Riyadh’s airport public-private partnership experiment

28 September 2010

The Saudi aviation authority is pioneering public-private partnership for airport schemes in the GCC. If successful, it could become the model for the kingdom and the wider region

Key Saudi fact

The total cost of the expansion of Prince Mohammed bin Abdulaziz International airport is estimated at $2.4bn

Source: MEED

Over the past two of years, GCC states have significantly increased their spending on airport capacity and, with $20bn-worth of projects in the pipeline, Saudi Arabia is leading the way.

The kingdom is also setting a precedent for the region’s aviation industry with its planned expansion of Prince Mohammed bin Abdulaziz International airport at Medina. This is set to be the first airport in the Gulf developed on a public-private partnership (PPP) basis.

The government wanted private-sector expertise so that [the airport] could [become a] commercial entity

Source at the International Finance Corporation

In adopting the PPP financing model, governments are able to pass many of the risks associated with projects on to private-sector developers, while significantly decreasing the financial burden on the state.

The $1.5bn first phase of expansion at Medina involves the construction of a new passenger terminal, the renovation of the existing runway and the possible construction of a second runway. Development will be split across two phases and the cost of the entire project is estimated at $2.4bn.

Private expertise for Saudi Arabia aviation industry

“The reason [Saudi Arabia is developing] Medina [airport] as a PPP is because of the lack of infrastructure in Medina,” says a source at the International Finance Corporation (IFC), part of the Washington-based World Bank.

The IFC is acting as the lead adviser to the kingdom’s General Authority of Civil Aviation (Gaca), which is leading the airport’s expansion.

“The government wanted private-sector expertise so that [the airport] could be transferred from the government to a commercial entity,” the source adds.

Medina is one of the most important airports in Saudi Arabia and it is in desperate need of an overhaul to cope with increasing numbers of pilgrims visiting the holy city. In 2009, 3.5 million passengers passed through Medina airport. The number of international passengers rose by 50 per cent on the year before, by far the largest increase across all the kingdom’s airports. By 2035, the number of passengers is expected to increase to 14 million a year.

Passenger traffic at selected airports
Total passengers (millions)
King Abdulaziz International, Jeddah17,644,00017,757,000
King Khaled International, Riyadh11,540,00012,674,000
King Fahd International, Damman4,165,0004,422,000
Prince Muhammad Bin Abdulaziz, Medina3,321,0003,507,000
Source: Gaca

The expansion plans are progressing well, with the eight prequalified consortiums expected to submit bids for the construction contract by 15 December. The project is due for completion in 2016.

Gaca says it will monitor the development of the Medina airport scheme and if it proves successful, look to replicate the PPP model for future projects.

Cargo handled at Selected airports
King Abdulaziz International, Jeddah212,074217,999
King Khaled International, Riyadh223,615209,340
King Fahd International, Damman97,59683,652
Prince Muhammad Bin Abdulaziz, Medina4,4364,804
Source: Gaca

“Gaca has big plans for PPP and not just for airports … it is looking at a duty-free global contract and is also looking at [developing] VIP lounges as PPP,” the IFC source says.

Gaca first began experimenting with privatisation in 2007, when it successfully completed a PPP with the local Saudi Binladin Group and France’s Aeroports de Paris Management for the expansion and management of the Hajj terminal at Jeddah airport.

The number of airports that follow privatisation format depends on how attractive [they are] to the private sector

Alaa Samman, Gaca

Medina may be the first airport project in the GCC to be developed under a private finance initiative, but not in the wider Middle East. Queen Alia International airport in Jordan is also being carried out on a PPP basis. In 2007, France’s Aeroports de Paris was awarded a 25-year build, operate and transfer contract for the expansion of the airport. Work is ongoing and phase one is due for completion in 2011.

The new terminal will have a capacity of 9 million passengers a year.

Of the three other international airports in Saudi Arabia, analysts say those at Riyadh and Jeddah may be well suited for PPP management projects in the future due to the volume of traffic passing through them. In 2009, 17.8 million passengers passed through King Abdulaziz International airport in Jeddah, a rise of 0.6 per cent on 2008. Passenger traffic at King Khaled International airport in Riyadh totalled 12.7 million last year.

“As for the number of airports that will follow suit in the privatisation format, it depends how attractive the airport is to the private sector,” Alaa Samman, Gaca’s director of business development and project manager for the development of Medina airport, told MEED in an interview earlier this year.

Saudi Arabia: Increasing airport capacity

In the meantime, Gaca is pressing ahead with a series of other airport projects to increase capacity at the kingdom’s domestic and international airports. The largest project under way is the $4.8bn expansion of King Abdulaziz International airport at Jeddah. Saudi Binladin Group is the frontrunner for the construction contracts for both the terminal and infrastructure packages.

The expansion is set to make King Abdulaziz International one of the world’s largest airports by 2035, with the capacity to handle 80 million passengers a year. The Jeddah airport expansion is a bigger development than Medina airport both in terms of cost and size, but it already has funding allocated from the Finance Ministry budget.

Gaca is also working on plans to broaden its coverage of the kingdom with 34 smaller airport rehabilitation and development projects worth a combined investment of $667m.

So far, it has already started to upgrade 16 domestic airport facilities at Abha, Bisha, Al-Ihsa’a, Al-Jowf, Al-Qasim, Al-Baha, Wadi Al-Dawaser, Sharorah, Al-Wajeh, Torif, Rafha, Dawadmi, Al-Qaisumah, Hail, Arar and Al-Gurayat. The authority has also earmarked another 18 airports for rehabilitation, depending on passenger demand.

Improved facilities at Saudi Arabia’s airports

Several domestic airports have been selected for redevelopment in the hope that the improved facilities will help attract inward investment to the region.

Some are being expanded so that they can obtain international status in the future and have the capacity to handle a higher number of passengers.

Others, meanwhile, are being developed for the domestic market, so that people living in rural areas can access the cities and major transportation hubs more easily.

The King Abdullah airport to be built in Jazan will be able to handle 3 million passengers a year when completed. Another new airport planned for Taif is expected to reduce pressure on Jeddah airport, especially during the Hajj pilgrimage.

There is also a controversial proposal to build an airport in Mecca. Saudi Arabia’s Shura Council approved on 26 April the construction of an international airport outside Mecca’s haram (forbidden) area, which would allow non-Muslims to enter the wider urban area.

Under Saudi Arabian law, only Muslims are allowed into central Mecca. Prince Khalid al-Faisal, the governor of Mecca, has objected to the plans and it is not known if the project will move ahead.

Saudi Arabia: A Middle East aviation hub

Whether or not the Mecca airport plan goes ahead, Saudi Arabia is positioning itself to become a modern, regional aviation hub.

Like the Jeddah scheme, the smaller domestic airports projects will be funded directly by the state, but the decision to develop the Medina airport as a PPP shows the government is serious about opening up the aviation sector to private investors and improving its ageing facilities.

The civil aviation authority is also planning to privatise operations, such as aircraft refuelling, parking, maintenance, hangar storage and ground handling of passengers and cargo at Jeddah and Medina airports once construction is complete.

As a world centre for pilgrimage, as well as boasting the largest population in the Gulf, Saudi Arabia and its aviation sector offers great potential for private-sector investors. As and when these opportunities arise, they are likely to be met with high levels of interest.

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