Tuesday, 4 May 2004

Questions and Answers on Air Passenger Clearance Service Consultation

What is this consultation about? How best to fund the cost of providing existing and improved passenger clearance services at New Zealand’s international airports.

New and upgraded services are being introduced to meet New Zealanders’ and the world’s expectations to protect travellers from security threats like terrorism and the increasing incidences of health threats such as SARS and foot and mouth disease.

The new services will ensure that New Zealand’s international border services are at the level of world best practice.

In particular, the consultation is about: Funding split How the cost of providing these passenger clearance services might be shared or split between the government and those who use and benefit from the services, and what the proportion of cost sharing might be. Whether or not any user charges that arise for providing services at each international airport should be paid for at levels which reflect the actual cost of providing the services – regardless of the size of the airport or the number of travellers using it. This is known as “location specific” charging. Implementation of any charges
How any charges on users (airlines, airports, passengers) that might arise can be put into effect at least cost and with maximum efficiency (including how and where any charges or fees might be collected).

The government, through a Ministerial Committee on funding of border security has come up with six proposals relating to the funding and implementation of new and existing passenger clearance services. These proposals form the framework of consultation and for feedback. (See page attached table: “Proposals of the Ministerial Committee on funding border security” which has been copied from the discussion document.

What are the passenger clearance services that need to be funded? Additional immigration, customs, and aviation security services provided by the New Zealand Immigration Service, New Zealand Customs Service, and the Aviation Security Service respectively.

The additional services are designed to improve the security and quality of services provided to travellers entering and leaving New Zealand by air.

They include: screening passengers’ baggage carried in aircraft holds, better procedures for collecting and analysing passenger information in advance of passengers’ arrival in New Zealand, and increased processing capability to manage arrival and departure queues. These are outlined in more detail in the table on page [3] of this document.

These services are provided by the Aviation Security Service, New Zealand Immigration Service, and New Zealand Customs Service.

Existing passenger clearance services provided by these agencies along with biosecurity services provided by the Ministry of Agriculture and Forestry are also included in the funding discussions (but no new biosecurity services are planned at this stage).

Table 1 in the discussion document provides more detail as to the additional services that need to be funded, the agency providing them, and the cost and rationale for their implementation. This table is also reproduced as an attachment to these questions and answers.

How much will the new services cost? Current estimates put the cost at $27.8 million a year. This is additional to the $55 million a year the New Zealand border clearance agencies already spend providing existing services at international airports.

Table 2 in the discussion document lists the costs of each of the existing services.

Actual costs will be known only in late 2004/early 2005 following liaison with industry over implementation and receipt of tenders.

When will the new services be introduced? In keeping with international obligations, screening of all hold baggage by the Aviation Security Service must be in place by 1 January 2006. The other services will be implemented progressively over the next two years from mid 2004.

Who are the users of these services? On one level, the operators of businesses such as airlines, airport companies, tourism and travel companies and their associations, who benefit from having government services provided to ensure they, and their customers, experience airports in a safe, secure and efficient way.

On another level, all the passengers and staff who travel into and out of New Zealand via our Zealand international airports

And finally, the people of New Zealand who benefit from services which protect New Zealand and New Zealanders from security, health and other threats to our national and individual wellbeing.

Will travellers have to pay the costs of these additional services? Existing security, biosecurity, immigration and customs services are already partially funded by user organisations such as airlines and airports, who then pass their costs on to travellers..

So, travellers may face further costs when it comes to paying for the new or upgraded services. However, the level of additional costs has yet to be decided and will become clearer as the consultation progresses.

How do you work out a fair funding split? The key issue is public versus private benefit and the degree of public benefit and private benefit involved in each service.

The greater the degree of private benefit (to the individual or user organisation or industry) involved in each service, the more the user can be expected to contribute to the cost of the providing that service.

The greater the level of public benefit (i.e. benefit to New Zealand's national interest and wellbeing) the more the taxpayer can be expected to contribute.
The concept of public/private benefit and how it might apply to passenger cost recovery is discussed in some detail under Proposal 2 of the discussion document.

The Ministerial Committee’s proposals on funding were based on the Cabinet-approved policy document Guidelines for setting charges in the public sector also discussed in some detail under Proposal 2.

These Guidelines were published by The Treasury in December 2002 and are viewable on the Treasury website: http://www.treasury.govt.nz/publicsector/charges With regard to existing services, user/taxpayer contributions are shared in the following way. biosecurity services: funded 100% by the taxpayer, no user/traveller contribution aviation security services: funded 100% by users (and passed on to travellers) customs services: users pay 27%, taxpayers 73%. immigration services: users pay 33%.

Who are you consulting? Consultation is directed at those organisations representing people and business directly affected by the government’s decisions on passenger clearance services.

