Using PPP Concepts and Methods to Explore the Mode of Investment, Construction and Operation of Airport Supporting Service Facilities
Author:
Zhao Lili, Project Manager, Kture Consulting Co., Ltd.
Deng Chao, Manager of Investment and Financing Department of Beijing Xinhangcheng Holdings Co., Ltd.
In October 2016, the Civil Aviation Administration of China issued the"Opinions on Encouraging Social Capital Investment in the Construction and Operation of Civil Airports" (Minhangfa [2016] No. 117), pointing out innovations in civil airport construction and operation investment and financing methods, through concessions and operating rights transfers, equitytransfers, etc., attract social capital to participate in the construction andoperation of civil airports and their supporting service facilities.
Different from the government and social capital cooperation model (PPP) carried out inthe field of infrastructure and public services, the implementer and concession authority of the introduction of social capital into the airport supporting service facilities are enterprises (or airport managers), not the Chinese standard PPP model. Under the Chinese model, the main body of the PPP project is the government, and the government "implementing agency" grants the concession. The similarity between the two is that both need to introduce professional investors and be authorized to participate in the investment, construction, and operation of specific service resources, and the resources have a certain degree of monopoly. Therefore, when introducing social capital to participate in the investment, construction, and operation of airport supporting service facilities, PPP concepts and operation models can be fully used for reference.
Ktrue Consulting undertook the consulting task of a supporting service facilitymanagement right transfer project of Beijing Daxing International Airport, hereinafter referred to as "this project". It is located on the north side of the airport terminal and has a construction area of over 100,000 square meters. Apartments, international conference centers, office buildings, commerce, etc. This article takes this project as an example to analyze the key points of operation of the PPP model when choosing partners for the investment, construction, and operation of airport supporting service facilities.
Design of OperatingMode
Similarto the "overall mode" and "AB division mode" often used inthe PPP model, the project cooperation mode can choose the "overall mode" or "AB division mode" according to the different needs of airport managers for project investment, quality, and progress.
The"overall model" can transfer the overall investment, construction,and operation risks of the airport's supporting service facilities, and reduce the investment pressure and operational risks of airport managers. However, airport managers have weak control over project quality and progress, and have high requirements on the financing capabilities of the partners. Airport supporting service facilities are usually an integral part of the airport and are indivisible. Therefore, from the perspective of overall quality control and overall schedule arrangements, airport managers will carefully choose the"overall model". "AB division mode" Part A is constructed by airport managers, who can grasp the investment, quality and progress of the project to the utmost extent through interface segmentation. It is more suitable for clear completion time requirements and airport managers wishing to have a stronger schedule Proactive projects.
Reasonable Segmentationof the Work Interface
In the PPP model, a clear division of themanagement interface, engineering interface, and responsibility interfacebetween the government and investors is the key to the success of the project. Similarly, the interface segmentation between the airportmanager and the partner when choosing a partner for airport supporting service facilities is also crucial. In particular, the "AB division mode" is used to divide the interface more refined.
There are generally three ways to determine the transfer fee for the operating rightsof airport supporting service facilities: fixed charges, variable charges, and fixed charges plus variable charges. details as follows:
One is a fixed fee. Refers to charging a fixed fee when granting the right tooperate. Most of the airport charges are in the form of collecting rent. For example, the airport generally collects rent for the bookstores, flower shops, hotels and other items in the terminal building on an annual basis. Theadvantage of this method is that a fixed income can be obtained every year. However, the operating rights transfer fee cannot be linked to the passenger throughput of the airport, and cannot enjoy the benefits of the substantial increase in the passenger throughput of the airport.
The second is variable charges. That is, the agreed percentage is drawn based onthe partner's turnover. This charging method is unsustainable when the partner is not doing well, so it is not used much.
The third is a fixed fee plus a variable fee. This method is more commonly used inpractice. Regardless of the business situation of the partner, it is agreed to pay a fixed fee for the transfer of the right to operate, and at the same time it is agreed to share its commercial income. In practice, it is generally agreed to pay the management right transfer fee in the management right transfer agreement. The amount shall cover the construction cost of Part A in whole or in part, and shall be paid according to the construction progress of Part A or paid annually during the operation period. At the same time, a certain amount of annual fee needs to be paid every year. The annual fee can be increased year by year according to the agreed proportion, or it can be linked to the airport passenger throughput, and the risk sharing and excess revenue sharing mechanism can be agreed upon.
Part A of this project is constructed by the airport manager, and it is agreed inthe management right transfer agreement that the operator will pay the airport manager a one-time management right transfer fee, and the payment will be made according to the construction progress of Part A. At the same time, during the operation period, the partner pays an annual fee to the airport manager every year. The annual fee increases in proportion to the agreed rate. In this way, airport managers do not need to raise construction funds, which relieves financial pressure and retains overall control over the construction quality and progress of Part A. However, this model places higher requirements on the financing apabilities of the partners. Once problems such as the break of the partner's capital chain occur, the overall progress of the project may be affected. Therefore, when choosing a partner, financing capacity should be a key consideration.
Use Competition Mechanismsto Select Partners
The PPP model is a mechanism that introduces the competition mechanism into thepublic service supply field. The introduction of investors through competition has formed a diversified supply body pattern in the public service sector. This effectively improves the supply efficiency and quality of public services. The introduction of a competitive mechanism for airport supporting service facilities to determine the investment, construction, and operation parties of the project can stimulate operational vitality, improve management efficiency, and improve service quality, which fully reflects the concept and spirit of the PPP model. This will help realize the smooth progress and orderly connection ofconstruction and operation.
During the implementation of the project, in order to attract high-quality partners, apress conference was held to promote the project and achieved good results. There were many potential partners who signed up during the bidding process. Partners were selected through public bidding, and the partners’ operating qualifications, financial strength, financing capabilities, comprehensive management capabilities, and quotations were included in the bidding documents as evaluation factors. Through the stages of qualification review, compliance review, and detailed review, partners with strong financial strength and rich operating experience were identified. The bid price achieved a premium, which met the expectations of airport managers.
Summary
With the increase in thedegree of professionalism in the investment, construction and operation of airport supporting service facilities, more and more airport supporting service facilities can be commissioned for socialized operation and management through the market. In the process of selecting partners for investment, construction, and operation of airport supporting service facilities, PPP concepts can be used for reference in the design of operation modes, segmentation of work interfaces, determination of operating rights transfer fees through financial calculations, and introduction of competition mechanisms. At the same time, after winning the bid, the partner involved in the project construction and even the plan design in advance, infiltrating the business ideas and business concepts into the design plan, reducing the large-scale transformation after the settlement, and escorting the smooth implementation and successful landing of a project.
