Efficient, functioning ports and airports depend on strong relationships between the public and private sector. Infrastructure Journal’s editor-in-chief explains what happens when this relationship becomes strained at a most inopportune time.
Anyone flying into the British capital in the months before the London 2012 Olympics could be forgiven for believing that the games had already begun.
Politically, they have. The drive for austerity and controversial cuts to border agency staff have kicked off a political football match ahead of the United Kingdom’s summer in the spotlight. Transportation and global connectivity are key issues as the country’s long established status as an international hub for business and tourism is on the line.
The issue is simply one of trade and competitiveness. The problem is that the U.K. wants it both ways, and on its own terms. The country wants to be an international hub, but it doesn’t want to increase runway capacity at its existing airports. Britain wants to attract tourists and international businesses, but it also has some of the tightest border control restrictions in Europe. As a result, the U.K.’s logistical support structure is under stress and testing itself with the whole world watching.
Cracks have already appeared. Passport control queues at all of London’s four major entry points have been horribly congested, with travellers from outside the European Economic Area at the city’s flagship Heathrow Airport enduring the longest waits. The worst, according to BAA, the airport’s private sector owner and operator, occurred on April 30 when arrivals at Terminal 4 waited up to three hours to clear the border control. Politically and economically, this is an unacceptable failure well beyond the 45-minute target set by the U.K. Border Force.
What’s happening in the U.K. underlines the economic importance of efficient and functioning ports and airports—as well as the critical need for partnership between the public and private sectors. Although not technically public-private partnerships (PPPs) by concession, Britain’s privately-owned airports certainly operate at the mercy of public departments like the U.K. Border Force and the political policies set by government. If this relationship becomes strained, everyone suffers.
The free worldwide movement of people and goods is critical for global economic growth. However, the challenges facing ports and airports to unlock that potential are not easily or cheaply overcome.
With the upcoming Olympic games, the U.K.’s logistical support structure is under stress—and the whole world is watching.
Capacity constraints—either too few runways to handle growing demand, or runways that are too short for the next generation of jumbo jets—threaten the viability of established routes and airports unable to grow and adapt. New terminals, new runways, and improved local connections are necessary to compete in a new century of aviation. Airports that fail to deliver risk being overtaken by those that do.
Sustainable development, energy efficiency, and environmental concerns must also be considered. As global air travel increases so do greenhouse-gas emissions, and the aviation industry must adapt to the changing climate (pun forcefully intended). But it’s not just in the skies. New strategies on the ground and better designs for infrastructure—such as energy-efficient and LEED certified new buildings or retrofits of existing buildings—must also be adopted.
There are also national security issues to consider, and of course passenger safety. All of this costs money and with many global economies suffering, scarce capital—notably debt—could be the most difficult challenge of all. The increasing cost of funding projects is a serious threat undermining many new developments.
In early 2011, Infrastructure Journal (IJ) published a special report on global airport infrastructure. Among the findings, IJ noted the vast appetite and potential for investing in airport infrastructure—particularly in emerging markets. It also highlighted the challenges governments all over the world face in attracting private capital. Some countries—like Brazil and India—have internal capital market capacity able and willing to invest in airport infrastructure (with mixed results); others, like Nigeria, are currently seeking foreign capital investment for their projects. Sourcing capital, structuring transactions, and finding the right business model are critical.
Since the financial crisis escalated in September 2008, there have been success stories like Pulkovo Airport, which serves St. Petersburg in Russia. The rehabilitation of an existing airfield was a pathfinder within the former Soviet Union and hopes to be a model for airport PPPs worldwide. Private sector sponsors were awarded a 30-year concession with financing support from development banks—including EBRD, IFC, Vnesheconombank, Eurasian Development Bank, Nordic Investment Bank, and Black Sea Trade and Development Bank. With this much multilateral muscle in play, commercial project finance banks also stepped in to provide financing despite difficult debt markets.
What Pulkovo illustrates best is that given the right business model, financial structure, sponsor group, and political willpower, deals can still get done and potentially have a huge impact on the local or even national economy. It may take years to measure, but the success of financing efficient and effective airport infrastructure is an achievement worthy of Olympic gold.