Case Studies: Tirana International Airport

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Project Overview
Tirana1.png
Figure 1. Tirana International Airport
Tirana International Airport (TIA),Albania
Project Type: Both
Contract duration: 20 Years
Budget: EUR 50 M (Development)
Project Time Line
Project conceived: 2003;
Tender: 2004;
Contract Award: October 2004;
Financial Close: March 2005;
Contract Ratification: Nov. 2004 (Law 9312/11.11.2004;
Date of opening: 21 March 2007

Introduction

In the framework of EU integration of Albania, air transport is considered to be one of the most important transport modes to open and link Albania with Europe and Balkan region countries. In this context, the Albanian government gives priority to improving infrastructure and services of the Tirana International Airport (TIA).

Located on the old International Airport “Mother Tereza”, modernized and expanded, Tirana International Airport’s serves international flights from and to Tirana. The Airport offers a 24-hour operation, 7 days a week. TIA service teams are coordinated perfectly to maximize efficiency and flexibility. Short shuttle times, rapid dissemination of luggage, and well trained personnel are just some of the requirements for an airport service and TIA offers them. Customer satisfaction surveys are conducted regularly for both the passenger and cargo terminals, aiming to assess the level of service offered to passengers and customers. In 2011, the quality of services and facilities offered by TIA remained, in general, “satisfactory” to “very satisfactory” and the quality of services and facilities provided by TIA in the cargo terminal was “very satisfactory”.

The Concession Agreement for (Rinas) International Airport was signed in October 2004 by the Albania Government and Tirana Airport Partners (TAP). The object of this concession was the construction, operation and maintenance of the International Airport "Mother Teresa" of Tirana. The concessionaire’s assignment is to design, finance, install, build, maintain, operate, manage and develop the new terminal construction based on the old airport. The planning and construction of the airport was made to British standards. In addition, completed in 2007, were the construction of 7 km of access roads, which shorten the distance to the capital Tirana by 8 km; a new air cargo terminal; renovation and construction of the airport infrastructure; a new car parking area; and a waste-water treatment plant.

The concessionaire was given exclusivity rights since the Government of Albania guarantees that during the term of the concession no other airport will be licensed, authorized or operated any for international commercial flights (cargo and passenger) in the Republic of Albania, with the exception of emergency landings. The Law of the Concession for Tirana International Airport "Mother Teresa" states that “…When not otherwise provided for in this Agreement, this Agreement takes precedence over any applicable law that is in force at the date of entry into force of the Law on Airport Concession …”

The Contracting Authority (Public Party)

The project has been driven by the Ministry of Transport, which is the responsible entity at national level, which governs all units and transportation public institutions operating in transport sector in Albania. The Minister of Transport created a committee and working groups for the whole procedure of review and assessment of bids submitted by corporate entities.

As of 2000, the Albanian government’s strategy for the development of transport gives priority to the transport sectors related to trans-European integration issues. In this context, the Albanian government has given priority to improving transport infrastructure and services in Tirana International Airport, located in Rinas. The main targets for air transport development were the operation of international airlines opening up the country and linking it with many European and Balkan countries.

For concessions Albania has a general law covering all activities and sectors of the economy. This is Law no 9663, dated 18.12.2006, the "Law on Concessions", with amendments by Laws no. 9995, dated 22.09.2008; no. 10 137, dated 11.5.2009; no.10 157, dated 15.10.2009 and Normative Act no. 1, dated 5.5.2010.

The Concessionaire (Private Party)

The concessionaire companies are represented by a consortium owned by (i) HOCHTIEF AirPort GmbH (HTA), one of the leading private airport investors in the world, (ii) DEG Deutsche Investors - und Entwicklungsgese -llschaft, a member of the KfW banking group that is specialized in the financing of corporate and infrastructure investments in Europe as well as the financing of exports, large projects and investments by European companies abroad, and (iii) the Albanian-American Enterprise Fund (AAEF), an investment company founded by the US Government with the objective of supporting the development of the private sector in Albania. Their shares are as follows: HOCHTIEF AirPort GmbH: 47%; DEG Deutsche Investors - und Entwicklungsgese –llschaft: 31.7% and the Albanian-American Enterprise Fund (AAEF): 21.3%.

