Commercialization of Airports in South Africa

Privatization of Airports in South Africa

In the late 1980s, Department of transport started to conduct an investigation to assess the feasibility of commercializing airports. In July 1992, a policy document recommended that the nine Government-owned airports be transferred to a new State-owned Enterprises (SOE), in which Department of transport(DOT) would be the sole shareholder.

In July 1993, the Airports Company South Africa Limited (ACSA) was established under the Airports Company Act (Act No. 44) of 1993. The ownership and responsibility for the operation of the nine Government-owned airports with all assets and liabilities were vested in ACSA (in 1998, ACSA was also granted a 35-year lease and concession to manage Pilanesberg Airport and, in April 1999, took over its management from the North-West Provincial Government). The incorporation of ACSA was followed by restructuring the company, tendering concessions for non–aeronautical services (including land transport) and liberalizing ground handling services. For the first two financial years, the company received subsidies totaling ZAR 58 million from the Government. Since then, it has been operated as a non-subsidized commercial entity at arm’s length from the sole shareholder, the Government.

In August 1996, the Government issued a white paper on national transport policy stating that strategies to attract foreign capital, technology and management skills to ACSA be explored and that the company would not have to remain fully Government-owned. Planned was the two-phase sale of the company’s minority stake to private entities, i.e. the acquisition of a Strategic Equity Partner (SEP) followed by the listing of its remaining shares on the Johannesburg Stock Exchange, with the Government retaining a 51 per cent stake. The competitive bidding for the selection of a SEP attracted many bids, inter alia, BAA plc, Schiphol Airport, Aeroporti di Roma (ADR, an Italian airports-management firm) and Frankfurt Airport. In April 1998, ADR won the bid and paid ZAR819 million for 20 per cent of the company’s shares with an option to take up a further 10 per cent stake. In July 1998, a total 4.22 per cent stake was also sold to five empowerment consortia at ZAR172 million.

Since March 2001, however, the initial public offering (IPO) of ACSA has been postponed a number of times, despite continued solid and sustainable financial performance. In September 2005, ADR agreed with the Public Investment Corporation (PIC) for the sale of its 20 per cent stake in ACSA at ZAR 1,675 million. Reportedly, the decision of sale by ADR was due to the delays in the IPO. PIC is owned solely by the Government and functions as a non-bank provider of financial services and manages funds on behalf of the Government Employees Pension Fund (GEPF). With respect to non-ACSA airports, the majority of them continue to be owned at a municipal level and their operating deficits have been subsidized from the municipal councils.

Economic oversight

The Airports Company Act of 1993 empowered the Regulating Committee, a semiindependent statutory body appointed by the Minister of Transport, to regulate ACSA’s airport charges, prescribe service standards, and investigate complaints or conduct investigations. The aim of the Regulating Committee is to restrain ACSA from abusing its monopoly position and to encourage ACSA to increase efficiency of its operations without lowering the standards of its services or compromising the integrity of its business. Airports that do not belong to ACSA are outside the scope of the Regulating Committee.

The Regulating Committee set airport charges under a single-till model with a price-cap approach that nevertheless integrates some rate of return based characteristics. The Permission enables the company to levy airport charges, but simultaneously contains conditions on increases in such charges and service standards. It is valid for five years, and ACSA is allowed to increase airport tariffs annually as provided for within the Permission.

In 2010, ACSA went to court and successfully challenged the Permission granted by the Regulating Committee. The Minister of Transport subsequently established a Task Team, which proposed some key recommendations to the Minister, which that then put to the Regulating Committee for review.

Source: ICAO

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