BUILD-OPERATE-TRANSFER MODEL AS AN AIRPORT PRIVATIZATION STRATEGY:

APPLICATION OF BOT MODEL AT AIRPORT TERMINALS IN TURKEY

Dr. Ünal Battal

Anadolu University

Turkey

• Air transportation sector requires large capital investments – to modernize aircraft fleets, – improve airport infrastructure and – introduce more sophisticated air navigation systems.

These large investments, together with a redefined role for the state, are transforming the air transportation sector.

• Private sector participation in airports, through ownership, management, or new investment programs, can take many forms, including sale, concessions and build-operate-transfer (BOT). Developing countries trying to promote private sector participation in airports could choose a combination of the two options, beginning with a BOT model that gives way to corporatization with full or partial divestiture.

OUTLINE

In the first part of this presentation, airport privatization strategies are generally defined.

AIRPORT PRIVATIZATION STRATEGIES– Introduction– Privatization Strategies

In the second part, BOT model is explained in details such as legal issues in Turkey

APPLICATION OF BOT MODEL AT AIRPORT TEMINALS IN TURKEY– The Legal Frame and Basis of the BOT Model– The Features and Contracts of the BOT Model– Supervising in the Model of BOT– The Schedule in the BOT Model

in the last part, Airport BOT model applications in Turkey are discussed.

APPLICATIONS OF TERMINAL OPERATING WITH BOT MODEL• CONCLUSION

AIRPORT PRIVATIZATION STRATEGIES

Introduction:

Several motivations are driving the increasing interest in privatization of airports:– General constraints in public budgets– Capacity bottlenecks on the ground and in the air– Changes in airport markets, such as commercialization and

globalization– Escalating investment requirements– Interest in airports as catalysts for regional economic development– A growing need, in the economic downturn, for airports to do more

with less

From the perspective of the private sector, airports are an attractive investment:– Airports operate as part of the dynamic growth industry of

transportation. – Airports are an essential element stimulating and benefiting from

both commerce and tourism. – Airports generate substantial revenues in hard currencies. – Airports represent an essential infrastructure with a near

monopoly on the services provided. – Most airports enjoy good credit ratings.

All these elements combine to make privatization an attractive investment.

Privatization Strategies

There are a variety of airport privatization strategies:• Concessions (long-term):

– One airport– System of airports

• Sale:– Complete privatization– Phased or partial privatization

• Acquisition of strategic investor generally followed by sale of remaining shares in the open market and/or to selected national groups

• Build-operate-transfer (BOT)

Privatization Strategies

• Approach to Airport Privatization: Options

Privatization Strategies

The BOT approach is widely used for several reasons:• It taps into a different pool of capital than is normally

available for public infrastructure projects, thereby expanding the range of potential funding sources.

• Private consortium are often able to design and build large facilities in significantly less time than is possible via traditional government procurement methods.

• Both the up-front cost and the operating costs may be lower in a facility that is designed, built and operated by a single team interested in long-term profitability.

• BOT is a way of shifting many of the risks of project development from the public sector to the private sector.

APPLICATION OF BOT MODEL AT AIRPORT TEMINALS IN TURKEY

The Legal Frame and Basis of the BOT Model:• 3996 numbered “The Law about Having Investments and

Services done in the Frame of BOT Model”

• BOT model is known as the private financing model upon its specified definition in the law numbered 3996

• Potential revenue rights giving by the government in the frame of an administrative contract for a specific period to a private law capital company

The Features and Contracts of the BOT Model:• The model structurally acquires entity on the pivot of

privilege• Services are given in the frame of public service The

Concession Agreement for a specific period of time• Investments transfer to the public administration at the

end of the period of the concession agreement• The model’s being successful is affiliated to the feasibility

and profitability of the investment• The investors undertakes all the financial risks of

investment in the model

The BOT model under the roof of The Concession Agreement consist of sub agreements:

• Financing agreement,• Construction agreement, • Operating agreement, • Security agreement, • Insurance agreement and • Guarantee agreement of the services to be bought by

the public administration

Supervising in the Model of BOT:• Public administration is responsible for auditing frame of

public service principles such as– price, – Quality, – Continuity,– Regularity, – Equality, – Objectivity and– General benefits

The Schedule in the BOT Model:• The agreements related to the application of the BOT

model are at most 49 years. – The investment amount, – the repayment periods of the loans provided for the investment, – the concept of the project, – the amount of the capital and– operation principles

are taken into consideration for determining the agreement period

APPLICATIONS OF TERMINAL OPERATING WITH BOT MODEL

State Airports Authority Directorate General (DHMİ) is responsible for

• licensing, • tendering,• building and operating of airports,• air traffic control,• airport management, • ground services, • airlines and air safety in Turkey.

