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SH&E FEATURED PROJECT
The move to privatization by any country requires
an understanding of an airport's value to a bidder. A government must
know what to expect in the bidding process, and anticipate the value of
the airport concession which it hopes to realize. The Mexican government
has been working for more than two years on privatizing substantially
all of the airports in its airport system and has faced a number of difficult
challenges along way.
In Mexico, one of the primary problems has been a lack of information
by the government to evaluate the financial performance of its airports,
and thus to realize the "value" of its airports. Airport accounting
practices in Mexico were designed for national budgetary purposes, and
do not present a realistic financial picture of each airport in the system.
Specific airport tariffs have no relationship to the actual costs of providing
services, and there is a high level of cross subsidization between airports,
further complicating the evaluation of airport performance and value.
Another concern of the Mexican government has been that of the economic
regulation of private airport operators. If Mexican airports are to be
privatized, how would the government be able to protect airport users
(principally the airlines) from monopolistic tendencies of an airport
operator. The government desired to understand the best practices of other
countries throughout the world so that it could develop its own regulation
appropriate to local conditions in Mexico.
SH&E was charged with developing the theory
behind economic regulation and developing pricing strategies to prepare
the airport system for privatization. Our work was a World Bank funded
pre-privatization exercise to prepare the way for airport privatization.
SH&E provided the following services to the Secretaria de Comunicaciones
y Transportes (SCT) of the government of Mexico:
Benchmarking of airport tariffs - One of the first priorities in airport
privatization is to determine if existing airport prices are "competitive"
in the world market. The ability to increase airport tariffs represents
unrealized value to a private operator. SH&E conducted a broad benchmarking
study of more than 100 airports comparable to those operated in Mexico
to benchmark current aeronautical tariffs. In addition, SH&E developed
a comprehensive analysis of airport tariffs of the top five airports in
Mexico and the top five US gateway airports used by Mexican airlines.
Financial simulation model - SH&E developed a financial model for
each of the 56 airports in the Mexican aviation system on a desegregated
basis. The model was used to evaluated the financial performance of individual
airports, groupings of airports, and the impact of changing pricing strategies
(see below). It was subsequently used by the investment bankers to develop
groupings as part of the overall concession strategy. The model provided
a functional allocation of costs and overhead, and estimates of infrastructure
investment requirements, which were missing from the financial statements
of the airports. This model was used as part of the valuation process
for the airport system.
New aeronautical pricing structure - The current airport tariff structure
in Mexico is developed outside of the airport system by the national treasury
(hacienda). There is no functional link between tariffs and the costs
incurred by airports to deliver these services. Using a financial simulation
model, SH&E developed and recommended a new pricing structure which
better reflects airport costs.
Options for economic regulation - SH&E evaluate the "best practices"
of economic regulation used throughout the world. Seven systems were identified
as representative of the leading approaches used by governments to regulate
airport prices. SH&E used these approaches to develop a recommended
approach for Mexican economic regulation. The approach was patterned after
the Australian model of price cap regulation for the monopolistic portion
of an airport.
Length of the Assignment August 1996 to March 1997
THERE ARE FEW MODELS APPROPRIATE FOR DEVELOPING COUNTRIES
One of the major lessons from the Mexican experience
is the lack of precedence for airport privatization in the developing
world. Despite the considerable number of countries actively considering
airport privatization, only a few have actually consummated transactions,
and substantially all of these have been in the developed world.
Developing countries have a number of factors which must be considered
in the decision of regulatory approach. Will the government require active
or passive economic oversight of a third party operators? What is the
level of independence of the regulator? What is the level of historical
information available to evaluate the performance of a third party operator?
How does the government establish quality of service standards where there
have been none in the past? What burden of expense can the aviation system
support in funding economic regulation? What is the tradeoff between regulation
and the value of investment which the government wishes to accept?
These are all questions which arose in the course of analysis of the economic
regulatory policy in Mexico. However, these are also the same questions
which will be asked as other developing countries grapple with airport
privatization. The answers are to be found in understanding the practices
of regulation used around the world, and to use this knowledge to design
a local approach.
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