a breakdown of the revenue and expenses relating to aviation activities, specifying which allocation formulas have been used in accordance with Article 8. c. a breakdown of the difference between the estimated and actual revenue from the airport charges, as well as the costs, for the financial year preceding the actual determination of the charges, in connection with the projected and actual Airport air traffic volume, transport of passengers and cargo and investments made, d. a breakdown of the contribution referred to in Section 8.25d(7) of the Act, which was taken into account in the past financial year when the charges were determined, e. a breakdown of the investments made in the past financial year and f. a breakdown of the efficiency gain in the past financial year. Article 11 Article 10 applies mutatis mutandis to the execution of passenger security and the security of their baggage referred to in Section 2(1) under (d). Bulletin of Acts and Decrees

9 Article 12 The Board will approve the allocation system after Sections 8.25d to 8.25j of the Act have come into effect, for a period of at the most four years and subsequently each time for a period of at the most five years. Article 13 In determining the charges for aviation activities in accordance with Section 8.25d(2-7), the standard applied is that the projected return for the Regulatory Asset Base referred to in Article 8, paragraph 9, and calculated in accordance with the formula included in the Schedule to this Decree, is at the most equal to the weighted average cost of capital calculated in accordance with the formula included in the Schedule to this Decree. Article 14 Article 12 applies mutatis mutandis to the determination of the charges for the execution of passenger security and the security of their baggage. Chapter 3. Supervision of the operation of the Airport Article The capacity development of facilities reported on by the Airport operator in implementing Section 8.29a of the Act, concerns: a. the runway system, measured in the number of air traffic movements per year, b. the aircraft stands, measured in the number of stands, c. the terminals, measured in square metres of space available for aviation activities, divided into square metres for departure hall, arrival hall and circulation areas and lounges, d. the piers, measured in the number of piers and gates, divided according to category, according to size and border status, e. the baggage system, measured in the number of baggage items per year, f. the approach roads, measured in the number of vehicles per year. 2. With regard to each facility referred to in paragraph 1, the following is reported on: a. the existing capacity as at 31 December of the past financial year, b. the difference compared with the actual changes in the capacity of a facility anticipated in the previous report, c. the capacity changes anticipated in the next five years, the moment of change and the extent of the capacity change, d. the projected traffic and transport on which the capacity change is based, e. the investments made in the past five years, f. the investments expected in the next five years, g. the opinions of the users regarding the capacity of a facility and the projected traffic and transport for the period under review on which these are based. Bulletin of Acts and Decrees

10 3. In the report, the Airport operator will include the response of the users with regard to the information referred to in paragraphs 1 and The report is appended to the financial accounts referred to in Section 8.25g(3) of the Act and will be issued to users by the Airport operator at the users request. 5. The first report is appended to the first financial accounts which are adopted with application of Section 8.25g of the Act. A report will subsequently be issued every three years after a previous report, unless our Minister of Transport, Public Works and Water Management, with application of Section 8.29a, first sentence of the Act, informs the Airport operator, in writing and before 1 November of the current financial year, that he requires a report together with the next financial accounts. Chapter 4. Final stipulations Article 16 On the same date that the Bill submitted by Royal Message of 31 October 2001 for the amendment of the Aviation Act with regard to the operation of Amsterdam Airport Schiphol (Parliamentary Papers, House of Representatives, , , nos. 1-2), having become law, enters into force, this Decree will enter into force. Article 17 This Decree will be cited as: the Amsterdam Airport Schiphol Operation Decree; We hereby order and command that this Decree and the accompanying Explanatory Memorandum shall be published in the Bulletin of Acts and Decrees. The Hague, 7 July 2006 Beatrix The State Secretary for Transport Public Works and Water Management, M.H. Schultz van Haegen-Maas Geesteranus Published on the eighteenth day of July 2006 The Minister of Justice, J.P.H. Donner Bulletin of Acts and Decrees

