Doubts over CAAZ unbundling plan

27 Apr, 2014 - 00:04 0 Views
Doubts over CAAZ unbundling plan One of the entities that will be unbundled from CAAZ will be responsible for managing local airports

The Sunday Mail

One of the entities that will be unbundled from CAAZ will be responsible for managing local airports

One of the entities that will be unbundled from CAAZ will be responsible for managing local airports

Prince Mushawevato
PLANS by the Government to unbundle the Civil Aviation Authority of Zimbabwe (CAAZ) into two entities to increase efficiency and adhere to international best practices have been received with mixed feelings from experts who are calling on the authorities to tread with caution, it has emerged.

CAAZ currently operates as both the regulator of the aviation industry and manages airports across the country.
The Government intends to create two entities from CAAZ as part of the restructuring exercise.

Market watchers are questioning the rationale behind the intended move in light of the documented failure experienced by companies that have pursued the same route.

It is envisaged that through the restructure, CAAZ will be divided into two distinct entities: the Zimbabwe Civil Aviation Authority (ZIMCAA) and Airports Management Company.

ZIMCAA will assume the regulatory responsibility, while the management company will superintend the commercial division of aviation operations.

Permanent secretary in the Ministry of Transport and Infrastructure Development Mr Munesu Munodawafa said the move, which is scheduled to be completed by the first half of 2015, will allow the development of robust strategies to revamp the aviation industry and restore the country’s position as a regional hub for passengers and cargo.

While the proposed unbundling of the authority is in line with the Standards and Recommended Practices (SARPs) of the International Civil Aviation Organisation (ICAO), critics are questioning Government’s ability to carry out the exercise.

Questions are being asked on how Government will co-ordinate the subsidiaries and whether the country has enough volumes of traffic and resources to support the unbundling of CAAZ.

“What this means is that the country will comply with the international best practices which dictate that the regulatory and operational functions must be separate from each other. Splitting the parastatal is in the interest of good corporate governance as there was a conflict of interest since CAAZ acted as both the referee and player,” noted Mr Munodawafa.

Aviation Authorities in countries like South Africa (SACAA), Botswana (CAAB) and Kenya (KCAA), are public entities regulated by government but operating on a commercial basis.

The system has, however, proved efficient and viable for the respective countries due to the high volumes of air traffic that the countries get on a daily basis.

During the 2012-13 financial year the percentage contributions of the various revenue streams to the total SACAA revenue of R394 million were distributed as follows: safety charge 74 percent, user fees 17 percent, fuel levy 5 percent and department of transport 4 percent.
For an aircraft with a maximum all-up weight (MAUW), or gross take-off weight of up to 3 000kg, the landing, parking and docking fees for the region averages US$15, US$10 and US$50 respectively. While charter clearance fees amount to an average of US$50 for an aircraft carrying less than seven people and US$100 for an aircraft carrying more than seven people.

Experts argue that the unbundling exercise will only serve to complicate the situation at the parastatal if it is implemented without proper due diligence. For example, the unbundling of the former ZESA to Zesa Holdings has not yielded anticipated fruits.

Currently, the parastatal (ZESA) has four subsidiaries, namely: the Zimbabwe Electricity Transmission and Distribution Company (ZETDC), Zimbabwe Power Company (ZPC), ZESA Enterprises (ZENT) and internet services provider, Powertel Communications, that were created as a result of the parastatal’s unbundling in 2006.

The entities have separate executives and boards that have proved costly to manage due to huge financial demands.
Zimbabwe National Chamber Commerce (ZNCC) economist Mr Kipson Gundani said the unbundling of parastatals (CAAZ included) alone was not going to have a major impact on the operations of State-owned institutions unless Government opened them up to private investors.
He noted that previous attempts to unbundle parastatals had created operational challenges that had stifled business growth due to an unsustainable wage bill among other costs.

“By unbundling and maintaining control of the two structures, Government is creating a bloated administrative arrangement that will further lead the organisation to lose a lot of revenue though an increased wage bill for company executives. Also, the development brings in a lot of bureaucracy, which creates more room for corruption since there will be too many layers of decision making,” said Mr Gundani.

According to ICAO, aviation traffic in Africa is projected to grow by over 6 percent per annum for the next 20 years, driven by improving incomes, demographic boom, increasing urbanisation and the emergence of the middle class.

But for Zimbabwe to benefit from this trend, economists argue the commercial entity of the aviation industry needs to be separated entirely from the regulatory authority. They opine that Zimbabwe is currently not receiving adequate volumes of air traffic to sustain operations of the proposed commercial division of CAAZ.

The scenario, they say, will result in Government supporting the unit’s operations financially while having no meaningful returns.
“CAAZ should be run as a commercial entity. In short, it should be privatised. Demand for the airline service will continue to exist even after privatisation and Government should come in to purchase the product just like everyone else.

“Government due to its obligation to the public tends to make decisions that are not market friendly,” added Mr Gundani.
Conversely, University of Zimbabwe lecturer and economist Mr Innocent Makwiramiti notes the unbundling of CAAZ would usher in a new era for the parastatal.

“In theory, this is a good strategic shift. Creating small business units that have specific purposes makes it easy for the responsible authority/shareholder to manage operations just like is the case with Delta’s unbundling.

“History has proven that if well-capitalised and properly managed smaller units are able to finance themselves,” he said.
He, however, added that funding was the key factor to the success of the exercise.
“ . . . the unbundling process needs serious financing and given the prevailing economic situation, that might prove difficult. Air Zimbabwe is a good business venture, but no one is willing to capitalise it at the moment. This then means we might get stuck with two under-capitalised entities after unbundling,” explained Mr Makwiramiti.

The economist further added that even if CAAZ was to be commercialised or privatised, Government had to remain the regulator.
According to Mr Makwiramiti, the regulator would be tasked with monitoring salaries in the cases of commercialisation and making sure the air travel parastatal operates within the prescribed international aviation laws.

With Government currently struggling to keep a number of loss-making parastatals afloat, economists believe it would be cost-effective to privatise some of them.

For instance, CAAZ requires more than $400 million to invest in air space navigation infrastructure and upgrading various airports’ facilities around the country to keep them in line with international standards, but does not have the funds.

Privatisation, it is argued will help bring in fresh capital to implement projects covering airports, airspace and human capital development and turn around the country into a competitive aviation hub by 2015.

CAAZ is at the moment struggling to complete the US$30 million construction work at Joshua Mqabuko Nkomo International Airport in Bulawayo.

The airport has been under construction for close to 10 years with the aviation authority understood to have spent more than $25 million in upgrading the facility to date.

CAAZ was established in 1999 as a statutory body to replace the former Department of Civil Aviation meant to operate on commercial principles.

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