Commentary by InfoMarket Agency
“There is great joy about the airport being retrieved from the mafia. I remember this airport when it was state-owned. Since the state didn’t invest anything, a miserable smell would be felt by everyone entering the airport. The Mafia took it over and turned it into a little Swiss watch. Now it has been restituted to the state, therefore the smell of a Soviet toilet should return very soon. Will there be lower fees? I don’t believe so.”
This is a Facebook statement quoting Constantin Tanase. Many are commenting on last week’s big news, announced by Moldovan Minister of Justice Sergiu Litvinenco: Chisinau International Airport is returning to state ownership. This was ruled by the Chisinau Court of Appeals. Avia Invest company, which took the airport as concession in late 2013, called the termination of the contract illegal and announced the amount to be returned by the state (that is, by taxpayers) – 90 million euros. This is how much was invested in the reconstruction and modernization of the airport and the concessionaire says it is ready to provide supporting evidence of an international audit.
As a rule, any company owned by the state is always an inefficient management and leakage of revenues into the pockets of those in power. The same is true of the airport.
In 1998, the government allocated 3 million euros from the budget to renovate the airport, and another 9 million euros was provided by the European Bank for Reconstruction and Development (EBRD) in a loan. The EBRD is a commercial bank, and its main goal, as stated in its charter, is to make profit. At the same time, in 1998, an airport fee was introduced at the expense of which the loan to the bank should be repaid. While being the General Director of the State Civil Aviation Authority, Victor Topa told InfoMarket Agency that the renovation involved the purchase of two air bridges worth 1 million euros each. But, apparently, the money was not enough. There is still no such gangway at the Chisinau airport.
One hundred percent source of repayment of the loan and interest on it, the airport fee, which has not been canceled since its introduction, allowed to begin in 2008 the second phase of the airport modernization worth 46.25 million euros. It envisaged the restoration and modernization of the existing runway, access roads of the Chisinau International Airport, renewal of the apron and expansion of the passenger terminal and purchase of special equipment. 20 million euros was allocated by the European Investment Bank and 1.75 million euros was received as technical assistance from the EU under the European Neighborhood Investment Facility. The EBRD allocated the loan in two tranches of 17.5 million euros and 8 million euros, respectively. The money was provided for 15 years with 4 years of repayment vacations. The interest rate was Euribor 3-month rate + 4.6%. In 2008, the Euribor 3-month rate was about 5% per annum, that is, the final price of the borrowing was 9.5% per year.
And in 2013, by the decision of Filat’s government, in which the current president Maia Sandu was the Minister of Education, the airport was concessioned to Avia Invest. Presumably, the international creditors had returned the money with interest by that time. Only the Court of Accounts can determine what was done with the credit funds; however, nothing came out of the declared (what passengers can see) expansion of the passenger terminal; it was the concessionaire who took care of its expansion.
In September 2013, Moldovan Prime Minister Iurie Leanca called the government’s decision to concession the Chisinau International Airport correct. He stated that the political decision to concession the airport was made back in 2012, and no one questioned it, because urgent measures had to be taken to improve the airport infrastructure, modernize its runway, lighting systems, expand the terminal, etc.
But then, almost every successive change of government since 2015 has declared the need to terminate the concession contract. In Maia Sandu’s government (June-November 2019), Vadim Brinzan was Minister of Economy. One Saturday morning, he gathered journalists and talked about some of the pitfalls of the Moldovan economy, among which was the issue of the concession contract termination. Being a competent person who knows international legislation and, very importantly, has access to the contents of the concession contract (which is an extremely encrypted document), Brinzan said that legally the Moldovan state could not terminate this contract in any way. He said something about a reference in the document to the fact that disputes arising may be considered by a court in New York City, USA, which, if it considers cases involving the state, more often protects the rights of the private partner. How much of this is true we don’t know, especially since recent legal disputes between the state and the concessionaire have been heard in the Arbitration Court of the Chamber of Commerce in Stockholm and the Court of Appeals in Chisinau. Since the contract is not presented to the public, it is not known exactly what is stated in the concession contract regarding disputes and where they should be resolved, we have to be satisfied with the statements of the parties.