11 Schedule to Article 13 of the Amsterdam Airport Schiphol Operation Decree THE CALCULATION OF THE (PERMITTED) RETURN ON AVIATION ACTIVITIES The projected return (as %) for the next financial year may never exceed the WACC (excluding set-off between the years). Part A of the Schedule explains how the return on the total aviation activities of N.V. Luchthaven Schiphol (NVLS) is determined. Part B deals with the individual return on security activities. Part C of this Schedule explains how the WACC is determined. A. THE CALCULATION OF THE RETURN ON TOTAL AVIATION ACTIVITIES (INCLUDING SECURITY) The return on the Regulatory Asset Base ( RAB ) after tax in the financial year t is calculated by dividing the result in the financial year t that is allocable to aviation activities into the value of the Regulatory Asset Base for that year. In order to make this calculation, the following steps are described. Revenue allocable to aviation activities (AR) Total revenue (AR) = total revenue from charges (a) + other revenue from aviation activities (b) + contribution from non-aviation activities (c) (a) total revenue from charges includes the revenue from charges for landing, take-off, parking, handling of passengers, as well as security (charge per unit of use x number of units of use); (b) other revenue from aviation activities includes all revenue from activities of the Airport operator that are directly connected to aviation activities, as referred to in article 2, paragraph 2. (c) contribution from commercial non-aviation activities. Costs allocable to aviation activities (AC) Total costs of aviation activities (AC) = costs (1) + major investment costs (2) excluding costs of capital and corporation tax where, Bulletin of Acts and Decrees

12 1. Costs = operating costs (d) and depreciation (e) (d) operating costs include: personnel costs, costs of material and subcontracted services, maintenance and cleaning, inter-company deliveries and other costs; (e) depreciation of tangible fixed assets, excluding depreciation of major investments; The costs are determined and allocated to aviation activities based on acceptable business economic principles. Depreciation is based on historical cost. 2. Major investment costs (f) = the total depreciation amount for major investments (g) (f) major investments are (capacity-increasing) investments on a scale exceeding EUR 100,000,000, in respect of which initial overcapacity is expected after putting into operation, as projected at the time of the investment decision, and the fifth runway which, at the time Sections 8.25d to 8.25j of the Act enter into force, has already been put into operation. (g) depreciation of major investments is calculated according to the unuïteiten method. This means that depreciation is determined annually in such a way that depreciation plus cost of capital in each year of useful life is a constant real amount c per unit of use, taking into account the initial overcapacity as anticipated at the time of the investment decision. For the fifth runway, depreciation will be determined according to the unuïteiten method based on the book value as at 1 January of the financial year for which the charges and conditions are determined, at the weighted average cost of capital (WACC) applicable at the time, the initial overcapacity and the expected inflation. The useful life anticipated at the time of the investment decision is a given factor in this respect. This amount will be determined by means of the following formulas: Starting point are the real constant costs (depreciation costs and cost of capital) per unit (c) w c = or w = c x CAP CAP The above amount w is calculated as follows: Bulletin of Acts and Decrees

13 t 1 (1 x) w (1 + p) t D 1+ 1 T where: t = I 0 c) = real constant costs (depreciation costs and cost of capital) per unit; CAP = number of transport and traffic units at maximum capacity; I 0 = the present value of the large investment at the time of the investment decision, including construction period interest during the construction period; w = real constant amount of depreciation costs and cost of capital per year at full capacity use; 1-x = projected capacity use (as %) in year t, where the initial overcapacity x = a, b, etc.; D = discount rate: nominal WACC (after tax) at the time of the investment decision; t = useful life from the time of putting into use (years 1 to n), as anticipated at the time of the investment decision; T = the current statutory corporation tax rate (as %) at the time of the investment decision; p = projected annual inflation percentage based on the consumer price index forecast by the Central Planning Office, CPB (source: CPB, Macro-Economic Forecast). W, as above, is calculated at the time of the investment decision or, for existing, large assets with initial overcapacity, namely the fifth runway, at such time as the Act enters into force, and is recalculated when the Act is evaluated for the first time after four years (and subsequently after five years). The (remaining) useful life is then derived as anticipated at the time of the investment decision. After determining w (real constant amount of depreciation costs and cost of capital per year at full capacity use), the annual depreciation (in nominal terms) can be calculated by means of the following formula. Bulletin of Acts and Decrees

