Federal Government of Nigeria Approves Concession of Airports
On the radio this morning, I heard that the Federal government of Nigeria has approved the concession of the Murtala Muhammed International Airport (Lagos) and the Nnamdi Azikwe International Airport (Abuja). The development was announced by the Vice President, Professor Yomi Osinbanjo at the quarterly parley of the government and private sector stakeholders organized by the Presidential Enabling business Environment Committee (PEBEC) held at the presidential villa in Abuja.
To my audience who might be confused regarding what a concession is, the purpose of this post is to throw more light on airport concessions generally and how the government intends to increase non aeronautical revenue through the concessions. So an airport concession means the payment an airport authority charges the owner or manager of an operation to conduct commercial activities in the airport. This differs from rent or leases whereby an owner has the right to occupy certain defined premises during the period of its rent or lease. Woah, I might have lost you there with this explanation, stating words like aeronautical revenue and non-aeronautical revenue as if you know what that is. Well, let me break it down for you, aeronautical revenue are charges levied on airlines by the airline operator for utilizing their facilities for flight related activities including landing fees, passenger fees, aircraft parking fees, handling fees, air bridges and so on. Non aeronautical revenue on the other hand are other revenues generated by airport operators, not related to flight related activities. They include concessions, rents, recharges, direct sales from various shops and so on. Non aeronautical revenue are used as drivers of revenue growth.
So following from the above, a concession is a non-aeronautical revenue which is derived by conferring all commercial activities to sell goods and services in the airport. So basically, in this context, the Federal Government will confer all commercial activities of the airports exclusively to a private partner in a bid to generate more concession revenues. The performance of the concession though would be determinant on factors like the amount of space allocated for retailing activities and other commercial activities, the total passenger traffic of the airport, buying power of the passengers, average rental or contract fees to be charged, and the marketing strategy of the company. The way the arrangement should work is that the company to be granted the concession, i.e concessionaire, pays the airport operator (in this case the government) a fixed rental and additional income upon meeting pre agreed profit levels.
The advantage of the agreement is that there would be increased efficiency with regard to the management of commercial activities as the Federal government would grant the private company greater freedom and flexibility to obtain maximum operating efficiency and effectiveness to drive revenue growth while utilizing its own resources. The federal government is accused of being lax when it comes to generating revenue using public entities. This eliminates that as the concessionaire will be focused on recouping its rental and making above its target to make profit. Also, this reduces the amount of spendings the government would be make on maintaining the airports as the concessionaire would be responsible for maintenance. This helps to free up government funds for other purposes.