Principles of Good Airport Regulation Stuart Holder Associate Director, London Lisbon 22 November...
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Transcript of Principles of Good Airport Regulation Stuart Holder Associate Director, London Lisbon 22 November...
Principles of Good Airport Regulation
Stuart Holder
Associate Director, London
Lisbon
22 November 2005
2
Why Regulate Charges?
Traditional view – stop monopolists from over-charging
– only applies where airports have market power
– protection for airlines and other airport users
But regulation also protects investors
– from political intervention for lower charges / higher quality
– from unreasonable pressure from users, media, etc
A clear framework for establishing tariffs facilitatesinvestment, and so is good for everyone!
3
What Can Go Wrong?
Too much risk and uncertainty
– at project inception – will be priced into initial bid
– during operation – messy arguments, discourages investment, etc
Profits are too high
– pressure (from airlines / politicians / media) to change contract
Profits are too low
– discourages future investment / innovation
– risk of bankruptcy (disruptive, and discourages private investment)
4
How to Regulate Charges
Allowable tariffs set out in concession contract
– but could also use separate legal instruments
Many options for reviewing tariffs over time
– purely mechanical formula (eg CPI, possible volume term)
– reviews confined to certain issues (eg traffic volumes, future capex)
– general review, but some parameters fixed (eg rate of return)
– automatic vs discretionary reviews
Risk allocations need to be sensible, efficient,affordable, clear and sustainable
5
Hot Topic: Single or Dual Till?
Do profits from commercial activities lead to lower airport charges?
Yes = Single till– lower, more efficient, charges at uncongested airports
No = Dual till– may be more appropriate for congested airports
– strong investment incentives + long term view to commercial activities
– higher proceeds from any privatisation
No obvious “right” answer, and hybrid options exist.But difficult to change once one approach is in place
6
How to Make Regulation Better
Ensure regulator has adequate skills and resources– many failings are from poor decisions, rather than a poor framework
– consider effective use of regulatory boards?
– ensure adequate funding
Ensure regulatory framework provides:– a clear basis for setting tariffs
– an effective appeals mechanism
– transparency, and effective participation
These will help ensure the regulator uses hisdiscretion sensibly
Contact Us
© Copyright 2005NERA UK Limited
All rights reserved.
Stuart Holder
NERA Economic Consulting15 Stratford PlaceLondon W1C 1BE+44 20 7659 [email protected]