14 AF t = 1 D 1 T t where: t ( x) w (1 + p) ( BW ) AF = depreciation of major investments in nominal terms; AF is the amount entered in the formula for costs attributable to aviation under 2(g); BW = book value of major investments in nominal terms in RAB (from the time the investment is put into operation). Calculation of the return on aviation activities After following the above steps, the return (r in %) on the Regulatory Asset Base ( RAB ) in year t can be calculated by dividing the result (R) that is allocable to aviation activities into the value of the Regulatory Asset Base for the financial year: r = R RAB totaal where R is given by: R = EBIT x (1-T) = (AR AC) x (1 T) where: Earnings Before Interest and Taxes (EBIT) = earnings before interest and taxes in year t; Aviation Revenue (AR) Aviation Costs (AC) of capital); = total revenue of aviation activities; = total costs of aviation activities (excluding cost Regulatory Asset Base (RAB) = the average book value of the tangible fixed assets allocable to aviation activities, according to acceptable business economic principles and based on historical cost. In determining this book value, the average is taken of the value of the RAB on 1 January in year t and of the expected (for projection) or actual (for accounting purposes) value of the RAB on 31 December in year t. Tangible fixed assets are not capitalised until they are put into operation, increased by construction period interest. RAB total = RAB + RAB, assets major investment s where: Bulletin of Acts and Decrees

15 RAB assets = the average book value (as at 1 January or 31 December respectively) of the tangible fixed assets allocable to aviation activities (excluding the book value of major investments); RABmajor investments = the average book value (as at 1 January or 31 December respectively) of major investments allocable to aviation activities; Construction period interest = the cost of interest-bearing debts calculated annually over the average capital (based on the 1 January and 31 December figures) invested in tangible fixed assets not yet put into operation. This is the risk-free yield (expressed as a percentage), equal to the yield to maturity on a Dutch government bond with a remaining term equal to the average construction period of the relevant tangible fixed assets, plus a credit risk premium of 65 basis points. In accordance with Article 13, the WACC is used as a standard for the maximum permitted return. The settlement of revenue and expenses from previous years should not be taken into account in determining the return. B. CALCULATION OF THE RETURN ON SECURITY ACTIVITIES Calculation of the return on security activities is performed in a similar manner as the calculation on total activities described in part A, subject to the following: - Revenue from charges solely on the basis of a security service charge; - No other aviation revenue for security activities; - Any contribution from non-aviation activities proportional to the costs of security activities in total aviation activities; - Costs of security activities only (including the costs of crime prevention and maintaining law and order); - Only on the RAB of security activities. C. THE WEIGHTED AVERAGE COST OF CAPITAL (WACC) The Weighted Average Cost of Capital, or WACC, is based on the Capital Asset Pricing Model and, taking taxation into account, is given by: WACC = g x Kd x (1-T) + (1-g) x (Rf + (EMRP x Equity Beta)) The parameters in the formula are the following: WACC = the weighted average cost of capital (as %); g = fixed value of interest-bearing debts allocable to the funding of the Regulatory Asset Base, divided by the value of the Regulatory Asset Base; g is 0.4; Rf = risk-free yield (as %), equal to the yield to maturity on Dutch government bonds with a remaining term of 10 years at the time the charges are determined; Bulletin of Acts and Decrees

16 Kd = the cost rate of interest-bearing debts (as %); the credit surcharge Kd-Rf is fixed at 65bp; T = the current statutory corporation tax rate (as %) at the time the charges are determined. If it is established when the charges are determined that, as at 1 January of the financial year for which the charges are determined, an adjusted statutory corporation tax rate applies, this latter percentage will be applied; EMRP = Equity market risk premium (as %); this is the surcharge on the risk-free yield required by equity providers for the so-called market portfolio of shares world-wide, fixed at 4%; Equity Beta = a measure of the market risk (systematic risk) of shareholders equity that can be allocated to the funding of the Regulatory Asset Base. This is consequently a levered Equity Beta, which is a measure of the sensitivity of the value of shareholder s equity to a change in the value of the market portfolio of shares, taking the financial structure into account (g). The Equity Beta to be used in the WACC formula must be determined when the charges are determined and on the basis of the following formula, after the Asset Beta, Debt Beta and g have been determined. The formula for Equity Beta is: Asset Beta + (Asset Beta Debt Beta) x g / (1-g) x (1 - T), where: Debt Beta = a measure of the market risk (systematic risk) of the interest-bearing debts that can be allocated to the funding of the Regulatory Asset Base. The credit spread (Kd Rf) consists partly of compensation for the systematic risk; another part consists of a liquidity premium and a surcharge for liquidation-related losses. The formula for Debt Beta is: 0.5 x (Kd Rf) / EMRP; and Asset Beta = a measure of the market risk (systematic risk) attached to the activities for which the Regulatory Asset Base of the Airport operator was established. Asset Beta is determined as follows: 1. Listed airport companies within the EU will be selected, as many (but at all times at least four) and as representative as possible from a comparability point of view with regard to aviation activities of the Airport operator. Airports that are clearly not comparable do not form part of this group. If N.V. Luchthaven Schiphol is listed Amsterdam Airport Schiphol will always be one of the selected airports; Bulletin of Acts and Decrees

