TAV Georgia Invests Additional USD 65 Million In Infrastructure
20 September, 2012
TAV Georgia Invests Additional USD 65 Million In Infrastructure

The operational rights of TAV Georgia, the Turkish-based operator company of Tbilisi and Batumi International Airports, have been extended for 10 years and 9 months from February 2027 to November 8, 2037 within the scope of the Build-Operate-Transfer (BOT) agreement and in exchange for the USD 65 million to be invested in construction of an additional runway at Tbilisi airport. But Georgian president calls on the company to cut its high tariffs down.

Tbilisi International Airport is expected to have a

completely renovated and extended runaway built in line with the ICAO standards in less than 2 years.  A relevant agreement on reconstruction of the unused runway at Tbilisi Airport was concluded on September 4, 2012 between the United Airports of Georgia and TAV Georgia, the operator company of Tbilisi and Batumi International Airports.  76% shares of TAV Georgia are owned by Turkish TAV Airports Holding.

According to the agreement, USD 65 million will be invested for the reconstruction of the runway. TAV Georgia will employ 700 people on the new runway reconstruction works among them 99% will be native.

As Sani Sener, TAV Airports President & CEO stated during the agreement endorsement ceremony, the new runway will be of F Code standard. Only few leading airports -such as London’s Heathrow and Amsterdam’s Schipol- have the F Code runway and Tbilisi will be the first in Transcaucasia to have such state-of-the-art infrastructure.

The new runway is scheduled to be completed in 22 months. By receiving F Code, Tbilisi Airport’s renovated runway will be able to accept all type of aircrafts, among them the world’s biggest -Boeing 748-8F, Airbus A380-800, Antonov 225 and Antonov 124. A new F Code taxiway is also planned.

TAV Georgia entered in Tbilisi and Batumi international airports in 2005 as an operator/manager company and invested over USD 100 million in both Tbilisi and Batumi airports up to day. As soon as new Tbilisi and Batumi terminals were put into operation in 2007 TAV Georgia was entitled with the 10-year management right of both airports until 2027. But now thanks to additional USD 65 million earmarked to be invested in Tbilisi airport TAV operation timeline in Tbilisi was extended to 2037 by around 11 years in spite of severe criticism that TAV enjoys a market monopolist position and fixes service tariffs affecting air-ticket prices.

Experts believe the contract between Georgian government and TAV Georgia includes no profit limits that lay ground to high tariffs. But the contract is out of public reach under the excuse that it is a commercial secret of private company.

“The contract between the state and TAV Georgia is non-transparent under excuse that it is commercial secret of private company, but when you hand over the state property the contract should be open,” Davit Narmania, Executive Director of the Caucasian Institute for Economic and Social research, said. “Now we do not know the real contract terms and TAV Georgia takes an advantage out of it.”

Government waived accusations until 2011 but past year Mikheil Saakashvili, the President of Georgia, made the first official outcry that high tariffs fixed by TAV hampers low-cost companies to enter Georgia and hurdles the tourist inflow. Prior to Saakashvili’s criticism Georgian civil aviation officials assured the low passenger turnover standing below million was the reason that scared low-cost companies. When the passenger turnover crossed the said benchmark in 2011 and no influx of low-cost companies ensued officials pressed on high tariff keys too.

As Giorgi Molodinashvili, Deputy Head of the United Airports of Georgia, said in his interview to Georgian Journal in this past June, the key reason air-companies refrain to enter Georgia is high service tariffs at Georgian airports and not low passenger turnover. He shied to disclose contract details casting light on tariff issue stressing that the issue falls within the TAV competence. TAV refrains from full disclosure of tariff-related details as of yet. As Mete Erkal, General Manger of TAV Georgia, explained to GJ earlier TAV’s fee policy depending on flight frequency helps the airlines to increase the flight numbers and decrease the costs. Thank to this TAV managed to increase passenger turnover by more than 50% in last 2 years and be ranked  the second in most growing airports classification.

But Saakashvili believes passenger turnover must be more than that and kept ahead with his criticism even after TAV decided to invest additional USD 65 million in a new runway to extend its operation right by more than a decade. The pledged investment is almost equivalent to the entire investment TAV made in both Tbilisi and Batumi airports since 2005: USD 62.5 million in Tbilisi International Airport and USD 28.5 million - in Batumi.

“Construction of new runway is much more complicated process due to its specific complicated infrastructure rather than the entire [airport] terminal construction together with its entire infrastructure,” Erkal elaborated.

That lumpy piece of investment made Saakashvili to put his reprimands in more complacent mode but call for tariff-cut strongly. He pledged to deprive TAV of its monopolist position through the state-owned Poti and Kutaisi airports.

“I would like to say that we will not leave you as the market monopolist. You cannot become the monopolist, my friends, buddies,” his Excellency sweetened his speech during the new investment presentation ceremony on September 4.

“You are strong and big, but you ought to make tickets affordable to people. Kutaisi airport will suffocate you unless you drop prices… We support private sector and investments, but remember, we will undermine your prices,” Saakashvili warned. “It is wrong that the ticket price to Kiev costs USD 600. The prices that you charge for European directions, is unacceptable since we need more tourists arriving in Georgia.”

TAV has made no comment on the presidential criticism as yet.

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