This includes representatives of airports and airlines operating in New Zealand. It also includes representatives of New Zealand's travel and tourism industries, local government interests and representatives of the broader consumer and traveller interest.

The mechanism for consulting with these groups and the people they represent will be a consultation advisory group (CAG). Membership of this group will be confirmed in late May following the receipt of nominations. The CAG will meet regularly between late May and July 2004 and will produce regular updates and communications as consultation progresses. As part of their role, individual members of the CAG will also undertake to keep their own constituencies and sectoral interest informed as consultation progresses.

A list of key stakeholder groups likely to be involved in consultation can be found in the “Background to consultation” section of the discussion document under the heading “Who is being consulted?”

Can people outside the CAG make comment/provide feedback? Yes. Through the appropriate representative on the CAG (consumer, airline, travel industry, tourism industry, local government) By contacting the PCS Secretariat direct – by letter, phone, email or website. By making a submission on the Ministerial Committee’s proposals if they wish. There will be a formal submissions/feedback process, which people who aren’t directly part of the CAG are welcome to be part of. Details will be announced in June once we have more clarity on the government’s proposals via the CAG consultations. Following final decisions there is also likely to be legislation required and that will be subject to usual processes including Select Committee where people can also have a say.

The government and CAG will keep New Zealanders informed through regular updates on the CAG consultation process and outcomes.

What will be a successful outcome of consultation on passenger cost recovery? The ideal outcome would be general agreement between stakeholders/the CAG and government as to: what might be a fair and appropriate funding split how any charges would be implemented

In the absence of agreement on funding options across the CAG the consultation will have been successful if the government and CAG agree that: the government has been made aware of and is fully informed as to user and stakeholder views on funding responsibility, and the government takes this into account in making informed final policy decisions.

Where does consultation on passenger cost recovery fit in with all the other border reviews the government is conducting? There are a number of reviews taking place addressing security risks in trade and travel at the border. They are being coordinated by the Ministerial Committee on funding border security. Not all the reviews are related to issues of cost recovery. Where they are related to issues of cost recovery and there is an overlap with cost recovery at international airports, this will be taken into account in the passenger cost recovery review. Methodologies underpinning all reviews involving cost recovery are consistent and based on the Guidelines for setting charges in the public sector

What are the other reviews that are taking place? consultation under the auspices of the New Zealand Customs Service on proposals for funding new goods clearance services (currently underway); a review by the Ministry of Agriculture and Forestry of the best funding arrangements for biosecurity services (consultation expected to start in mid 2004); and domestic aviation security levy review (the results of consultation are currently being considered).

What is meant by location specific funding? “Location specific funding” means that the cost of funding services could vary from one centre or location to another to reflect the cost of providing the services at each location.

Depending on the amount of equipment and staff required to run each service, this could result in a higher charge at airports that process a smaller number of passengers, and a lower charge at airports that process large passenger numbers, if airports and airlines opt to pass on to passengers the full amount of any additional location specific cost of service. This is discussed in further detail in the discussion document, Proposal 3.

What is the proposal with regard to location specific funding? The Ministerial Committee has suggested that there should be some acknowledgement of the real costs of providing passenger clearance services at the different airports. However, the government also recognises that full location specific charging could impose a significant cost on some (lower volume) airports, so it’s suggested that the actual charge at each airport may not have to reflect the full cost of those services. This is a key issue for discussion in consultation (under Proposal 3) and the government wants to hear the views of the different regions and stakeholders in consultation before making any final decision.

Have there been any economic assessments of the potential impact of new passenger charges on tourism or travel in New Zealand? There have been several studies carried out by both the government and industry groups on the potential economic implications of cost recovery of passenger clearance services in New Zealand. Three of these (NZIER, BERL and LECG) examined potential increases of $12, $19 and $30 per passenger. These are summarised in Working Paper 4 of the discussion document.

In general, a review of international research (2003) suggests that the impacts of any price increase would be greater on short haul (leisure) travel, than on long haul (business) travel. This review estimated that a 1% increase in price could potentially decrease traveller numbers by: 1.2% - 1.7% for short haul leisure 0.15% - 0.5% for long haul business

What do international travellers presently pay for passenger clearance services on departure from New Zealand? A per passenger departure fee of $25.00. The existing departure fee is made up of: $4 for international passenger screening, $1 for the Civil Aviation Authority and $20 charged by airport companies for use of their airport facilities.

How much might this be when the new services come into effect? The discussion document contains a number of ball park figures based on theoretical scenarios. (See discussion under Proposal 3). Actual estimates are not possible as no decisions have yet been taken as to what proportion of which services might be funded by government or users; nor is it known to what degree final charges may be “location specific” or subsidised by other airport users. The final decision made by government will be influenced by the views and information presented during consultation.

What do passengers in other countries pay for the provision of these sorts of security and clearance services?