Financing was provided in combination by EBRD, Alpha Bank Albania and DEG.

Users

The main users are the passengers from Albania and all connecting countries. The second group of users is the airline companies, both national and international. In addition some cargo services operate for fast and special condition deliveries. TIA is the only international airport in Albania.

The state has the right to control airport operations and implements its rights through institutions such as ANTA (Albanian National Air Traffic), DPAC (General Directory for Civil Aviation) and the Directory for Air Transport in the Ministry of Public Works and Transport.

Key Purpose for PPP Model Selection

The main reason to choose a PPP project for Tirana International Airport was that Albania has only one airport to cover all user requirements. The objective of the Albanian state was to provide an international airport of European standard to connect Albania with other European countries though the safe and high level of service. The funds for such an airport could not been provided by the Albanian state, so a PPP scheme was seen as one of the main ways of securing private investments controlled by the state.

Project Timing

During the negotiation for the concession of Tirana International Airport, macro-economic indicators were steadily deteriorating, including the budgetary situation of the country as well as the level of inflation, which was 3-4% p.a. The demand for air passenger transport was very strong, with high growth rates.

At the time of contracting the concession, Albania was in the first stages of visa liberalization and integration of the country into the EU, with some measures already under implementation. For that reason an International Airport was one of the priorities for the transport sector. The need for rapid development of the country and the negative effects of the crisis on the Albanian economy justified the decision of the state to use private companies for the procurement of TIA.

Project Locality and Market Geography

Tirana International Airport is 7 km from the main road to Tirana, and 3-4 km from the north-south road axis in Albania. It is a short distance from Durres railway station and the Port of Durres. Business activity in the vicinity of TIA has grown and expanded. TIA is a node in the TEN Corridor VIII (Bari/Brindisi-Durres-Tirana-Scopje- Sofia- Burgas/Varna (Bulgaria). TIA is located in Rinas, part of the Corridor VIII branch in Albania.

Procurement & Contractual Structure

Tendering

In 2004, the Ministry of Public Works and Transport published an invitation for pre-qualification for the concession of Tirana International Airport in: two international newspapers; commercial and foreign businesses organizations; organizations in the district chambers of commerce and business in the country; and the Bulletin of Public Announcements.

All interested parties from Albania and abroad could participate in this competition on the basis of qualifications, airports activity experience, and company competence. The nature of the project and its technical requirements, Bid Procedure, Contract Terms and the Legal, Economic and Financial Requirements were specified in the Bid Procedure Documents. Selection of the winners was based on a competitive procedure, with eligibility criteria for the financial and technical assessment.

The contracting authority followed the competitive dialogue procedure. The call for Expressions of Interest attracted 18 companies, of which four were invited to take part in the negotiations.

The concession was approved by Law no.9312, dated 11.11.2004. As of April 23rd 2005, Tirana International Airport is operated by the concession company Tirana Airport Partners SHPK (TAP).

Contract Structure

It is a typical concession scheme based on international procurement laws as approved by the Albanian Parliament. After 20 years the airport terminals and associated functions will return to the Ministry of Public Works and Transport.

The facilities are exempt from customs duties, import taxes, and value added tax on imports and materials supplied for construction and reconstruction work.

Tirana Airport Partners receive the airport revenues from the airport and bear the responsibilities of private entities (the Government gets revenues every year from TAP fiscal system activity profit, VAT, etc.) specified in the legislation for private business activity registered in Albania.

TAP (Tirana Airport Partners) has to guarantee the full performance of the contract, offered in accordance with the requirements of the Agreement, with a prepayment in the amount of EUR 3M (paid at the start of contract as a guaranty for concession of the airport) as shown in the contract.

In the concession agreement for Tirana International Airport the Contracting Authority, is authorized to negotiate and achieve an agreement with the concessionaire to change the terms and conditions of the concession contract in all stages of implementation, if this is seen as efficient for the operation of the project.

