The Concession of Plovdiv Airport has been Cancelled – Why?

At the beginning of the month the Ministry of Defense transferred its ownership share of Plovdiv and Gorna Oriahovitza Airports to the Ministry of Transport. According to the official position of the resource ministries, this was the first step from the procedure of giving under concession the above-mentioned airports. Concession of the airports is pointed out as a priority in the long-term strategy for development of transport infrastructure of Bulgaria till 2015. This should mean that economic and expert analyses have already been prepared and there is a political will for accomplishing that goal.

However, in the middle of August, the Bulgarian press released information that the Ministry of Transport has given up the idea to attract a private investor into the project of modernization and maintenance of Plovdiv Airport and the government is going to finance the construction of new terminals and gateways with money from the budget. There is no justification to what is due this unexpected turn in the intentions of the politicians, an analysis or any other relevant assessment of the potential effects of this decision have not been presented before the public. The only explanation that comes from the officials is that the Ministry of Defense has imposed seven conditions for the concession of the airports. However, this is not new – government officials were aware of these conditions months ago, at the very start of the negotiations for transferring of the ownership between the ministries. A concession procedure has never started, so the decision of the Minister cannot be justified with a lack of interest from potential investors. Then comes the question: why has the concession been cancelled and what stays behind this decision? 

Investments in the Plovdid Airport are more than necessary at this moment, when there is a growing interest from airplane operators and low-budget companies that are entering the domestic market and are very active after the liberalization of the air transport in the country due to the Bulgaria's accession to the EU. The passenger gateway of Plovdiv Airport does not meet the international and EU standards, and it is currently operating only freight flights. 

The cancellation by the Ministry to give the airport under concession means that the government will spend money of the taxpayers in order to modernize the airport. Facts, history and theory unambiguously show that when the government manages an asset, the resources are not used most efficiently and effectively. The reason for this is trivial – people are rational and as such, they pursue their own interests. While in the private sector the interests of the entrepreneurs coincide with the goal of profit maximization, meeting of long-term objectives for attracting clients and achieving sustainable results, the incentives of managers of state-own enterprises and politicians differ substantially – they are most concerned with the number of the potential voters, the political environment and opportunity for personal benefit from realization of public projects. 

Thus, we are again facing the lack of transparency in decision-making by government officials. The money, that are going to be spent on modernization of the airport infrastructure, are taken from taxpayers and they have the right to know why is their money allocated to projects that could be financed from other sources and, what is more, better results could be achieved. This decision also negates the strategy for development of the infrastructure in the country and indirectly proves that writing of "wishful" strategy documents bears costs (financed with taxes), but fails to show off the true intentions of political leaders.          

According the timetable for the development of airport infrastructure in the country, that are provided in detail as an annex to the strategy, the following phases should be undertaken:

  • 1) Till July 2007 – transferring the government ownership from the Ministry of Defense to the Ministry of Transport;
  • 2) Till December 2007 – negotiations with TADO AG about the possibility of taking concession of the airport and solving any problems with the ownership;
  • 3) Till May 2009 – preparation of documents for concession and announcing a tender;
  • 4) Till August 2009 – opening the concession tender;
  • 5) Till October 2009 – signing the concession contract and taking possession.

 The sudden change at the very beginning of the realization of the schedule reveals a lack of coordination and coherence in policy-making by different government authorities, pursuing of special interests that are not publicly revealed.              

According to the Private Participation in Infrastructure (PPI) Project Database of the World Bank that provides analysis and follows the trends of the developing world in private sector participation in infrastructure, the last several years are characterized by accelerating expansion of private capital attraction in the management, financing and maintenance of the airports. There are different forms of private-public partnership schemes in airport infrastructure construction – such as management and lease contracts, concessions, divestures, and greenfield projects. In 2005 total investments in airport projects amounted to more than 7.5 billion USD in the developing countries.  

The practice of private companies to manage and maintain airports exists since the end of the previous century in more than 60 countries – 16 EU-members, also Australia, Chile, Thailand, Russia, Turkey, and India. Two of the most extensively utilized airports in the world, Heathrow and Gatwick (London), are fully privatized and are successfully managed by private owners.  

Penetration of the private sector in maintenance of airports leads to the following results:

  • Better quality of service of passengers and clients of the airports;
  • Increased traffic of passengers;
  • Lower airport fees;
  • Development of other activities in the airports such as trading centers, shops, restaurants, etc.

Here is what is written on the Internet site of the Ministry of Transport: "Many surveys show that through development and modernization, private operators of airports provide higher quality to the services. Analysis by the World Bank show that compared to the state-owned airports, private operators are able to more than double the revenues from trade per passenger. These activities are connected with additional services, more job places and paying taxes".  

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