The government is slowly but surely moving closer to making a decision on whether to privatise the Airport Authority. The process is proving to be a delicate balancing act between giving commercial interests a free enough hand to earn while protecting the interests and investment of the public. It would like to forge a consensus on several issues before deciding whether and when to list the authority. Chief among them is whether non-aeronautical revenues at the airport should subsidise levies - such as landing fees for airlines - and what shape, if any, a regulatory body should take to monitor pricing and operational matters. The end game is to present an Airport Authority that is attractive enough to the market to recover at least the $37 billion Hong Kong taxpayers shelled out to build Chek Lap Kok, investment capital the government would like to free up for other projects and to service debt. However, senior officials at the authority are beginning to wonder if the government's energy wouldn't be better spent on efforts to dismantle the cross-border regulatory barricades that continue to limit Hong Kong's ability to tap its most critical market, the mainland. If this is beginning to sound familiar, it's because the authority is now making the same clarion calls as its colleagues in maritime trade who have said for years that cross-border regulations restricting the free flow of goods, services and people are slowly choking the economic life out of our port. After all, the same truck licensing and vehicle restrictions which keep the cost of using Hong Kong port artificially high vis-a-vis Shenzhen are impacting upon the southbound flow of air cargo, an increasingly important revenue sector for the authority. A senior executive at the airport said last week that he doubted whether the airport could be sold at book value in the present regulatory environment. The level of passenger and commercial traffic would not be attractive enough to investors for Hong Kong to fully recover its costs, he said. The two main areas of concern, according to the executive, are the restrictions on visitors from the mainland and the cautious approach the government has taken when negotiating air service agreements (ASA) with other countries. The government should be given credit for forging several ASAs in the past few years. But deals signed two years ago with major commercial partners such as the United States now look pretty conservative in the light of the giant strides China has made this year in liberalising its aviation regime. Airlines and consumers will be increasingly less likely to use the Hong Kong gateway to China with the front door to the mainland swinging wide open. Given that it would be politically impossible to present Legco with a privatisation strategy that proposed accepting lower than book value for the airport, the executive said those issues needed to be addressed before a listing could realise full value from the market. Meanwhile, the government will continue to consult the industry about the best way forward to a potential listing. Whispers in the corridors at Government House suggest it may be ready to present the findings of its ongoing consultations in the next quarter. It may seek a middle ground for an internal regulatory framework - perhaps the formation of a neutral regulatory body - that strikes a balance between a privately owned Airport Authority with the mandate to dictate its own pricing policy and one that would need government approval of all proposals. If it opts for the neutral regulator, it may seek a middle ground between largely toothless quasi-governmental organisations such as the Air Transport Licensing Authority and those with strong punitive powers, like the Office of the Telecommunications Authority. But as the government seeks the right regulatory balance for a privately run Chek Lap Kok, it should keep in mind that, unless the external challenges facing the SAR are addressed, Hong Kong increasingly runs the danger of becoming the proud owner of two state-of-the-art transport hubs in the middle of nowhere. Russell Barling will moderate the South China Morning Post conference on airport privatisation at the Conrad Hotel on September 15.