Cover Story: Whatever form new aviation regulator takes, independence is key, says Mavcom

This article first appeared in The Edge Malaysia Weekly, on October 28, 2019 - November 03, 2019.

Nungsari: We are mindful that while we are independent of the government, we cannot be independent from the government

Photo by Suhaimi Yusuf/The Edge

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AT a time when the fate of the Malaysian Aviation Commission (Mavcom) hangs in the balance, its executive chairman Dr Nungsari Ahmad Radhi is urging the government to keep the new aviation regulatory body — whatever form it may take — independent.

“This talk about merger and so on is not an important issue. The form is less important than the substance, which is the independence to perform our regulatory role. Whether merged with the Civil Aviation Authority of Malaysia (CAAM) or not, [these] are just forms. The substance is the independence to perform our role,” he tells The Edge in an interview.

Talk that Mavcom would be merged with its technical counterpart CAAM, an agency under the Ministry of Transport (MoT), has been making the rounds since Pakatan Harapan formed the government in May last year. Transport Minister Anthony Loke Siew Fook had dismissed such talk as rumours in March, but he recently told a closed-door investors’ forum that the government is mulling a restructuring of the existing regulatory bodies in the aviation sector.

His remarks come amid the MoT’s legal quandary on imposing changes in passenger service charges (PSC) this month. Only Mavcom is currently mandated to do so under the law.

“In the last year, I keep getting asked, ‘So, Mavcom, how ah? On or not?’” says Nungsari, who was appointed to this post in July last year. Before that, he had served as a commissioner at Mavcom since its inception in March 2016.

It does not help that many perceive the commission as “a creature of the last regime”.

“You can fault the previous government for overspending but there were things done right. There were good people. It shouldn’t be about the previous government, but about what is it, what is the principle and what it does,” he says.

“The fundamental difference between Mavcom and other regulators is that we are given independence in our role under the Malaysian Aviation Commission Act 2015. We can set our own regulations, gazette them and have the force of law. Of course, we work within government policy as the secretary-general of MoT and the Ministry of Economic Affairs (MEA) are ex officio members of the commission, but we have independent powers to regulate the industry,” he explains.

“Using those powers, we have drafted many regulations on consumer protection, airport quality standards, economic competition, licensing procedures and allocation of traffic rights. We were also able to enforce these regulations unimpeded.

“The independence gave us effectiveness to operate but it is also an exception for statutory bodies — to be so independent compared with most other statutory bodies. This has always created tensions with parts of the government since the commission came into being in 2016.”

 

What’s next?

Until and unless a decision is made to change its fate, Nungsari says the 60-strong commission will proceed with finalising the Regulated Asset Base (RAB) framework for implementation in January next year.

“The commission has been working on the airport-funding model for over two years, of which the RAB framework is a key pillar. We are on course to have the airport development expenditures plan for the first period (2020-22) and the aeronautical charges, including PSC rates, to be implemented by January 2020,” he adds.

“Work on the airport-funding model/RAB framework has been done openly. We have landed on the key parameters and principles and are finalising the rates.

“For the first regulatory period (2020-22), we have agreed that Malaysia Airports Holdings Bhd (MAHB) will spend in the region of RM4 billion in the various airports, what operating expenditure (opex) should be for MAHB to run all 39 airports (in the country), bearing in mind that only seven are profit-making, what cost of capital should MAHB use and the projected passenger traffic during the period.

“We have also agreed on tiering charges by airport size and service levels. There will be four tiers — Kuala Lumpur International Airport (KLIA) on the top tier; Penang, Kota Kinabalu and Kuching on the second tier; Langkawi, Subang, Kota Baru, Tawau, Sandakan, Sibu and Miri on the third tier and the rest of the airports on Tier 4,” he adds.

The PSC rates for Asean destinations will also be retained apart from domestic and international beyond Asean.

Nungsari points out that Malaysia needs to invest in its airports, especially its international airports, to keep up not just with traffic growth but to ensure that the local airports remains a significant destination in the region.

“We have seen under-investments in key airports in the past three to four years and this has partly been due to the airport-funding model that is in place between the government as the airports’ owner and airport operators.

“Our proposed airport-funding model seeks to resolve this issue by having a transparent mechanism to develop and fund airports and the fees/charges required, without the need for the government to spend any money at all. In fact, the government will earn income from airport operators under this scheme,” he says.

Nungsari says the commission is now in the final stages of using these parameters and principles to set the charges for the respective tiers.

“In addition to the consultations with MoT, MEA and the ministries of international trade and industry and tourism, arts and culture, we have also briefed the prime minister and the ministers from the respective ministries.

“There’s broad concurrence on the principles and parameters. In particular, the fiscal neutrality of the plan is well received — the government does not need to spend any money, nor should it subsidise air travellers and airports,” he says. Mavcom estimates that the government would have to incur some RM300 million per year under the existing marginal cost support sum (MARCS) mechanism.

On top of that, the government collects user fees from MAHB, Nungsari notes. Last year, the amount received was RM470 million.

He says the prime minister and the ministers also seemingly have no issue with Mavcom’s independent powers to regulate the industry.

“The bone of contention is not so much the issue of our independence or the RAB framework, but that of the treatment of the two terminals at KLIA,” Nungsari says, noting that the ministers are of the view that the PSC rates should be different for KLIA’s main terminal and klia2.

“The commission’s view has always been that the terminals at KLIA are far better than any second-tier airport such as Penang, Kota Kinabalu and Kuching and the rates should be differentiated, what more compared with third and fourth-tier airports,” he says.

“We will resolve this and proceed. Because if we don’t, the whole capital expenditure (capex) plan will not move and next year is Visit Malaysia Year. If you are MAHB, which is a listed company, you would want certainty. (For example) the airport operator is not going to issue bonds to raise some RM4 billion (for capex) if it is unsure it can get its money back. And it would want to have control. You have to let it do the price discovery and we regulate the numbers and the clawback mechanism,” says Nungsari.

“If we finalise the RAB framework, it will make the ongoing negotiations between the MoT and MAHB on details of the four new operating agreements (OAs) easier too,” says Nungsari, adding that MAHB will then have a basis to calculate the provision of its airport development projects. The ministry is expecting the OAs to be finalised by the end of the year.

“The government can of course do whatever it wants legislatively, amend the Mavcom Act or even repeal it altogether, but the broader issue here is the governance that this government wants to put in place. Does it want an independent regulatory regime (albeit within the policy framework of the government of the day) or does it want to concentrate the roles of regulator, policy making and the executive into a single authority?

“Until such changes, we are governed by the Act, the law, and will perform in accordance with the law. Yet, we are mindful that while we are independent of the government, we cannot be independent from the government,” he says.

 

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