Risk Allocation

With respect to risks (see figure 2), the private partner is responsible for providing the financing, construction and modernization by certain deadlines, for the quality of maintenance and service activities, and for the efficient use of the assets transferred from the public authority. On the other hand, the contracting authority has to carry out the project for the development of modern air transport in Albania.

Design and construction risks, as well as maintenance risks, are completely assigned to TAP (Tirana Airport Partners). The same applies to the exploitation, commercial/ revenue risks and to a large extent the financial risks.

Tirana2.png

Figure 2: Risk allocation

Regulatory risks are borne mostly by the Ministry of Public Works and Transport which is the state representative, and the law for concessions is subject of Albanian Parliament approval. During the 20 years of the concession the Law of Concession may be subject to essential changes with the approval of both parties.

The project is located in Albanian territory and so the Albanian government is responsible for land acquisition and proprietors’ indemnity. Finally, claims by the inhabitants of areas near the airport for environmental damage such as noise, pollution or other works such as airport enlargement and new road links are, in general, addressed by the public sector.

Performance

Concessionaire is assessed with respect to construction performance and operational performance.

Investment plans in the Concession Agreement for the reconstruction and modernization of Tirana Airport were realized on time and according to British standards.

The quality of services and facilities offered by TIA remains, in general, “satisfactory” to “very satisfactory”. In matters of protection and improvement of the environment considerable progress has been made. Also TIA, in compliance with its environmental permits, procedures and environmental & health legislation, monitors noise levels, air quality, waste water parameters and potable water quality in the airport.

In 2011, one of the main challenges was TIA’s optimization of energy efficiency, aimed at sustainable use of resources and energy saving.

In the financial year 2011, due to increased traffic TIA reached a turnover of EUR 33.9M. The passenger and freight traffic at TIA, after the reconstruction of airport in 2007, has so far increased from year to year. The traffic flow has been accommodated in a secure and comfortable way with a very high quality of service. TIA has indicated a growth in passenger numbers of 18.2% in 2011, with Italy the main growth driver. This has been mainly due to visa liberalization. Air Traffic Movements (ATM) had a growth of 10.7% for the year 2011. Increased frequencies during the summer peak and the introduction of new routes contributed to the overall positive development. Cargo grew by 17.6% in 2011, with the increase mainly due to the introduction of dedicated cargo flights and increased mail charter services.

In recent years (2011-2012) TIA has achieved its objectives and targets related to quality, environment, health and safety and social responsibility. In this regard TIA has continued raising the awareness and understanding of its employees and business partners of managing environmental, health and safety effects.

References

  • A. Dedej, V. Shiko, 2013, International Airport of Tirana In Roumboutsos, A., Farrell, S., Liyanage, C. L. and Macário, R, COST Action TU1001 Public Private Partnerships in Transport: Trends & Theory P3T3, 2013 Discussion Papers Part II Case Studies, ISBN 978-88-97781-61-5, COST Office, Brussels available at http://www.ppptransport.eu
  • Albanian legislation on concessions and all regulatory acts for the implementation of their laws. Official Journal of the Republic of Albania. www.qbz.gov.al/(1995, 2006, 2007, 2008, 2009, 2010).
  • Extra annual reports and brochures for TIA economic activity for the years 2006-2011/ Tirana International Airport/ www.tirana-airport.com
  • Concession Agreement for Tirana International Airport. Official Journal of the Republic of Albania(2004), Law No. 9312, dated 11.11.2004.
  • International Finance Corporation Bulletin for 2006-2011 for issues relating to the environmental and social impact of PPPs in the transport sector.
  • Macro-Economic Indicators of Albania 2004-2014. - INSTAT, Bank of Albania, Ministry of Finance and World Bank. http://www.minfin.gov.al; www.instat.gov.al; www.bankofalbania.org/;
  • MPWT - all materials of the documentation PPP for transport procedure usually to the implementation project and in the process of competition: http://mppt.gov.al/koncensionet/