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Namibia: World Bank Tells Government to Get Private Airport Investors

by allafrica.com

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By Shinovene Immanuel

THE World Bank has advised the government to partner private investors to manage the Hosea Kutako International Airport to avoid using taxpayers’ money for costly airport upgrades.

In a confidential report dated 24 April 2018 directed to the finance ministry, the World Bank estimated that the government could spend anything between N$2,7 billion and N$5 billion (including an expensive runway) to upgrade the Hosea Kutako International Airport.

Finance minister Calle Schlettwein, whose ministry asked the international bank last year for advice on how the government could go into public-private partnerships (PPPs) to manage the airport, confirmed the report to The Namibian yesterday.

A public-private partnership is an agreement between the government and a private investor who, in this case, could upgrade the airport at their own cost, and manage it for several years to recoup their money.

The World Bank report titled ‘Assessment of Potential Financing and Investment Options to Implement the

Envisaged Expansion of the Hosea Kutako International Airport’, said partnering private investors is an attractive and feasible option.

“A public-private partnership would allow for the required development and enhancement of the Hosea Kutako International Airport’s infrastructure, while generating budget efficiencies and fiscal relief for government to sustain the rest of the airport network,” the report stated.

According to the bank, through operational efficiencies and commercial development, a public-private partnership would not only support the airport, but will generate extra money to the government while transferring knowledge and expertise to Namibians.

The report further said plans for the operation of Eros Airport should be addressed when evaluating a public-private partnership for Namibia’s largest airport.

“Mechanisms will have to be put in place to guarantee receivables from Air Namibia, under the current circumstances,” the publication said, adding that estimated traffic at the international airport could increase by 50% between 2021 and 2030.

The World Bank said private operators would push for increased traffic at the airport.

“Management staff are also usually kept by the private operator (only a few high-level executives are usually brought in),” the report said, adding that an agreement could require the airport operator to keep all or part of the staff for a period of time.

The World Bank gave the government several options on how it can partner with a private company, namely through a sale of shares (privatisation), a concession, or a management contract.

The bank defined the sale of shares agreement as a deal where the government sells a stake in the airport to private investors (usually through public offerings).

“Some countries choose to set a maximum of 49% share sale to retain control over strategic decisions,” the report said, adding that more risks are thus transferred to the private sector.

Examples of airports which use this type of partnership include the OR Tambo Airport in Johannesburg, Heathrow in London, as well as airports in Zurich in Switzerland and Munich and Frankfurt in Germany.

The other option explained by the World Bank is called a concession, which is generally awarded through a competitive public tender.

The report said the required investment options are usually financed by the private company, which also pays a concession fee to the government.

Calculations by the bank show that the Namibian government could be paid around N$3,1 billion after 30 years in a concession deal.

The World Bank said the length of the contract’s duration is normally between 15 and 30 years.

“Depending on the airport size and profitability, a combination of an upfront payment and an annual concession fee can be set,” said the bank.

Examples of cities using this format include Athens, Sao Paulo, Rio de Janeiro, Istanbul, Santiago, New Delhi and Mumbai.

The third option explained to the government was a management contract, where a private operator is hired to manage certain parts of the airport, while other operations remain under government control.

“The responsibility for financing investments is of the state. Suitable for airports that have little or no operating surplus,” the bank said.

The World Bank, however, warned that evidence shows that the third format has limited success.

Examples of this type include the Albany International Airport in New York, and airports in Cairo, Indianapolis, King Khalid and King Abdulaziz in Saudi Arabia, and the Lynden Pindling International Airport in the Bahamas.

The bank said government-owned and operated airports are most common in Africa and the Middle East, but there are several ongoing public-private partnership developments not yet implemented.

The World Bank said the Namibian government could opt for a concession arrangement, where a private company is granted the rights to run the airport for several years.

The bank gave an example of the decision by the Macedonian government in 2008 to sign a 20-year concession contract with TAV Airports Holdings to build, operate and transfer the country’s two largest airports – Skopje Alexander the Great, and Ohrid St Paul the Apostle.

As part of the agreement, TAV is entitled to 4% of the gross annual revenue levied at both airports, the report said.

The bank did not include any disadvantages of public-private partnerships in its report to Namibia.

Even though this partnership is seen as a way to save government funds, others see it as a burden that could be costly to the public in the long-term.

DILEMMA

Schlettwein told The Namibian yesterday that the government is reviewing the World Bank report, and that it gives more options on how to fund the airport without only looking at the loan to finance the upgrades.

“We received the report. There are some suggestions that we can look into,” he said, adding that the government is in the scoping phase of the airport project.

The report comes at a time when the government wants to borrow billions from the Chinese government to upgrade the international airport.

“To accommodate the demand expected by 2045, an investment of approximately US$152 million (N$1,9 billion) to US$167 million (N$2,1 billion) would be required,” the report said under a sub-heading titled ‘Construction of Additional Capacity’.

The latest figures prove that the previous N$7 billion that the Namibian government wanted to pay in 2015 appears inflated.

The Namibian reported at the time that over N$100 million was being paid out as bribes to senior Namibian government officials and business people.

It’s unclear whether the bribes were paid back, but there is a school of thought that the government will be forced to get a loan from China because a lot of senior government officials’ palms were greased.

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