AS IS now common knowledge, the new King Shaka International Airport in Durban opened its doors for business two months ago with much fanfare and what appeared from the outside to be very few hiccoughs.
However, behind the scenes, the natural tension that always exists between the Regulating Committee which issues “Permissions” allowing the Airports Company of South Africa (ACSA) to levy airport charges, which finance all ACSA airports and pay for new infrastructure like King Shaka, reached new heights when ACSA took the unprecedented step of taking the Regulating Committee to court. This step was designed to have the newest Permission temporarily set aside. Although the court application was ostensibly founded on a procedural irregularity in the process followed by the Regulating Committee in issuing the newest Permission, many believe that the underlying reason for the litigation was ACSA’s extreme dissatisfaction with the percentage tariff increase allowed by the Regulator.
ACSA had applied to the Regulating Committee for a 132,9% increase in tariff in the first year of the Permission, with only a 40,7% increase being allowed by the Regulating Committee for this period. Those in the know believe that, based on the tariff increase allowed by the Regulator, it will be very difficult, if not impossible, for ACSA to obtain the loans to fund the building of King Shaka and the rest of its R17-billion infrastructure spend.
This places ACSA between a rock and the hard place with no financial assistance forthcoming from Government. So what was the basis of the ACSA court application? The Airports Company Act (No 44 of 1993) provides that ACSA is required to apply to the Regulating Committee for a new Permission during the first three months of the third year during which any previous Permission is in force. The Regulating Committee is then required to issue a new Permission within six months of receiving an application for a Permission.
The Act further provides that the new Permission will be valid from the beginning of the ensuing financial year, namely: the fourth financial year for which the previous Permission was valid. Therefore, the first two years of a new Permission and the last two years of a previous Permission will necessarily overlap. The next factual issue formed the crux of the ACSA application. With respect to the overlap period, the Act prohibits the Regulating Committee from amending any condition in the last two financial years of the old Permission via the new Permission unless the Minister of Transport approves such an amendment. In previous years, the Regulating Committee had sought and obtained the Minister’s approval. For some reason, (presumably a shortage of time), the Regulating Committee omitted to obtain the Minister’s approval for the new Permission to override the conditions of the old Permission. This procedural omission formed the basis of ACSA’s application to have the new Permission temporarily overturned.
However, things got of to a false start. As the Department of Transport had failed to provide the Regulating Committee with legal representation, the chairman of the committee suffered the indignity of having to appear in court in person. Faced with this preposterous situation, the Judge postponed the case indefinitely. Only when the legal representation issue had been resolved was the matter ultimately heard – with the Court finding in favour of ACSA and overturning the new Permission. The practical effect of the ACSA court application is that the Regulating Committee will have to rectify the procedural defect in the process by going back to the stage of requesting the Minister’s authority to amend the conditions of the old Permission. At this stage, nobody knows whether this approval will be forthcoming – there is indeed speculation that the Minister will not provide his approval.
If this happens, the net effect will be that ACSA and the Industry will have to repeat the 18-month process to renegotiate a new tariff structure – a massive waste of time and resources. However, in industry circles, there is great concern that ACSA is using this technicality as well as other means to override the new Permission process which, although it does not provide the massive tariff increase requested by ACSA, it still provides a substantial increase in tariffs.
So what is the underlying cause for the current stand-off between the Regulating Committee and ACSA? Is it, as some within Government claim, that the Airports Company Act is inadequate and that the Regulating Committee should be disbanded because it is not doing its job and is too pro the airlines? Or is the other prevailing argument correct that says the real problem lies with the recent compromising of the arm’s length relationship that should exist between ACSA and Government through Government’s pressurising of ACSA to build infrastructure like King Shaka; infrastructure that is neither needed by, nor affordable to, industry in the current economic climate.
The facts definitely favour the latter argument. There is nothing wrong with the economic regulatory model and it would be a major mistake for Government to disband the Regulating Committee. The success of the system is around for all to see. Clearly, the regulatory mechanism has achieved the right balance. For more than 15 years, ACSA has been provided with more than adequate funding for impressive airport infrastructure, the national treasury has received billions of Rands in dividends from ACSA and the airlines have clearly not been strangled financially.
Furthermore, the aviation industry has faith in the current system. It is only the building of King Shaka and the acceleration of ACSA’s CAPEX investment for the World Cup 2010 that has upset the applecart. The regulatory system itself is not at fault. However, to proceed down the path that ACSA has initiated with the court challenge and ultimately force the airlines to pay more than is allowed in the new Permission, will create long-lasting animosities and irreparably harm the industry. The only solution to the current debacle is for Government to accept own culpability for ACSA’s financial predicament and to implement non-user pay measures to secure the loans needed by ACSA to fund King Shaka and other World Cup projects. The presence and independence of the Regulating Committee should also be retained at all costs.
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