"The Stormy Skies Over a Privatized Moscow Airport"

Thursday, March 17, 2005

The Stormy Skies Over a Private Sheremetyevo
Russia - The Moscow Times

 
After abandoning all hope of finding a management company for Russia's
biggest airport, Sheremetyevo, officials have decided to get rid of it. The
Federal Property Agency proposed that President Vladimir Putin take the
airport off the list of strategic companies so that nothing would interfere
with the privatization process.

The attempts to find a private management company for the airport's
international terminal began with a bang of a scandal and ended with a
fizzle. In spring of 2003, the president of Alfa Group, Mikhail Fridman,
wrote a letter to Prime Minister Mikhail Kasyanov suggesting he hand the
airport over to Alfa-Eko to manage. The prime minister liked the idea but,
to keep up appearances, decided to hold a competition. It was troubled from
the start. To participate, companies' accounts had to be reviewed by a "Big
Four" auditor. However, instead of Deloitte, officials decided for some
unknown reason to include the law firm Baker & McKenzie, which does not
conduct audits. This curious mistake automatically disqualified all of
Alfa's potential rivals. They used Deloitte.

To keep the scandal under wraps, the competition's rules were changed, but
Alfa nonetheless walked away with the deal. Then, Kasyanov was unexpectedly
dismissed, and he did not get a chance to confirm Alfa's victory. The new
prime minister, Mikhail Fradkov, announced that he needed to look into the
matter. He's still looking into it, and the airport continues to operate
without a management company. Meanwhile, representatives from Alfa told
Vedomosti that they are no longer interested in Sheremetyevo.
  
Now officials have decided that selling the airport would be a whole lot
easier than running a fair competition. Whether this makes sense or not is
hard to say. The runways, signals and service roads can't be privatized
under current law, which means that the state will still have to deal with
the airport, anyway. In the United States, France and Spain, airports are
state property, while in Britain, Germany and Israel they are partially or
completely private. There is no consensus as to which approach is more
efficient. Domodedovo Airport demonstrates, however, that a private airport
can be better and more convenient, and airlines like British Airways,
SwissAir, Emirates and El Al flocked to Domodedovo after it was privatized.
But things could turn out differently for Sheremetyevo. Its success will
depend on how willing investors are to put money into the airport and how
willing the government is to stick to its end of the deal. To begin with,
the state will have to hold a fair auction. As Sheremetyevo's past
demonstrates, this could mean trouble.


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