Will Private-Public Partnerships Fly?

By Simon Lewis 4 June 2014

YANGON — Myanmar’s government is planning to offer up contracts to expand and operate some 39 regional airports in the country later this year, but some doubt whether the private sector will bring the help needed to update the country’s crumbling smaller airstrips.

When a major aviation conference was held in Yangon in March, officials from the Department of Civil Aviation (DCA) told interested businesspeople that they have a plan—the details of which were sparse—that will return Myanmar to its once-proud place as a regional aviation hub.

The Japan International Cooperation Agency (JICA) is currently working on a “survey,” which will feed into a government transport master plan, but a JICA spokesperson declined to go into detail about the plan. Japan last year initiated a US$12 million project to upgrade safety at the country’s six biggest airports with new communications and navigation equipment.

But in terms of tangible policy, it is clear only that Myanmar will continue offering up parts of the sector in competitive tenders. According to the DCA, as the clouds disperse at the end of the current rainy season, the latest tender will go out asking for companies to invest in improving airports and operate them as public-private partnerships.

The airports include those serving growing tourist destinations, like Heho near Inle Lake, Nyaung-U at Bagan, and Thandwe near Ngapali beach, but also planned economic hubs like Kyaukphyu and Dawei.

The aim is to modernize and improve the safety record of the large network of airports as it deals with rising passenger numbers. That should facilitate business and tourist travel across Myanmar’s vast distances, which would in theory help spread economic growth around.

Henrich Dahm, a Yangon-based analyst who specializes in the tourism sector, told The Irrawaddy that developing some of the regional airports was needed for the tourism industry to handle the increasing numbers of visitors wanting to see more than just the major cities.

It was only in 2012 that Myanmar surpassed 1 million tourists per year, but President U Thein Sein has predicted that the country could get 5 million foreign visitors next year.

“The development of regional airports is important to ease the overstretched tourism infrastructure and address the lack of airport capacity in Yangon,” Mr. Dahm said.

“More tourists need to [be able to] fly directly to Bagan, Inle, Mandalay, Myeik, etc., to promote new destinations in the country.”

The tender follows the awarding of deals to operate the Yangon International Airport and Mandalay’s airport, given to a subsidiary of Myanmar-owned company Asia World and Japan’s Mitsubishi Corporation, respectively.

The model of private operators taking over airports has had success elsewhere, and has been useful for governments short on capital who wish to expand their aviation infrastructure.

However, the private sector is not always willing to stump up all the cash for such projects, as the government has discovered with the tender to build a new airport serving Yangon. A new tender had to be issued for the Hanthawaddy airport project after South Korea’s Incheon and the DCA could not agree on how it would be funded. The government eventually agreed to guarantee development loans for half of the project cost—estimated at between $1.4 and $1.5 billion.

In other sectors, the government has had considerable success bringing in private money to pay for upgrades in infrastructure.

Peter Brimble, the Asian Development Bank’s (ADB) principal country specialist based in Yangon, said the tender for telecommunications licenses last year was widely seen as competitive and fair and secured promises of large upfront capital investment.

The ADB has just begun a program in the energy sector to help the government develop a robust tendering process to make sure future deals get the best outcome for Myanmar. “It’s not just to go through the process of tendering, it’s also to think about the national needs—whether that means using a public-private partnership or the government’s own money or a partnership [with donors],” said Mr. Brimble.

The government’s preferred choice, though, as demonstrated by the stumbling Hanthawaddy project, has been to ask private firms to take the entire hit, in exchange for rewards later as long-term operators.

“There’s a tendency to try to raise funds however you can,” Mr. Brimble said.

The DCA appears confident that there is enough private-sector interest, and the department’s director general U Tin Naing Tun told The Irrawaddy in April that “many” companies had come forward to register their interest.

However, he said that much of that interest was from local firms, and it is unclear whether the investment necessary to revamp the domestic aviation market will be forthcoming.

A 2012 report by Business Monitor International, looking ahead to the development of Myanmar aviation, threw cold water on the idea that the sector offered attractive investment opportunities.

“We do not see a lot of financially viable opportunities in the construction and management of airports in Myanmar over the next decade,” the report said.

Noting that Myanmar already has a large number of airports in operation—69 in total—the report warned that “even though Myanmar is keen on private investment…the rewards from this sector are very uncertain for the next decade and would depend on several long-term factors such as a general rise in incomes within Myanmar and the development of a vibrant tourism sector.”

Economist and country specialist Sean Turnell said the airports at tourist destinations had potential, particularly considering the growth of low-cost carriers in the region, which could take advantage of “secondary” airports that are cheaper for airlines to fly into.

“Many others will not be attractive, though—too out of the way, no viable tourist traffic and no reservoir of middle-class travelers or business activity to sustain them,” Mr. Turnell said.

“The sort of returns these airports could generate would not be sufficient for the relatively high capital outlays creating a modern airport would require.

“Of course, on top of the possibility of low and variable returns, you have that fundamental problem in Myanmar of the absence of secure property rights. Investing in an airport will be a long-term proposition, with all the insecurities such decision-making may involve,” Mr. Turnell added.

Kyaw Hsu Mon contributed reporting. This article first appeared in the June 2014 print issue of The Irrawaddy magazine.