MAHB Privatisation – is there a chance for Mavcom to act independently?

THE dissolution of Mavcom as the aviation regulator passed by Parliament a few weeks ago is a huge surprise since the Malaysia Airports Holdings (MAHB) privatisation deal (MPD) requires its approval. Mavcom will be merged with the Civil Aviation Authority of Malaysia (CAAM), under the Transport Ministry, raising concerns on its independence.

Why the haste?

Justifications for the dissolution include:

- Streamlining Malaysia’s aviation oversight to reduce red tape and improving service delivery especially in licensing.

- Empower CAAM financially as the sole regulator. In 2019, Malaysia’s aviation safety rating was downgraded to Category 2 due to CAAM’s lack of financial capability.

But it has since returned to Category 1, why still use this issue?

- Once the merger kicks off, CAAM will be given more power in terms of setting fees, and in the long run, they will have financial independence to make better hires.

Are the above very urgent that it cannot wait say, next year since one of the pre-conditions of the MPD is the approval from Mavcom and the latter was very involved in the regulatory issues of the sector. Wasn’t the establishment of Mavcom was for economic and commercial regulatory functions?

CAAM was for technical and safety oversight and do not possess the economic and commercial expertise. Would our aviation safety rating be downgraded again to Category 2 due to this?

CAAM comes under the transport ministry but Mavcom was established under an Act. Hope Mavcom will not be heavily influenced as long as it exists and is not completely dissolved.

Privatising MAHB and absolving it from being accountable to anyone except its own board is against the call for good governance by Prime Minister Datuk Seri Anwar Ibrahim, especially for a strategic sector.

In December 2019, Mavcom produced a comprehensive ‘Position Paper (Paper)’ as mandated under the Malaysian Aviation Commission Act 2015 [Act 771].

It reported that the performance of the airports industry is influenced by the behaviour and decisions of the government - due to the latter’s overlapping roles as policymaker, shareholder, and provider of capex funding. MAHB is a publicly-listed company but government determines the overall policy direction for the development of the industry.

The Paper highlighted the lack of strategic airports planning. Undertaken on an ad-hoc basis without an overarching policy and/or strategic guidance led to inefficient airport designs. Focus was on terminal rather than overall airport capacity, example landside, airside as well as, Air Traffic Management (ATM) capacity. Expanding terminals is redundant if passengers are unable to board flights.

Mavcom’s function needs to be supported by strong government commitment towards regulatory independence, policy certainty and good corporate governance.

Mavcom was established as an independent regulator but there have been attempts to influence Mavcom’s decisions through undue political intervention. Different parts of the government could also make decisions which may inadvertently compromise other policy objectives.

In March, MAHB inked new Operating Agreements (OAs), to continue its role until February 2069. The new OAs, with favourable commercial terms and transparent investment return mechanism, offer flexibility to pursue strategic investments to elevate overall service standards and alleviate any financial burden on the government.

As of March, MAHB’s contributions totalled approximately RM43 billion, such as airport development costs, user fee payments to the government, dividend payments to shareholders, tax and zakat payments.

In terms of a public-private partnership (PPP) model, the OA is a hybrid between a lease/affermage agreement and a concession agreement, where private sector operator has full autonomy over operational capex and opex and the government for development capex. The duration of the new OAs is longer than the typical affermage agreement and much closer to that of a concession agreement. MAHB is bearing less risk than it should be apportioned with given the long period of the OAs.

New shareholders will be coming in with less risks and better rewards.

Meanwhile, Mavcom, in collaboration with CAAM and the ministry, was to develop a National Airports Strategic Plan (NASP) to address the issues for the sector and now without Mavcom it will be forgotten. Fact is, MAHB itself formulated a three-year strategic plan (2024 - 2026) aimed at improving passenger journey and focused on execution.

Research on airport management and governance has not identified a clear link between ownership (public vs private ownership) and operational efficiency and service quality. Instead, the main indicator for success is the commercialisation of airports and the ability of operator to run on commercial considerations i.e. without government interference.

In the MAHB 2023 Annual Report, with regards to contingency credit lines as at the end of 2023, undrawn credit lines amounted to RM7.74 billion. Indeed, with RM543 million profit, this is a strong balance sheet with a low gearing ratio of 0.28 times. It will allow MAHB to gear up further if required.

Just cannot reconcile why some parties are worried about pressure on government's financial coffers when MAHB is in good health with favourable OAs. Meantime, the government can fully support the mega RM10 billion Penang LRT project that benefits Penang only. To increase the shareholdings for Khazanah and EPF in MAHB to 70 per cent, would incur additional few billion.

RAM has given outstanding ratings on the various bonds and Sukuk issued by Khazanah and MAHB. However, the impact on UEM’s (vehicle used by Khazanah for MPD) stand-alone credit profile is uncertain. Further, UEM is to invest in green industries – a mandate entrusted as one of the key enablers under the government’s decarbonisation agenda. UEM’s ratings currently benefit from a high likelihood of extraordinary government support.

I find it difficult to comprehend that a smaller company with lower ratings, low net cash position and in the last five years, the highest profit before tax was only RM93 million wanting to control 40 per cent of a AAA-rated company with better financials and profit track record and taking it private. And UEM is supposed to invest in green industries and not aviation that burns huge amount of fossil fuel to fly aircrafts.

Further, UEM is in an industry facing stiff competition with rising costs but MAHB is a near monopoly.

Where is the government’s commitment towards regulatory independence, policy certainty and good corporate governance?

I wonder how was the process for appointing the advisor for the MPD since there are still many loose ends to be tied.

And would dissolving CAAM to be merged with Mavcom be a better solution for the sake of good governance?

What say you...

Saleh Mohammed is a retired civil servant. The views expressed in this article are the author's own and do not necessarily reflect those of Sinar Daily.