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

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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