The table below shows what fees are charged to international travellers arriving and departing from international airports in the ten main markets for New Zealand tourism. The table is adapted from information contained in Working Paper 2 of the discussion document.
Country (Airport) Border Charges ( $NZ equivalent)
Australia (Sydney) $100.76
United Kingdom (Heathrow) $136.83
USA (Los Angeles) $ 55.72
Japan (Narita) $ 31.09
Republic of Korea (Incheon) $ 21.92
China (Hong Kong) $ 21.81
Germany (Frankfurt) $ 30.91
Canada (Vancouver) $ 32.61
Singapore $ 20.62
Taiwan (Taipei) $ 14.95
Sources: Passenger Air Tariff General Rules, IATA and SITA, July 2002

Table 1. New and enhanced passenger clearance services at a glance
Initiative
(and agency
responsible) Initiating authority What the new service
comprises Proposed method of implementation Estimated
annual
cost Consequences of failing to implement new service Consequential benefits of implementing the new service
Hold baggage screening

(Avsec) International Civil Aviation Organisation Chicago Convention

APEC Screening of all hold baggage for explosives by 01 January 2006 Screening of all departing international hold baggage $21.4 m ¤Inconsistent with international obligations and likely prohibition on flying to ICAO member countries Will assist in detection of dangerous goods and may assist with pre-clearance of passengers
Enhanced passenger processing and border security

(Customs) Customs/ APEC Leaders Statement

UN Resolution 1373 Dedicated resources to analyse advance passenger information

Increased processing capability to manage arrival and departure queues

Increased level of risk assessment secondary processing (questioning and baggage search) Increased staffing levels at international airports $5.4 m Capability to manage risks from arriving air passengers will continue to steadily decline as passenger arrivals increase

Threats to NZ’s reputation as a safe business and travel destination Increased capacity to manage established risks to the community such as drug trafficking
Enhancements to Advanced Passenger Screening

(Immigration) New Zealand Immigration Service Extended use of Advance Passenger Processing (APP) system to all airlines to cover all passengers (compared to 80% of passengers covered by existing voluntary uptake system)

Update of Immigration-Customs systems link Existing APP
system.

New technology for Immigration-Customs link $1.0 m Degraded ability to manage security and immigration risk prior to travel. Incomplete APP coverage leaves gaps in security and immigration pre-boarding screening.

Obsolescent Immigration-Customs link leads to failure to transmit information required for immigration operations and is inadequate for transmitting advance information from APP to Customs. Facilitates airline operations: risk passengers are not boarded, rather than refused entry on arrival
Cost of supplying existing and enhanced passenger clearance services at New Zealand international airports.
Agency Existing service $m New service $m
Avsec International departing passenger screening 11.42 Screening of all hold baggage for explosives 21.4 *
Customs Passenger, crew and craft clearance 19.67 Enhanced passenger processing and border security: resources to analyse advance passenger information increased processing capability to manage arrival and departure queues increased level of risk assessment via questioning and baggage search 5.4
MAF (Biosecurity) Passenger and aircraft clearance 18.62
Immigration Passenger clearance and turnaround of inadmissible passengers

Advanced Passenger Screening (pre-boarding) 4.83 Extended use of Advanced Passenger Processing system to all airlines to cover all passengers (compared with 80% of pax covered by existing voluntary uptake system)

Update of Immigration-Customs systems link ¤1.0
Total $54.54 $27.8m
* Estimate only. Tender process and liaison with industry over implementation required to finalise. More complete costing should be known by late 2004/early 2005.

Proposals of the Ministerial Committee on funding of border security

The following proposals have been made by the Ministerial Committee looking at enhanced passenger clearance services for New Zealand's international airports.

The Ministers’ proposals have created the framework for the structure of the discussion document and will be a starting point for discussion at meetings of the proposed consultation advisory group.

I. For the funding of passenger clearance services:
2.
3. In noting the current co-funding arrangements for existing passenger clearance services the funding sources of existing as well as new international passenger clearance services should be examined.
4.
5. In recognition of their public benefit, some passenger services will be fully or partially Crown funded. The level of Crown funding will be determined on a case-by-case basis, depending on judgements as to the public-private benefits.
6.
Charges will be location specific (reflecting the cost of undertaking these services at international airports) but may not have to reflect the full cost of services delivered at a particular location.

II. With regard to implementation and collection:
8.
9. There will be one unified charge covering the cost of all Government-funded services (rather than a series of separate charges).
10.
11. Cost sharing between government and users will cover central government’s costs only. It will not cover consequential costs to airports and airlines as the government has no control over such costs.
12.
Costs should be recovered from users in the most efficient and cost effective way.

This approach to sharing funding between the Crown and users is consistent with the Cabinet approved Guidelines for setting charges in the public sector.

No final decisions have been made on these proposals.

ENDS

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