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Public-private partnership: Why doesn't it work in Ukraine?

Author : Igor Smolov

World experience and Ukraine's example of the airport "Kyiv" on public-private partnership
14:55, 20 July 2018

Read the original text at 112.ua.  

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Eurotunnel under the Channel, the world's highest transport bridge Viaduct Millau, Istanbul Ataturk Airport. These and dozens of other infrastructure pearls appeared thanks to the public-private partnership. More precisely, concessions. Even the first economies of the world go this way. The others have only to repeat this mechanism on their own territory.

One of the most popular concession models is Build-Own-Operate when a concessionaire (an investor) builds or reconstructs an object of the state property, earns on exploitation and pays to the state for it. The objects of concession agreements are increasingly strategic objects, for example, railways, airports, and utilities. How does it work? Over the past decade, the total investments of the private capital into the aviation infrastructure of 30 countries of the world have exceeded $ 90 billion.

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Turkish Air Hub

The experience of Turkey can be called exemplary. Over the past 15 years, the number of airports in the country has increased from 26 to 55. Together they serve 180 million passengers. The largest airports are in concession. In 2005, the local investor TAV Airports Holding won a concession agreement for the 15-year operation of the Ataturk International Airport. The company invested $ 2.5 billion, and the airport became one of the leaders in terms of passenger traffic in Europe.

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Ataturk International Airport

Another example is Sabiha Gokcen airport. Since 2007, it has been transferred to Turkish conglomerate Limak, India's GMR group, and Malaysia Airport Holding Berhad for modernization. In 2017, the total passenger flow of the above two airports reached 95.1 million. The dynamics are impressive: in just a year this figure has increased by 5 million people.

In October 2018, the New Airport of Istanbul (New International Airport) to be opened. Its capacity of 150 million passengers a year will make it the largest airport in the world. The object is not built by the state, but by the Cengiz-Kolin-Limak-Mapa-Kalyon consortium. The volume of investments is $ 35.6 billion, including the concession commission that the budget received - $ 29 billion.

 

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Experience of Georgia

 

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Batumi Airport

Georgia has also made a bid for air travel. In 2005, Tbilisi International Airport was transferred for 20 years to the management of TAV's member company, TAV Urban Georgia. Two years later a similar agreement was signed with the airport in Batumi. For 10 years, the concessionaire invested over $ 100 million in these airports. Part of the money was spent on the new terminal for the capital airport with an area of 12,000 square meters. It was equipped with parking for five aircraft, two corridors for landing and exit, a hundred-meter baggage carousel. As a result, the increase in passenger traffic in 2017 in the country was called unprecedented: by 43% at the Tbilisi airport and by 56% in Batumi.

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Bulgaria did it too

German operator Fraport develops the Bulgarian airports. The company works in a consortium with the local players. So appeared JSC "Fraport Twin Star Airport Management" in Bulgaria. Since November 2006, it operates two airports in the country (Varna and Burgas). The contract is signed for 35 years.

 

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Varna Airport

The company has already invested more than 170 million euros in the modernization of infrastructure, systems, and services. In 2013, two new terminals at two airports were opened. Burgas Airport has a terminal with an area of 21 thousand square meters, and the annual operating level has increased to 2.9 million passengers. Varna has a terminal for 18 thousand square meters, a reconstructed runway with a length of 2500 m. was opened. Last year, 1.9 million passengers were served here.

In the spring of 2018, another Bulgarian airport received a concessionaire. The consortium of Chinese HNA Group and local Plovdiv Airport Invest took Plovdiv Airport into a concession for 35 years. During this period, the Chinese HNA Group must invest 79 million euros in the construction of a new and reconstruction of the existing infrastructure. The airport, being the fourth in terms of passenger traffic in the country, serves up to 600 passengers per hour.

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Meanwhile, in Ukraine ...

The issue of public-private partnership remains topical. Occasionally, the media is shaken with statements of intention to grant "Boryspil" and "Lviv" airports for concession. There are enough supporters and opponents of this idea. On the one hand, there is some positive world experience, on the other, airports that need serious modernization are usually subjects to the concession. Neither Lviv nor Boryspil can be attributed to such a category.

In 2010, according to the results of the competition Igor Sikorsky Kyiv International Airport has got its investor – Ukrainian company OOO "Master-Avia". De jure, the parties signed a lease for 49 years, a de facto concession.

 

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Igor Sikorsky Kyiv International Airport

The investor has received only buildings, old terminal complexes, a fuel depot, a hotel and a motor depot. For its part, he has undertaken the obligation to pay annually a lease at a rate of 6% from the cost of this property, to construct the new international terminal, to employ the staff, and to pay off debts of the enterprise.

A year after the signing of the contract, Master-Avia has fulfilled these requirements. On its own land that adjoins the territory of the airport, the investor built three terminals - international, domestic, and business, platforms for parking aircraft, purchased equipment for airport maintenance. The number of investments exceeded $ 50 million. For seven years, passenger traffic increased by 60 (!) times - from 29 thousand to 1.8 million passengers per year. The airport was visited by 20 new airlines.

A modern airport built on the ruins, which helped Kyiv to host Euro 2012, brought 11,5 million USD taxes to the treasury.

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Even at the time of signing the contract in 2010, it was clear that it is impossible to effectively manage the received buildings, and to make a profit, which is exactly what classical leasing implies. Because each building was in an emergency condition. Therefore, instead of them, the investor built new terminals, which we now call "Kyiv" International Airport.

In fact, we are dealing with a concession agreement on the model of Build - Own – Operate. The concessionaire builds and operates the facility (terminals), perpetually owns it on the right of ownership.

Proven methods

Ukraine did not use the approved mechanism for the development of regional airports in Chernivtsi, Ivano-Frankivsk or Odesa. The investor was accused of violating the conditions of the contest, causing damage by 4,5 million USD and obtaining undue profit.

In June, employees of the National Anti-Corruption Bureau came to the airport with an armed search. For 19 hours, Zhuliany has been serving the flights, while the management and the flight safety officers were locked in their offices. What was that? A special political order, attempts to "squeeze out" the restored infrastructure? Was is the hype of NABU or the habit of the law enforcers to act in the old-fashioned way? A month after the search, the Prime Minister of Ukraine announced a "risk-oriented" approach to business checks that would exclude "formal" claims and open the way for investors. We do not need this way. Leave the airport alone.

This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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