Saudi airports privatisation faces manifold challenges

06 May 2018
Recent developments require Riyadh to review airport privatisation timeline

Internal and external factors are challenging Saudi Arabia's plan to privatise its major international airports, as well as build new and expand existing airports using the public-private partnership (PPP) model.

In February, the General Authority of Civil Aviation (Gaca) terminated the 20-year operation and maintenance contract for the $7.2bn Jeddah airport, 10 months after it was awarded, without specifying a reason for the cancellation. The plan to sell a minority share of the Riyadh Airport Company is understood to have been put on hold, several months after US-based Goldman Sachs was appointed to advise Gaca on the planned sale.

Financing is also yet to be finalised for the three airport PPP contracts awarded last year to a consortium of Turkey’s TAV Airports and local Al-Rajhi Holding Group.

While rockets targeting Riyadh airport, which have all been successfully intercepted, could be easily blamed for the delay in the planned Riyadh airport equity sale, sources familiar with the plan cite that a shift in the original strategy is causing the delay.

It is understood that Gaca will now be considering a concession rather than an equity sale for the Riyadh airport. This is more in line with a previous policy where it appointed a private operator, Dublin Airport Authority, for the airport’s Terminal 5.

However, if a long-term concession is now the preferred way forward for Riyadh airport, terminating a similar contract with the Changi Airports International-led consortium for the Jeddah airport appears to be an inconsistent policy, unless it can be proven that the tender and award process did not comply with accepted standards.

It is noteworthy that Gaca launched the airport privatisation and PPP programme to improve efficiencies, enabling both the airports and airlines to grow, and raise funds that would likely to be reinvested in developing the airports or injected into the government budget in line with the kingdom’s national privatisation initiative.

A number of airports around the globe have utilised various forms of public-private partnership with diverse results. The most successful ones are when customers, most notably airlines, and other private investors, become airport stakeholders and thoroughly engaged in ensuring safe, efficient and passenger-friendly airports.

Notwithstanding the temporary setbacks, which are not unusual for such projects anywhere in the world, there are a certain things to look forward to. On 7 May, Dammam Airports Company is set to appoint the Netherlands’ Vanderlande for a new baggage handling systems contract and UK-based Serco Group for a contract related to the airport’s maintenance. These developments would tie-in neatly with the long-term plan to expand the airport, the kingdom’s third largest, and privatise it along the way. The $2.1bn upgrade of the Riyadh airport is also well underway.

Overall,  the recent setbacks do not appear to incriminate the kingdom’s privatisation plans per se as much as the very aggressive timeline that Gaca set out in 2016. It is becoming apparent there is now a need to reconsider the four-year period to achieve full privatisation  and replace it with a more flexible timeline that reflects the current state of regulations as well as the airport infrastructure across the kingdom.

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