Privatization of Belgrade’s “Nikola Tesla” airport

The government of Serbia and the Belgrade Nikola Tesla Airport Joint Stock Company have recently issued a call to all interested parties regarding the 25 year long concession of the biggest Serbian airport.
Privatization of Belgrade’s “Nikola Tesla” airport

Nikola Tesla airport, Belgrade, Serbia (Leo Sauermann, CC BY-NC-ND)

The future concession holder has to have as a minimum EUR500m of equity, as well as it cannot operate any other airport within a 450 kilometer radius. These conditions already exclude the Aéroports de Paris, which operates the Zagreb airport under a 30 year long concession, as well as the Turkish TAV, which operates the airport of the Macedonian capital of Skopje. The future Belgrade airport concession holder will have to establish a Serbian branch of the company, which is only a formality, as the local company will have to have a symbolic investment capital (measured in hundreds of euros).

The interested parties had a short deadline of only 15 days (ending March 2nd) for submitting their initial bids, and further 60 days for submitting their non-binging offers. After this threshold, further 75 days will be given for delivering the final offers. The price of tender documents issued to all the interested parties is EUR1,000.

Government looks for foreign capital

Serbian newspapers wrote about the possible concession as early as December last year, but the government firmly denied all speculation. However, at the very end of 2016, Serbian Parliament voted in favor of a new legislation regarding the airport management, which enabled the concession of Serbian airports. The Prime Minister Aleksandar Vučić reassured the public that it is the best way to manage the issue and attract new capital to Serbian air transport. He stated that the previous cooperation between the government and Etihad had increased the value of Serbian air traffic. However, large parts of the Serbian public regard the deals between the government and Etihad as controversial.

Deputy Minister of Construction, Transport and Infrastructure, Zoran Ilic, has stated that the government expects the concession holder to invest hundreds of millions of dollars in the Belgrade airport. According to him, such an investment is possible, due to the traffic expansion of the last couple of years (2014 to present), and is expected, because the airport itself, although operating with a considerable margin of profit, is unable to carry the burden of modernization on its own.

The expectations from foreign investors have grown considerably high in certain parts of Serbian public, fueled by the reports of pro-government media, perhaps overemphasizing their overall impact. It is no different with the upcoming airport concession, which the majority of Serbian public expects to bring large investment, reconstruction of the facilities, and expansion of infrastructure.

Different opinions

However, experts are divided. An article published on Tango Six, a well-known Serbian aviation and aeronautics portal, criticized the governments of the countries of former Yugoslavia for privatizing the airports and giving the concessions too easily. According to the author of the article, there is no hard data showing that a private management will bring any real improvement to the company, listing numerous examples where the new owners had kept the old corporate structures practically intact. Different experiences show different results, and no clear rule can be drawn from them.

A foreign investment advisor, Milan Kovacevic, went a step further and claimed that the decision regarding the Belgrade airport is completely wrong. He says that the company’s profit margin will grow, and in such circumstances investment can be drawn from many different sources other than a concession.

The employees syndicate is also disgruntled by the latest developments regarding their company and has organized a rally requesting the government to give all the temporarily employed staff the time full-time contracts. The number of such employees is over 650.

In Serbia, in times of anticipated large investment, syndical issues are often put aside. Judging by the experience with foreign investment the country has so far had, a measure of caution regarding the issue of the airport concessions would be well advised.

Milica Milojević is an economist, published economic analyst, and a part-time economic journalist with corporate, banking, and consulting experience. She has written papers on monetary and political economics, and economic history of Serbia and the Balkans.

Nikola Tesla airport, Belgrade, Serbia (Leo Sauermann, CC BY-NC-ND)

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