An idea not yet ready for takeoff

PUBLISHED : Monday, 07 February, 2005, 12:00am
UPDATED : Monday, 07 February, 2005, 12:00am

As the government consults the public on the proposed partial privatisation of the Airport Authority, there appear to be a lot of misgivings about the plan among airlines and some legislators. The fiasco over the Link Reit listing has also raised concern about possible legal repercussions.

Some claim that Article 130 of the Basic Law - which says Hong Kong 'shall be responsible on its own for matters of routine business and technical management of civil aviation, including the management of the airport' - might pose a constitutional hurdle to changing the authority's status.

Such concern may be misplaced, as this proviso is to emphasise autonomy - that Hong Kong, rather than the central government, should manage its own civil aviation, including the airport, unless otherwise specified in the Basic Law.

Whether the Airport Authority should be privatised ought to be examined more in terms of what is best for Hong Kong. The government argues that privatisation offers an opportunity to operate the airport with greater efficiency and would provide more commercial opportunities. But isn't the authority already operating efficiently according to market principles?

There is also the political concern that a privatised Airport Authority may become too detached from what is best for the public and care only about maximising shareholders' interests. Some worry that, with a huge amount of land and a monopolistic control of a strategic public facility, the authority could become akin to an independent kingdom.

Economic concerns about price caps, and measures to prevent anti-competitive practices, are similar to those articulated in most airport privatisations elsewhere.

Under the proposal, the new company is unlikely to gain new powers or freedom. The government will continue to be the majority shareholder, and no other single shareholder would be allowed to own more than 10 per cent of total voting rights.

The government would also appoint a minority number of directors to represent public interests, in addition to any rights it may have as a shareholder. The question, though, is how public interests can be safeguarded should the company one day be fully privatised.

Already, the Airport Authority has almost full corporate flexibility, with a mandate to act according to prudent commercial principles. The only restrictions are over pricing, use of land, financing and borrowing. Such controls and safeguards, geared towards preventing the authority abusing its powers or not acting according to the government-defined public interest, are supposed to remain intact after partial privatisation. Airlines and other airport users are obviously worried that the new airport company might be free to raise fees. In order to make its rate of return attractive to private investors, the Airport Authority is likely to increase airport charges, which account for 45 per cent of its total income.

The government intends to prescribe price caps, with a provision for intervention through direct action or a government-appointed independent panel. It will also set out service standards, with financial rewards and a penalty system, linking performance to price levels.

Although the government will cap the return from regulated activities, it will let the company adopt any target it chooses for non-regulated activities. This approach will prevent the use of profits from the non-aeronautical side helping to keep charges for aeronautical services low.

The government has to convince the public that the existing status and structure of the Airport Authority is a straitjacket on its operational efficiency and expansion.

If this is not the case, the only point of privatisation will be to sell the family silver to generate revenue quickly, at the expense of diluting government ownership of an asset with the potential to provide good returns.

Anthony Cheung Bing-leung is a professor of public administration at City University of Hong Kong and chairman of SynergyNet, a policy think-tank