17 2. For each of the selected airports, the Equity Beta is derived from the price returns of these airports measured over a period of five recent years. This is calculated based on the average of two standard data sources. If only information covering a shorter period is available, this is permitted provided the information enables a reliable estimate to be made of the Equity Beta. 3. For each of these airports, the Asset Beta is determined by applying the above Equity Beta formula (and Debt Beta formula). Each of these calculations is based on the relevant airport s actual capital ratio (g), with the book value of the interest-bearing debts of the company divided into the total book value of the interest-bearing debts plus equity market value. The calculations are furthermore based on the applicable statutory tax rate of the country in which the relevant airport is located (T) and the estimated cost rate and the borrowed capital risk of the airport (Kd, Debt Beta). The unweighted average of the Asset Betas of the various airports is calculated. The result thus obtained gives the Asset Beta used in the WACC formula to calculate the weighted average cost of capital of the operator of Amsterdam Airport Schiphol. Bulletin of Acts and Decrees

18 Explanatory memorandum 1. General This Decree elaborates on the provisions of the Aviation Act regarding the economic regulation of operating Amsterdam Airport Schiphol. This economic regulation relates to the use of the Airport by users. According to Section 8.1(i) of the Aviation Act (hereinafter: the Act), user shall be understood to mean: an airline, as well as a person or legal entity operating flights but not an airline. The operator will determine the charges and conditions for this use of the Airport, which use shall in any case be understood to include the take-off, landing and parking of aircraft, as well as for handling passengers and their baggage, on which consultation will take place beforehand and which are supervised by the Board of the Netherlands Competition Authority (hereinafter: the Competition Authority). This forward-looking, sector-specific form of regulation requires the Competition Authority, at a user s request, to determine whether the charges and conditions for the activities of the Airport operator relating to the use of the Airport by the users, which are defined in the present Decree, are in conflict with the rules laid down by and pursuant to the Aviation Act. This legislation relates specifically to Section 24 of the Competitive Trading Act. The possibility cannot be entirely excluded that the Competition Authority will have grounds to take action under competition law with regard to conduct, on the part of the operator, which is subject to sector-specific rules. The Competition Authority may in any event assess conduct on the part of the operator that does not fall under the sector-specific rules of the Aviation Act on the basis of the Competitive Trading Act. Within the Competition Authority, the Office of Transport Regulation is responsible for monitoring compliance with sector-specific legislation. Investigation of abuse of a dominant market position is the task of the Competition Regulation Department. If it is not initially clear whether the Office of Transport Regulation or the Competition Regulation Department bears primary responsibility for taking action, the two units enter into consultation about which one will handle the case. The Competition Authority has set clear priorities for monitoring compliance of the Competitive Trading Act, so that it can make optimal use of its available capacity. In Sections 8.25d to 8.25j of the Act, further rules are imposed by a general administrative order with regard to a number of subjects. These rules are included in this Decree. In addition, Section 8.29a(2) of the Act provides for the obligation to lay down further rules by or pursuant to a general administrative order with respect to the prescribed reporting by the operator of the Airport on operating Amsterdam Airport Schiphol. Furthermore, pursuant to Section 11.2b of the Act, further rules can be laid down by a general administrative order with respect to the investigation to be conducted by the Minister of Transport, Public Works and Water Management into the Airport operator in connection with supervision of operating the Airport. This Decree became effective in agreement with the Minster of Economic Affairs. Close consultations on this Decree also took place with the Ministry of Finance and the Competition Authority. Bulletin of Acts and Decrees

