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Auck. Airport to consider changes to Commerce Act

Auckland Airport to consider proposed regulatory changes to the Commerce Act

Auckland International Airport (Auckland Airport) said today that it will consider in detail the proposed changes to the Airport Authorities Act and the Commerce Act relating to the regulatory environment for airports in New Zealand. These proposed changes were announced by the Ministry of Economic Development last night.

Chief executive, Don Huse, said “We commend the Minister and Ministry on the thorough process for reviewing the control provisions of the Commerce Act 1987 and the Airport Authorities Act.”

“That said, it will take some time for the detail of the proposed changes to be worked through. We will review and consider these changes in more detail once available and the implications for Auckland Airport’s business and investment programme,” Mr Huse said.

“The airport sees real merit in greater transparency and certainty with respect to the regulatory environment. It is essential that incentives for timely infrastructure investment remain in place, and it is positive that this has been noted by the Ministry of Economic Development,” he said.

In its recent aeronautical pricing process, Auckland Airport was mindful of applying the most recent pricing principles from the Commerce Commission and other leading regulatory authorities in Australasia. The company therefore looks forward to working with the Commerce Commission in the development of appropriate input methodologies and pricing principles.

Auckland Airport is coming to the end of a substantial investment programme of approximately $500 million over four years to FY08. Most of this relates to the expansion and upgrading of the airport’s aeronautical facilities In addition, the company has recently announced a $180 million commitment to complete the international terminal expanded arrivals stage 2 (project 3B) by mid-2011. These are projects critical to the safe, secure and efficient operation of Auckland Airport and to the enhancement of the passenger experience.

Given the scale and long-lived nature of this investment programme and on-going airport infrastructure investment, it is essential that there is regulatory stability and that the proposed changes do not erode fair and reasonable returns for the company.

Auckland Airport is committed to making the proposed legislative environment work to the fullest potential, and we look forward to our airline customers joining us in that commitment.

Below is the media release issued by the Minister of Commerce.

Ends

21 November 2007 Media Statement

Regulatory changes for Airports after Commerce Act review

The charges imposed by Auckland, Wellington and Christchurch international airports will now be regulated under the Commerce Act instead of the Airport Authorities Act, Commerce Minister, Lianne Dalziel, announced today.

Lianne Dalziel said the new rules would not control the level of airport charges, but would subject airports to an enhanced disclosure regime, which would include information on how their charges are set based on binding input methodologies (how costs should be calculated) developed by the Commerce Commission.

The Commerce Commission will monitor the way airports are setting charges against non-binding pricing principles and, if it finds stricter controls are needed, they will be able to recommend that further regulatory measures be imposed.

Lianne Dalziel said that the airports are not being required to ‘negotiate’ as the requirement to ‘consult’ with the airlines will be carried forward into the Commerce Act.

“There has been debate for many years over whether airports, as natural monopolies, should be regulated, given that the current arrangements are at the very light-handed end of the regulatory spectrum,” Lianne Dalziel said.

“Next year the Ministry of Economic Development will commission an independent consultant to undertake further work on whether the scope of airports’ coverage should be widened and whether further regulation is required,” Lianne Dalziel said.

Cabinet papers relating to the announcement will be available on www.med.govt.nz

All Lianne Dalziel's media statements and speeches are at www.beehive.govt.nz/dalziel

Key reforms to regulatory regime relating to major international airports

• An enhanced information disclosure regime will be introduced for Auckland, Wellington and Christchurch International Airports under the Commerce Act, with price monitoring to be undertaken by the Commerce Commission. Currently airport companies are subject to an information disclosure regime pursuant to Section 9A of the Airport Authorities Act 1966 and the Airport Authorities (Airport Companies Information Disclosure) Regulations 1991, with the type of information to be disclosed depending on the size of the airport. Under this proposal information disclosure for the three major international airports will transfer to the Commerce Act.

• The Commission will develop binding input methodologies, (other than the Weighted Average Cost Capital - WACC), for the information disclosure regime. Airports will be required to prepare and disclose specified financial information in accordance with these input methodologies. These input methodologies will be subject to industry consultation and merits review.

• The Commission will also be required to develop non-binding guidelines on pricing principles, and on how to calculate the WACC for monitoring and analysis purposes. This will provide guidance that the Commission will use in evaluating the outcomes of the regime.

• The Commission will monitor and publish analysis and commentary on information disclosed by airports. In addition the Commission will be required to periodically report following price resets (starting from the price reset in 2012), on the effectiveness of the regime and whether further regulation is warranted.

• A further review will be carried out by the Ministry of Economic Development in 2008/09 to consider whether additional airports should be subject to regulation and whether other forms of regulation are warranted for regulated airport companies.

Transitional Arrangements

• Amending legislation is expected to be introduced in 2008.

• The Commerce Commission will be expected to develop binding input methodologies, guidelines on the WACC, pricing principles and detailed specifications for the information disclosure regime by 2009.

• Until the specifications and input methodologies for the information disclosure regime have been developed, the provisions in the Airports Authorities Act will continue to apply. It is envisaged that the new regime will be in place by 2010.

ENDS

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