Wednesday, September 1, 2010

Taoyuan Airport: Ultimate Goal Should Be Privatization

Taoyuan Airport: Ultimate Goal Should Be PrivatizationUnited Daily News editorial (Taipei, Taiwan, ROC)
A Translation
September 1, 2010

Scandals surrounding the Taoyuan Airport have monopolized the headlines recently. These scandals have opened up a bottomless black hole. No one knows where it will end. This reveals a problem with the system that mere personnel changes can never resolve. Perhaps airport operations should be corporatized as the first step in reform. But the ultimate goal should be privatization.

The operation and management of a public utility such as an airport involves both economics and management structure. Flight safety, noise pollution, and land use considerations impose severe geographical limitations, limiting where an international airport may be built. Add to this a high degree of dependence on the economies of scale in airport operations. The overhead cost of airline counters is inversely proportional to the number of flights scheduled. Airports are inherently monopolistic. Public utilities are not necessarily public monopolies. But airports involve immigration controls, customs, inspections, quarantines, and other forms of public authority. Together, they have led to the current operating structure.

Customs operations aside, an airport is essentially a service industry. Managing a service organization using the government administration methods hobbles it from the outset. Well known problem areas include government procurement and personnel appointments. Performance appraisal systems for government administrations are incapable of indicating the quality of service provided. The absence of economic incentives makes it impossible to improve quality and reduce costs. As a result, limitations inherent in the structure of government administrations, an inappropriate management structure, the absence of competition within a government monopoly, and the hypocrisy and indulgence of individual managers, mean that Taoyuan Airport was doomed from the outset.

Other governments have considerable experience restructuring entities such as Taoyuan International Airport. The first step is usually "unbundling." This involves drawing clear lines of separation between the exercise of public authority and the provision of services. The latter can be managed using flexible organizational and management structures. The corporatization of Taoyuan Airport is the result of such thinking. We all agree that corporatization is the first step to solving Taoyuan Airport's problems. But this will not save Taoyuan Airport. Many other conditions and requirements must be met. But compare this to what we have now. Corporatization means at least a board of directors and a corporate charter. At least it means a form of management more in line with a service industry. At least it means personnel appointments will be easier. The company must not replicate the existing management structure and transfer its personnel without any fundamental changes. Especially since the Government Procurement Law and the Budget Law will still apply. Such a move would do little to solve problems. It might even create more problems. The Ministry of Transportation and Communications has considerable experience in this regard with the Grand Hotel. Could the board be reduced to a public company routinely used for political patronage? We will have to wait and see.

In this regard, the second step foreign governments take during reform is the privatization of state operated airports. Privatization once led structural reforms on Taiwan. But after Taipei became a member of the World Trade Organization (WTO) in 2002, its importance was forgotten. In July of this year, the WTO evaluated our government's trade policy for a second time. The EU Vice Ambassador to the WTO who was responsible for the evaluation spoke frankly. Taipei must review its privatization policies, he said, because in recent years they have come to a standstill. Monopolistic public services lack market competitiveness. Actually one can still use benchmarks to compare the operational efficiency of different airports. Such benchmarks would have the same effect as market competition. After privatization, legally mandated contracts will be needed to avoid monopoly price abuses and to maintain the quality of service. The structural problems inherent in public companies long ago forced OECD countries to make airport privatization mainstream policy.

We suggest that the government refer to Tokyo's Narita Airport. Taking one step at a time, it set privatization as its ultimate goal. It established the necessary outside conditions. Meanwhile, the state operated airport company has a transitional task. It must conduct institutional consolidation and establish commercial business operations. It must preserve the value of the company until it is privatized.

Finally, the Taoyuan Airport model must be applied to similar structural reforms for the Port Authority and Ports Corporation. Such systemic changes address more than short-term problems. They contribute to long-term national efficiency and competitiveness.

2010.09.01 03:20 am








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