19 In order to comply with the obligations of the Act with regard to operating Amsterdam Airport Schiphol and more in particular with the obligations on the part of the operator with regard to the determination of charges and the structure of the separate financial records of aviation activities in the accounts, the operator must distinguish unequivocally between regulated activities and non-regulated activities, not only in the financial accounts but also in the cost allocation. Regulated activities are aviation activities referred to in Article 2, paragraph 1 of this Decree, in other words the activities of the operator relating to use of the Airport by the users. In particular with regard to the regulation of charges, this Decree provides specific regulation compared with generic competition law. In respect of non-regulated activities, solely the generic competition rules apply. Pursuant to the Act, obligations apply in respect of aviation activities with regard to the setting and calculating charges and conditions, keeping separate records and drawing up financial accounts. These requirements apply mutatis mutandis to the activities of the operator of the Airport with regard to passenger security and the security of their baggage Requirements regarding transparency and cost orientation of charges The purpose of separate records in the accounts for aviation activities, hereinafter also referred to as the regulation records, is to guarantee, through transparency of the costs of aviation activities, that the charges are reasonable and non-discriminatory, as well as cost-oriented for total activities. This is prescribed by Section 8.25d(2 and 3) of the Act. The requirement of cost orientation applies in accordance with Section 8.25d of the Act for the charges of aviation activities as a whole. This entails that the costs of these aviation activities are covered and the return on invested equity is reasonable. As the requirement of cost orientation applies to total charges for aviation activities, cross-subsidising may take place within aviation activities in their entirety. This is permitted as long as the operator acts in this respect in accordance with the requirements referred to in Section 8.25d (2 to 4) of the Act and Article 13 of this Decree. The requirement of cost orientation at the level of total charges for aviation activities is deemed desirable in order to give the operator of the Airport the option to differentiate between charges, within reasonable limits, for example for the main-port concept, in which respect transfer traffic in particular could be attracted, or for environmental reasons or for the sake of more efficient capacity use. Furthermore, the charges for passenger security and the security of their baggage, which service also forms part of aviation activities, must be cost-oriented with regard to security activities intheir entirety. This is due to the nature of the security activities, the statutory obligation of the Airport operator to carry out such activities and the need to prevent cross-subsidisation with respect to the charges for other aviation activities. The cost-orientation requirement for security measures is also in line with the recommendations of the International Civil Aviation Organisation (ICAO) in its Policies on Charges for Airports and Air Navigation Charges (2004). Bulletin of Acts and Decrees

20 For this purpose, the Airport operator must keep separate records of security activities within the separate records of aviation activities on its books. On that basis, the operator must draw up a financial account for the preceding financial year, in which it accounts for security activities separately. Subject to the cost-orientation requirement, the operator has the option of differentiating between charges, within reasonable limits. Incidentally, the charges must be applied non-discriminatorily and the individual charges must also pass the test of reasonableness. Whether the charges for each of the aviation activities are individually reasonable can for instance be determined based on a comparison between the service provided and the price paid for this service, and by comparing the charges and conditions for such activities at other airports under similar market conditions (benchmarking). The test of reasonableness also entails that an imbalance between the charges and the relevant service offered is not permitted. The quality of the service may be of significance in assessing whether the charges and conditions determined by the operator of the Airport are reasonable in relation to the relevant service offered. The quality indicators of Article 7 of this Decree may apply in this respect. By applying the requirement of reasonableness to the individual charges and conditions, so-called gold-plating can be discouraged, preventing facilities from being provided for which the users have no need but which do affect the charges. Assessing reasonableness does not, of course, affect the operator s obligation arising from Article 8.3 to maintain the Airport s main-port function. The authority to make decisions on investments remains primarily with the operator. An improvement of the quality of the service does not automatically result in gold-plating but may induce the operator of the Airport, at the request of a user, to adjust the service and to offer a cheaper alternative, for example. As indicated earlier, the principle of cost orientation applies to the charges for total aviation activities and total security activities. In determining these charges, the revenue of the Airport operator s other activities that are directly related to the use of the Airport by users is taken into account, in accordance with Section 8.25d(5) of the Act. These activities are described in Article 2, paragraph 2 of this Decree. In accordance with Section 8.25d(7) of the Act, legislation leaves it for the operator to decide whether to take a contribution from the other, commercial non-aviation activities into account in determining the charges for use of the Airport by users and the charges for passenger security and the security of their baggage. Lower charges can consequently be determined for aviation activities. In connection with the consultation involved in determining charges and the obligation to provide economic substantiation of the charges proposal, the operator must always provide supporting information to the users regarding the charges. Bulletin of Acts and Decrees

