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  • Nis Constantine the Great Airport – Between the Earth & Sky

    Ownership over professional and transparent business practices?

    The confusion about the Nis Constantine the Great Airport, known for low-cost flights ever since 2015, started after the Government of Serbia advised the city authorities of Nis, via a recommendation issued on 29  March 2018 [1], to hand over the property and management rights over the airport. At first, such move went under the radar of the wider public, as it was overshadowed by the fact that an immigrant family was granted with the Serbian passport and the news that stamps will no longer be required in business operations in Serbia. Nevertheless, the public started to openly express its discontent, after the Government’s recommendation was delivered to the local Parliament, and once it was voted in favour by the City Council of Nis. Soon after, citizens’ protests started to become part of the everyday routine, whereas the divisions among citizens, politicians, and experts continued to grow. Such a situation essentially caused the local parliament of Nis to stop functioning for three months. The situation escalated and concerns were raised whether a new temporary administration would need to be established. But what is the problem, who takes from whom, what and why? It is still a million-dollar question.

    Available data shows that the number of passengers and flights from the Nis Constantine the Great Airport have considerably increased ever since 2015. Considering that the Airport did not have a single regular commercial flight in 2014, while years before it had been offering a weak and unstable schedule of air companies, most notably by JAT and Montenegro Airlines, one could argue that every single passenger was a huge improvement. However, the importance of this airport becomes clear once the total numbers from 2017 are taken into account: there were more than 330.000 passengers, while the weight of cargo amounted to 2.500 tonnes.

    Source: http://nis-airport.com/statistika/

    Source: http://nis-airport.com/statistika/

    Huge renovation and modernization plans for the airport were considered, while the number of low-cost flights simultaneously increased, as some tickets cost only 10 EUR. But how did it happen that such a

    The disagreements were created once the City Council decided to cede governing rights to the state authorities. That is where the conflict between the government and public started, as the latter has shown discontent with the decision to give away what they believe rightfully belonged to them, that is, to their hometown. More specifically, the Public Company Airport and the City of Nis have not fulfilled the contract obligations signed with the Ministry of Defence, a body which had had the ownership of this airport until the year of 2010. Eight years from that moment, the airport was returned to the state level, as the city administration has not managed to complete the agreement about the expropriation of 160 hectares of the land whose governing rights were supposed to be transferred to the Ministry of Defence. The question, however, still remains whether it is important which level of government will manage the airport if it functions well and has a good perspective of progress. The airport is, anyway, owned by all taxpayers. In fact, the essence is a long-term plan and the cooperation of all relevant sides.

    Even though the Government granted concession rights for the Belgrade Airport (largely under the veil of secrecy), as it hoped to attract investments and professional management, it has nevertheless shown interest in obtaining ownership and management over another airport. Such moves have caused protesters’ doubts on the Government’s further plans for the Nis Airport. The Government defended its move by arguing that nobody wants to risk investing in the infrastructure of this airport except the state itself. As the protestors were against the transfer of ownership to the state level, then the “bags of money” would be brought to some other places in Serbia, like Lađevci, Ponikve or Morava, as the state presence is wanted there. Furthermore, protesters that demand keeping the governing rights at the local level have no guarantees that the different level of governing would be better or worse for their link with the “world“ and place of employment. In fact, what matters the most for the taxpayers is the transparent contracting, and professional management, as they are the ones paying the subsidies assigned to the airport by the City of Nis and the investments coming from the state level. In other words, the question of how well the airport is and will be managed supersedes the issue of ownership.

    The second thing that needs to be clarified here is the question of competition, as it is one of the market principles that Serbia aims to develop. The recommendations issued by the World Bank [2] for economic development reaffirm the fact that the problem does not necessarily lie in ownership and therefore these recommendations do not state that all public enterprises should be privatised, at least not in the first phase [3], but add that these enterprises should be reformed in such a manner to allow them to become self-sustained. In that case, public enterprises should operate in a manner that would not require subsidies and coverage of losses due to bad business practice (management) by the state and, in the final round, by taxpayers. The main reason for insisting on restructuring and privatisation is because state-owned enterprises tend to record losses caused by poor governance, although these companies have good potential and even sometimes a natural monopoly on the market. Financing such business failures from taxed money, represents a risk for the stability of public finances, and represents a violation of competition which was, among the other things, mentioned in the most recent European Commission report [4], especially in the part describing state aid.

    What is usually mentioned about the Airport of Nis is that it represents a competitor to the Airport of Belgrade. In this case, the argument goes that the former would damage the interests of the latter, the one for which concession rights were previously granted. However, what is not to be neglected is the fact that these two airports have different target groups. Belgrade airport’s taxes are too high for low-cost companies, which is why they typically rely more on the Nis airport. At the same time, customers of the standard airline companies are two different market niches. For that reason, there is enough “room” for everyone, on both airports. That can also be confirmed by the fact that a large number of travellers from Serbia rely on the airports from neighbouring countries – such as airports in Timisoara, Budapest, Tuzla, Skopje, etc. – in search of more favourable tickets for the flights that are offered there.

    On the other hand, even if these two airports were direct competitors, this would not have necessarily been a bad thing. As one of them is managed by the concessionaire, and the other one by professional management, this creates the basic preconditions for the development of healthy competition in the airline market, which would, consequently, also affect the better conditions for all users of those services. Even though this logic is known by the involved parties, statements on potential limitations in the development of Airport Nis – contained in the Concession contract for Airport Belgrade[5] – indirectly forced the European Commission’s Directorate-General for Competition (DG COMP) to become involved with this specific issue. Related to that, a group of dissatisfied citizens complained to the DG COMP referring to a violation of competition in the Serbian airline market. [6]. Now it remains to be seen what the decision of DG COMP will be. Whatever may be the case, more transparency in contracting the concessions is needed. Also, professionalisation and restructuration of management in public enterprises (both in ownership of local and state authorities) is a necessity. Once transparent, professional, and responsible management is ensured, the issue of ownership becomes of secondary importance.

    [1] RS Government Act no. 343-2834/2018 from 29.03.2018, http://www.ni.rs/wp-content/uploads/GV-123-1.pdf (date of access: 26.04.2018.)

    [2] Western Balkans Regular Economic Report: Spring 2018, p.60

    [3] The EBRD report even warns that privatization, although it can bring some benefits, must be very well planned and implemented – The Western Balkans in transition: diagnosing the constraints on the path to a sustainable market economy, p.14

    [4] European Commission – Serbia 2018 Report, p.41-48

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