APPLICATIONS OF TERMINAL OPERATING WITH BOT MODEL

Three passenger terminals consist of • İstanbul Atatürk Airport International Terminal,• Antalya Airport First International Terminal and • Antalya Airport Second International Terminal

were given to private sector for operation by using BOT model.

The same BOT model is to be used for the three new passenger terminals including

• Ankara, • İzmir and • Dalaman Airports.

First and Second International Terminal of Antalya Airport

First Terminal:• Operation start on 01.04.1998• 54,000 m2 terminal building• Capacity 5 million passengers/year• 12 passenger gates• 60 check-in desks• 725 capacity multi-story car park• Cost of project is 65 million USD• Operation period 9 years

Second Terminal:• Operation start on 07.04.2005 • 91,454 m2 terminal building• Capacity 5 million passengers/year• 12 passenger gates• 45 check-in desks• 750 capacity multi-story car park• Cost of project is 85.5 million USD• Operate period 3 years, 5 months

and 26 days

Domestic and International Terminals of İstanbul Atatürk Airport

• Private company operated the terminal from 10 January, 2000 to 2 July, 2005

• 264,000 m2 terminal building• Capacity 20 million passengers/year• 23 passenger gates, 224 check-in desks• 7076 car capacity multi-story car park• Cost of project is 600 million USD• In 2005 same private company has won the concession

agreement to operate the Atatürk Airport for 15.5 years at amount of 3 Billion USD

Domestic and International Terminals of Ankara Esenboğa Airport

• Operation start on 16.10.2006• 167,000 m2 terminal building • Capacity of 10 million passengers/year • 18 passenger gates, • 105 check-in desks • 4000 capacity multi-story car park • Cost of project is 188.7 million USD• Operation period 15 years and 8 months

International Terminal of Dalaman Airport

• Operation start on 08.09.2006• 95,587m2 terminal building• Capacity 5 million passengers/year • 7 passenger gates• 60 check-in desks• 1000 capacity multi-story car park• Cost of project is 72.4 million USD• Operation period is 6 years, 5 months and 20 days

International Terminal of İzmir Adnan Menderes Airport

• Operation start on 107,899 m2 terminal building• Capacity 5 million passengers/year• 9 passenger gates• 60 check-in desks• 2200 capacity car park • Cost of project is 125 million USD • Operation period is 6 years, 7 months and 29 days

CONCLUSION

• Especially, because of DHMİ’s philosophy of selling the citizens’ property to the companies who quoted the highest and fill up its box, architectural projects being told of are prepared costly and flamboyant

• Prequalification conditions are hold very high or detailed and applicant numbers and varieties are restricted, and a big sum is requested thus the costs of terminal operating are increasing.

• Airline companies are squashed with increasing airport costs, and tourism agents try to dissolve these cost in hotel and voyage packets

• While privatizing the terminal the opinions of airline sector, carriers and tourism agents are not asked

CONCLUSION

• Monopolistic terminal operating system, which will be created in near future, will affect airline and tourism associations in a negative way. Contracts done for 15-20 years are chaining the sector like a collar.

• It is a subject of critique to welcome tourists who have 20,000-30,000 $ national income to a country with luxurious and magnificent terminals whose citizens have 6,000-7,000 $ national income, after comparing other countries’ examples of terminals.

• Terminal constructions are finished before the required period to extend the operating duration without paying attention to its quality of construction. However, after the start of using the terminal, because of lack of the quality, malfunctions are encountered. In addition to this, terminal’s being completed than the required time limit creates no profit for the government.