21 In addition, in determining the charges with due observance of Section 8.25d(2 to 8) of the Act, the operator will include the difference between the estimated and actual revenue and expenses in connection with the projected and actual Airport air traffic volume, transport of passengers and cargo and investments made, as shown by the financial accounts for the financial year preceding the determination of the charges. General principles for settlement of revenue and expenses: - pursuant to Article 4, paragraph 4, the amount to be settled must be the subject of consultation with the users, - pursuant to Section 8.25d(4 and 9) of the Act, as well as Article 4, paragraph 5, settlement will also be effected separately for security measures, - the financial accounts of a financial year must, pursuant to Article 10, contain a breakdown of the difference between the estimated and actual revenue and expenses, in accordance with the requirements of this Decree. Pursuant to Section 8.25g(3) of the Act, an audit report by an independent auditor must be appended to these financial accounts, - pursuant to Section 8.25d(9) of the Act, settlement shall only be effected after the charges have been determined based on the requirements with regard to cost orientation, including the projected return. The charges are subsequently adjusted upwards or downwards as a result of the settlement, - until such time as these charges are implemented, interest (equal to the cost of borrowed capital based on the one-year market rate of interest) on the balance to be settled must be factored in, calculated from the end of the financial year to which the financial accounts relate, - the complaints procedure pursuant to Section 8.25 of the Act regarding the charges to be determined also applies to the settlement taken into account, - if the charges are redetermined as at 1 November for a specific (current) financial year, the settlement rules referred to herein with regard to passing on costs must be taken into account, - the financial accounts of a financial year will show which amount to be settled, as explained in the financial accounts of the preceding financial year, is taken into account in the charges set. Settlement of revenue from charges - In accordance with the explanatory notes to the second ministerial memorandum of amendment dated 14 October 2004 (Parliamentary Papers, House of Representatives, 2004/2005, 28074, no. 9), settlement of revenue is limited to the revenue from the charges for aviation activities, as referred to in Article 2, paragraph 1 of this Decree; - Settlement of revenue is effected for ex post differences between ex ante estimate and actual as a result of: * traffic: number of air transport movements, average maximum take-off weight; * transport: number of passengers embarking or transferring and tons of cargo. Bulletin of Acts and Decrees

22 Settlement of costs - The cost orientation requirement applies at the time the charges are determined (ex ante) for aviation activities (excluding security) or for security activities and not on actual (ex post); - This implies that full settlement of all cost differences will not be effected at the end of a financial year but only the settlement of cost differences arising during the year as a result of: * more/less investments, including disposals (effect on depreciation and cost of capital of the Regulatory Asset Base); * more/less costs in connection with investments; * traffic and transport (to the extent that direct variable costs are concerned); * insurance premiums against terrorism damage; * postponing the execution of activities compared with the projection; * activities imposed by the government or at the request of the users - the above implies that the Airport operator may not set off setbacks and inefficiencies. On the other hand, higher efficiency gain (than estimated) and any windfalls (in so far as these are not the result of postponement or effected at the request of users or imposed by the government) may be retained by the Airport operator. - the actual cost level of a financial year, as laid down in the financial accounts, together with the latest insight into the estimated cost movements for the current financial year (which can also be based on the half-yearly figures for instance), forms the starting point for the cost estimate for the following financial year for which the charges must be determined The allocation system The separate records of aviation activities in the accounts, as laid down by law, depend on a properly functioning allocation system for the revenue and expenses of aviation activities of the Airport operator. For the simultaneous and sequential allocation of revenue, the costs of tangible fixed assets and the other costs (i.e. operating costs) of aviation activities, the operator will adopt an allocation system that requires the approval of the Competition Authority and complies with the requirements set by or pursuant to the Act (Section 8.25g(1) of the Act). These are the requirements of integrality, proportionality and market conformity. The purpose of these requirements and their implementation is to make a contribution to cost-oriented charges and thus to the prevention of unauthorised cross-subsidising. The allocation system forms the assessment framework in this respect. As it must first be approved by means of a system assessment by the Competition Authority, it is an important supervisory tool. The allocation system, which states the principles for determining to what degree operating assets are to be used for aviation activities, must meet three requirements, which are briefly discussed below. Bulletin of Acts and Decrees