Sotiris A. Pagdadis, Ph.D.

Transcription

1 Leveraging PPPs for Airport Management and Development ACI 21 st African Region Annual Assembly, Conference and Exhibition: Overcoming the challenges of Airport development in Africa 28 August, 2012 Livingstone Zambia Sotiris A. Pagdadis, Ph.D.

2 Background to Airports and Air Traffic in Africa

3 African region still forms a small proportion of the global air traffic Total Passenger Market Share (Revenue Passenger Kms) Europe Asia Pacific North America Middle East Latin America Africa Total Freight Market Share (Freight Tonne Kms) Europe Asia Pacific North America Middle East Latin America Africa 28% 24% 11% 3% 27% 30% 8% 5% 2% 39% 22% 1% Source: IATA Source: IATA Africa contributes less than 2% of passenger and freight traffic

4 However, it is also one of the world s fastest growing regions for both categories... 25% 15% 5% -5% Air Traffic Growth in Key Regions (YTD 12 vs YTD 11) Africa is showing consistent growth across passenger and cargo traffic, surpassed only by Middle East... and the trend is expected to continue GDP growth rate 2012 (Projected) 2013 (Projected) Africa 5.4% 5.3% World 3.5% 3.9% -15% Source: IMF RPK Growth FTK Growth Source: IATA In general, air traffic growth mirrors global GDP growth, and based on IMF data, Africa is poised to grow at a much faster rate than the average world economy

5 Air traffic indicators in Africa have recovered well after the slowdown 30% Growth % Air Traffic Indicators in Africa PLF 80 Average Growth Including Excluding RPK 4.8% 7.9% 25% 20% 15% 10% 5% ASK 4.9% 7.4% FTK 1.7% 4.8% ATK 3.7% 6.3% 0% -5% -10% -15% YTD12 Growth in Revenue Passenger KMs Growth in Available Seat KMs Growth in Freight Tonne KMs Growth in Available Freight Tonne KMs Passenger Load Factor (PLF) Barring which saw the global airline industry take a hit, the passenger traffic for Africa has been consistently growing Source: IATA

6 ...and it is forecasted that it will be the next big driver for global economic growth 2,500 Forecasts: African Economy & Air Traffic Key Drivers Large base effect caused by the opening up of under-developed economies 2,000 1,500 1, Of 45 countries, 11 have more than doubled in size since New Development of industries and diversified growth Chinese and Indian investments seeking natural resources - Fleet in service Population (Million) RPK (Billion) GDP (US Billion) Development of domestic feeder services and development of hub-spoke model Need for substitution of poor road and nonexistent fast train network Source: OAG, McKinsey, IMF estimates and Public Information

7 SOUTH AFRICA EGYPT MOROCCO NIGERIA TUNISIA KENYA ALGERIA ETHIOPIA TANZANIA (UNITED MAURITIUS LA REUNION GHANA SENEGAL CAPE VERDE MOZAMBIQUE ZAMBIA UGANDA NAMIBIA MADAGASCAR CONGO CAMEROON BOTSWANA GABON SEYCHELLES CONGO (DEM REP) COTE D'IVOIRE TOGO BENIN GAMBIA BURKINA FASO RWANDA GUINEA MALAWI BURUNDI DJIBOUTI MAURITANIA SIERRA LEONE NIGER ERITREA CENTRAL AFRICAN SWAZILAND However, airport and routes have been traditionally concentrated in a few pockets Distribution of Air passenger traffic by countries in 2011 (in million passengers per annum) 8 countries contribute to more than 80% of Africa s traffic 2 countries and 6 airports contribute to more than 40% of all traffic Source: ACI Passengers 2010 Passengers 2011 Less than 20% of Africa s 150+ operational airports have traffic of more than 1 million passengers per annum

8 ... with continued poor quality of infrastructure Physical Lack of terminal facilities Inadequate customs/ immigration, baggage handling facilities etc. Inadequate runway capacity and air traffic facilities Lack of night landing and take off lights Peripheral Unreliable Power Supply Disorganised customer handling services IT Infrastructure Inadequate IT networks Absence of services like CUTE/ CUSS Absence of basic airport automation like boarding systems, cargo handling systems at many airports etc Note: includes commercial and non-commercial airports Source: World Bank Survey

9 As these airports are upgraded, significant financing challenges are envisaged requiring Private Sector Participation Annual Financing Needs = $ 93.3 billion DFIs & bilaterals, 6.1 Public sector, 9.4 Private sector, 29.8 Financing gap, 48 Current spend = $ 45.3 bn Financing gap = $ 48.0 bn Resources from public sector and other developing agencies are limited and can only cover part of these financing needs Therefore it is important to leverage private sector financing to support infrastructure developments Source : Africa Infrastructure Country Diagnostic

10 PPP for Airport Development Key considerations

11 Private Sector Participation in the PPP model bring important benefits to infrastructure projects Benefits of Private Sector Participation Extracting long-term value-formoney through risk transfer Improving Efficiency and Competitiveness Ensuring transfer of skills Supplementing limited public sector capacities Providing critical financial support Bringing innovation

12 However, PPP projects also have inherent challenges and risks associated with them High Development, bidding and ongoing costs Does the benefits of a PPP model outweigh costs? Higher return expectations Need for sufficient commercialization potential to incentivize private sector Financing challenges Political and social challenges Ensuring the ability to finance the project, especially under uncertain demand through adequate supporting clauses Perceptions on various issues including tariff increases, perceived loss of control, land procurement and job losses Incomplete transfer of performance risks Even if the government has minimal stake in the project, public will continue to hold the government responsible Unanticipated events in the long term Re-negotiation of contract terms may ensue during the project implementation to factor in unanticipated externalities

13 There are several conditions precedent to a successful PPP process Political stability Favourable policy environment Effective legislative, legal and controls framework Internal government expertise in PPPs Need for strong sponsor units Robust project prioritization and preparation Standardization of agreements and track record for sanctity of contracts Macro factors Project-specific factors Adequate scope and complexity of the project Sufficient demand and commercialization potential Demonstrable social and economic benefits Measurable output indicators Framework to ensure adequate competition for the project Clearly defined value addition for government

14 Size of the airport is an important factor for possible development on a PPP basis 1. Relatively larger airports that can be commercialized Higher volumes and typically more predictable growth patterns leading to lower risk profiles Greater ability for private sector to finance the project purely on the basis of revenues and concession contracts Larger potential for non-traffic revenues, leading to off-airport development 2.Relatively smaller airports present challenges for commercialization Uncertainty in pace of growth (leading to high demand risk) Less attractive to investors and need for substantial concessions and grants Lower potential for commercialization inside the fence Minimal scope for non-traffic revenues, and limited scope to operations within airport premises, possibly restricting investor classes

15 It is further important to recognize the various forms of Public Private Partnerships... Low High Fee-Based Contract Services Construction Manager at Risk Design Build Finance Operate Full Service Concession Asset Sale EPC models Developer models DBFO/DBFOT models BOT/BOOT models BOO/Joint Development models Concessions can be creatively structured based on desired private sector involvement in the airside, terminal-side and city-side infrastructure which carry different risk-reward profiles.

16 ... and choose the most optimal one to meet the present and future needs Needs Assessment Risk Allocation Service Delivery Components Budget Refinement Define the service needs and objective clearly Design, Financing and Construction Project design Determining the overall cost saving Quantifiable and measurable objectives Service delivery Procurement and construction Providing a benchmark to private players Important for future monitoring and analysis Operation and Maintenance Financing Ownership Operations and maintenance

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