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Don't skyjack the taxpayer

By Jonathan J. Ariel - posted Tuesday, 20 November 2012


Despite opportunists howling yet again for a second Sydney airport - the latest sound bite coming last week from a lobbyist for Western Sydney, former NSW Minister for Roads, David Borger confidently asserting that a great number of jobs would be created by building another airport - surprisingly both the Commonwealth and NSW Governments remain unmoved about the alleged future inability of Macquarie Bank's Kingsford Smith Airport (KSA) to meet travelers' demands.

In the running to operate as Sydney's #2, four alternatives are more likely than most: building an airport in western Sydney, in an area called "Badgery's Creek"; building in an area south west of Sydney called "Wilton"; renovating RAAF Base Williamtown near Newcastle or adding more runways to KSA. At least that's what the "Joint Study on Aviation Capacity for the Sydney Region" released by the Minister for Infrastructure and Transport, Anthony Albanese in March 2012 claims.

With the votes from Western Sydney clearly on their minds, both the Commonwealth Government and the Opposition have ruled out Badgery's Creek and both are (to a greater or lesser degree) championing Wilton.

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Given Anthony Albanese's inner Sydney electorate of Granyndler is a stone's throw from the runways in inner Sydney, he has (surprise, surprise) nixed proposals to add more runways to the existing KSA.

For what it's worth, NSW Premier Barry O'Farrell doesn't want another airport anywhere near Sydney. The closest he comes to agreeing to more airport capacity is when he spruiks the expansion of Canberra's airport – linked by a very fast train - to serve Sydney's travelling public.

Advocates for a second airport bicker about government inactivity on the matter and fling about extremely rubbery figures to scare the Commonwealth into over riding NSW and getting "on with the job":

According to the Joint Study, if Sydney's future aviation needs cannot be met by 2060, the economy-wide impacts across the Australian economy could total $59.5 billion (in 2010 dollars) in foregone expenditure and $34 billion in foregone gross domestic product. The report warns of thousands of lost jobs and major traffic and train congestion if a second airport is not built.

It also intones that in 15 years' time, all flight slots at KSA will be allocated. That is, no new entrants could be accommodated. And just 8 years later, there will be no scope for further growth at the airport.

Clearly, tourism industry in general and the airlines in particular are the major beneficiaries when it comes to building a new airport. If an airport is at full capacity and airlines want to boost the number of seats on offer, then their bottom line is likely to suffer.

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Champions for a second Sydney airport include Qantas Chairman, Leigh Clifford, who last Wednesday clashed with the Chairman of Macquarie Bank's Sydney Airport (or what looks more like the Millionaires Hanger?), Max Moore-Wilton over the need for such a facility.

Clifford quarrelled, "it was essential to press ahead because the infrastructure was vital to Sydney. We have got to get on with it and make a decision, and I recognise not everyone is going to love the decision. The important thing is, get on with it''.

He charged that in the context of infrastructure, Sydney in the same league as Britain, "which took decades to build Terminal 5" at Heathrow and compared that (unfavourably) to China, which is building an airport every month.

Memo to Mr Clifford: China and Australia are very different markets and not comparable at all in terms of passenger traffic, government processes and regulatory framework. Also in the context of airlines, Qantas unlike the Motherland's airlines is an end-of-the-line carrier.

Clifford spoke fondly of Badgerys Creek, but never mentioned how deep into Qantas' pocket or for that matter, the pockets of his partners in Emirates' and One World's he will go to pay for that. Perhaps he just assumed that the mug taxpayers would be forced to carry the can.

Clearly the Chairman of Qantas could do with another airport. So what's stopping him presenting a plan after cobbling together a consortium to build and operate such a facility?

In response, Mr Moore-Wilton argued that politics was stopping the Millionaires Hanger from handling more planes and better utilising its runways. What he meant was that his employer and airport owner Macquarie Bank is hamstrung with curfews and directives that restrict its ability to crank up profits. Imagine that? Even scant restrictions on a monopoly are unacceptable to some. Hmmm.

The trouble for Clifford and Moore-Wilton is that massive public sector capital expenditure, involved in say constructing an airport, is both politically and financially, a tricky thing. As are Public Private Partnerships, as are privatisations.

To date there has been a great deal of noise about another Sydney airport, but no real debate.

And what has been missing from the noise is far more interesting than what has been made public. The list of unasked questions is mindboggling, as are the sums involved. The list of questions include:

1. In whose direct interest is it to have another airport?

2. Can that interest be measured? For instance, say the project will create 1,000 jobs but will cost (for argument's sake) $70m of taxpayers' funds. This begs the question: is it in the taxpayers' interest to spend $70,000 to create each job?

3. Is it a lay down misere that any airport built will be built using taxpayers' funds?

4. Are Public Private Partnerships being considered, where the private operator will construct, operate and maintain the project and in turn receive a certain amount of revenue in return, sufficient to cover operating costs, cost of capital, and a "reasonable" (wink, wink) return to incentivize reliable performance to "agreed" standards?

5. On the matter of PPPs, let's not forget that advocates– if they find a willing ear – will argue the merits of such cooperation: these include risk allocation that unlocks value in innovative ways, adds efficiencies, and lifts the quality of service. In this way, the risk for projects is (in theory at lest) shared between the public and private sectors.

6. Still on PPPs, it's worth remembering that to date they have not been success stories. Sydney's Cross City Tunnel and the Lane Cove Tunnel both careened into receivership. And on Saturday, The Australian reported the sad state of PPPs in the Sunshine State where five road tunnels were promised to be built under the Brisbane River, and only two have been completed (distressingly one is in receivership and the other is close to it), work on yet another tunnel has commenced and the plans for two other tunnels have been sent to the archives.

7. What exactly went wrong with those PPPs? And can it be made right? Is there a problem in the design of PPP tenders? In the intention of the contracts? In the supervision of the contractual obligations? Many taxpayers see PPPs as little more than selling public assets to companies, who generate excess profits, lack transparency, diminished environmental protections or a decrease in jobs.

8. Have the lessons of privatizing Sydney's KSA – from a taxpayer's or consumer's point of view - been learned?

NSW may really need a second airport, and then again maybe it doesn't.

How about all those who will derive direct measurable benefits from such a facility, pledge to pony up the cash to bankroll it? Once they do, let the public debate begin.

Until then, I am confident that NSW Premier Barry O'Farrell's horse is the one to back. No matter how short the odds.

The last thing he needs is to support a project, which could easily prove to be a financial and a political nightmare.

Why would he wish to help manufacture a problem with so little upside on his watch and one which could very easily see him shoehorned out of his job in favour of the ambitious Treasurer, Mike Baird or the ever diligent, no nonsense Transport Minister, Gladys Berejiklian.

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About the Author

Jonathan J. Ariel is an economist and financial analyst. He holds a MBA from the Australian Graduate School of Management. He can be contacted at jonathan@chinamail.com.

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