From 2014 to 2019, every passenger could appreciate the development of the airport by the concessionaire: modern parking, the expansion of the arrival hall, the expansion of the accumulation hall, the design and so on. Journalists were invited to the runway to see where the money was “buried” – in updated runway lighting, new luggage terminal equipment. For the modernization of the runway, taxiways and parking, the German company Strabag brought its own plant which was operating on the airport territory. The runway, which is 3950 meters long, was modernized: 1000 meters on both sides, and widened from 45 meters to 60 meters. That leaves a section of 1950 meters in the middle. In order to modernize and expand the center section of 1950 meters, the runway must be closed. And the concessionaire decided to rebuild the old runway 2383 meters long first, so as not to interrupt airport operations. So now we have two active runways that can receive aircraft, but, the main one in the middle has never been modernized or expanded. The concessionaire didn’t have time to do this, everything stopped in 2020 because of the pandemic, and in 2021 Moldova had snap parliamentary elections. It turns out that for three years nothing has been modernized, repaired or built at the airport… And in early 2022, taking advantage of the state of emergency introduced in the country, the authorities appointed their own administrator at the airport in the Avia Invest company. And now here is the decision of the Court of Appeals about the invalidity of the concession agreement.
And, for some reason, just this year, WizzAir closed its base at the Chisinau airport, and these were two aircraft that were serviced and paid for by the company here, several local crews, and so on. The reference to the war in Ukraine is, of course, an important reason for this move, but WizzAir planes still fly to Chisinau from other airports.
Something similar has already happened in the history of Moldova when a German company backed by former Moldovan officials privatized 49% of Air Moldova. The transaction raised many questions, but was carried out within the framework of the current legislation. Then President Vladimir Voronin simply instructed the relevant authorities to return the company to the state, as they say, without trial or investigation. This led to the fact that a few years later the European Court of Human Rights ordered Moldova to pay 8 million euros in compensation just because the restitution of the company to the state was carried out by clumsy methods, instead of everything being carried out in compliance with all necessary procedures…
And here is the main question: why is the government trying to break the airport concession contract? Back in 2013, the airport was not the most prosperous enterprise. But since 2014, when the European Union abolished the visa regime for Moldova, passenger traffic has not only increased, it has skyrocketed. And since 1998, no one has canceled the fee for each ticket, which now amounts to 9 euros. The concessionaire was reproached for making the investments it makes only at the expense of these funds and is not attracting additional investments, as it was obliged by the contract. But again, what is it written in the contract? If the concessionaire receives income from the enterprise that it has taken over, it cannot invest the income in the development of this very enterprise? Show the contract to the public and everything will become clear to everyone.
The number of passengers was growing rapidly every year since 2014 and the concessionaire managed to attract WizzAir to Chisinau, which increased the income of the airport even more. Such revenues cannot but annoy our Western partners, who don’t make any money out of the airport. Remember, the EBRD is a commercial bank, and it finances (not for free), among other things, facilities of national importance: Giurgiulesti International Free Port, the largest commercial bank in the country, and twice – the Chisinau International Airport.
Yes, of course, this story has a huge political background: it is believed that the company belongs to Ilan Shor, who was convicted in absentia in Moldova, but also has his own opposition party, and that the money he uses to develop the airport is from the stolen billion. But no one presented the legal affiliation of Avia Invest to Ilan Shor to the public. Avia Invest is officially owned by the Cypriot offshore company Komaksavia Airport Invest, which owns 95% of its share capital.
From the passengers’ point of view, we want to feel comfortable and safe at the airport. The airport has become the pride of Moldova. Now the revenues belong to a private company and when the issue with the termination of the concession contract is solved, they will go to the state. But does this mean that everyone will be better off for it? The state has too big a hole in the budget and huge pockets for those who feed from state enterprises, for example, by receiving salaries as members of the Council, not to mention other schemes that are passed from government to government. The scandals surrounding the appointments of new directors of state-owned enterprises are another confirmation of this.
If the concession agreement is annulled, there is a great probability that the airport will be immediately privatized or conceded to a “trustworthy” person from a partner country, for whom the main criterion, and this is normal, will be making a profit and taking capital out of Moldova. But the current power, which has an outstretched hand for grants instead of supporting business in the country, will have no questions because it will be the “right” concessionaire, or worse, the buyer approved in Washington or Brussels.
The saddest thing about the current situation is that for the last three years, from the pandemic to the authorities’ actions to terminate the concession contract, nothing more has been modernized or built at the airport. The main runway, though operational, still stands unfinished, the equipment is aging, and what else is inside that is not visible to passengers that needs repair work? Ask any passenger how comfortable it is at our airport, and you will get only positive feedback. For only three years nothing new has been done at the airport and this is already noticeable, and nothing will be done for years to come. Courts are a long business. They are unlikely to be held only in our country, and everything will be paid for by the taxpayers. Passengers will also lose, even if not all of them have felt it yet.
And as for the new investor, the state will definitely not cope with the development of the airport; there is an issue of adequacy and continuity of power, hence, can we count on the arrival of high-quality investments in the country if the rules of the game in the country change along with the change of governments.