Policies do not favor private sector in airport projects

SGI

When the Prime Minister approved the renewed Aviation Transport Development Plan for 2020 with orientation towards 2030, many believed this would open doors for the private sector to enter the aviation industry. However, nothing seems to have changed either in policy nor in practice.

Van Don Airport is an example of private sector success.

Van Don Airport is an example of private sector success.

Mixed opinions of concerned ministries

Currently, the Ministry of Transport is seeking suggestions on orientation in airport construction investment, and will then submit it to the Prime Minister for further consideration. According to the project, the  Airports Corporation of Vietnam (ACV) plays the role of capital representative, and the State holds dominant shares upto 95.4% of charter capital. ACV will be responsible for the development and monitoring of investment of twenty-two airports, of which the management and operational responsibilities it will solely undertake. At the same time, it must invest in the Long Thanh International Airport, and only outsource unnecessary items and non-aviation service construction.

The Ministry of Transport also said that according to the medium-term investment plan for 2025, ACV has not yet made investment plans for airports in Sa Pa, Lai Chau and Quang Tri. Therefore, the ministry proposes to call for outside investors for these three airports in the form of public-private partnership (PPP), or under build-operate-transfer (BOT) contracts, same as for Van Don airport. Private enterprises will have to compete fiercely to win slots for these three new airports if they want to invest and enter the aviation industry in Vietnam. However, only in this proposal of three airports has the Ministry of Transport been flexible, as ACV is still assigned to invest in twenty-three airports across the country.

To prepare for investment in future airport projects, ACV has developed a plan and submitted it to the Commission for the Management of State Capital for Enterprises (CMSC) and the Ministry of Transport. In the report, ACV will invest the capital,  renovate, upgrade and expand twenty-one existing airports and Na San airport by 2025 at a cost of about VND 71,300 bn. Accordingly, ACV accumulated cash flow from production and business activities in the period 2019-2025 will reach about VND 83,700 bn and current cash of around VND 24,200 bn will ensure a 40-45% reciprocal capital for borrowing for the Long Thanh airport project. In case ACV is assigned as investor of essential items for Long Thanh airport, cumulative cash flow for 2016-2020 will be VND 130,900 bn.

However, this proposal of the Ministry of Transport is facing mixed opinions from concerned ministries and several agencies. The Ministry of Planning and Investment suggested that there is no limit on the list of airports that can call for outsourcing. Accordingly, the identification of an airport and port infrastructure works calling for outside investment should be based on the needs under the approved plan, as well as the ability to balance capital.

The Ministry of Justice also sent a written request to the Ministry of Transport to answer the content referring to outsourcing of construction of airports, which would then necessitate that the Ministry of Transport overall assessment of the management capacity and effectiveness of ACV for the twenty-two airports mentioned above. Except for Long Thanh Airport, because it is being submitted to the National Assembly for comments, the basis for considering and deciding on investment criteria for airports must be reviewed.

Monopoly must be avoided

Commenting on the proposal of the Ministry of Transport for airport investment projects, Mr. Luong Hoai Nam, a member of Tourism Advisory Council, who has for many years been working in the aviation industry, said that if ACV maintains monopoly in the airport sector, the equitisation of this enterprise will be wrong. If not corrected, private and foreign shareholders at ACV will continue to enjoy super profits. This is an injustice to other potential investors and users of aviation services.

With the Ministry of Transport already preparing to allocate twenty three airports to the Airports Corporation of Vietnam (ACV), any private enterprise that is interested in investing in airport infrastructure will have to compete fiercely with even better offers, if it aims to make any breakthrough in this aviation sector.
Also according to Mr. Luong Hoai Nam, due to an inadequate equitization method, ACV has become a strange airport enterprise, different from other airport developers. At the same time, maintaining ACV monopoly in twenty-one existing airports, except Van Don airport and the Long Thanh airport super project, is not consistent with any world trend or development model of a private economy of the State.

In fact, many countries in the world  have no monopoly over airport projects, but have opened them to private investors so as to reduce the burden on the national budget. The trend of airport outsourcing began in the U.K. in the 1980s, and eventually was adopted by many countries across the world. In Russia, Moscow has three major international airports, but the state manages only one airport, while the other two are managed by private enterprises. Thailand Airport Group currently manages only six major airports out of a total thirty-eight civil airports.

Similarly, in Australia, the State has sold off most or all of the major airports in Brisbane, Melbourne and Perth, to private operators. According to Mr. Peter Kirsch, a transportation partner of Kaplan, Kirsch and Rockwell Law Company, in the United States after World War II, the principle behind airport operations is that the local government owns and operates them while the federal government provides the capital for construction and part maintenance costs.

According to new calculations published by the International Airports Council, airports in the US need USD 128 bn for infrastructure spending in the next five years. To meet this huge demand, a number of US airports have begun to abandon the model of public ownership, and instead are turning to private investors to raise the much needed billions of dollars for upgrading and renovation of existing infrastructure while also for construction of new infrastructure, which is typically the public-private-partnership method.

Luu Thuy

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