Necessary or Desirable
10.162 As noted in Chapter 2, under Part IV of the Commerce Act goods and services may be controlled if it is necessary or desirable for those goods and services to be controlled in the interests of acquirers. The potential benefits and costs to acquirers of controlling the airfield services supplied by CIAL have been identified above. The Commission considers that if the weighing of these benefits and costs demonstrates that an improvement in the economic welfare of acquirers would result, then control would be demonstrated to be necessary or desirable in the interests of acquirers.
10.163 Table 73 brings together the Commission's estimates of the potential benefits and costs to acquirers of introducing control for airfield activities in terms of acquirers interests. The figures shown in Table 73 are an average of the three years 2001-2003. Results for individual years are shown in Appendix 17.
Table 73: Estimates of the Potential Benefits and Costs to Acquirers of Control of Airfield Activities Supplied by CIAL, Average Per Annum ($000s)
| | Over WACC Range | At Point Estimate |
|---|
| Total Benefits | -604 to 326 | -100 |
| Total Costs | 802 to 1,525 | 1,152 |
| Net Benefits to Acquirers | -2,130 to -476 | -1,253 |
10.164 There are no net benefits to acquirers (in this context, specifically the aircraft operators and any indirect acquirers, such as airline passengers) if the airfield services supplied by CIAL were to be controlled. At the Commission's point estimate of WACC, the Commission estimates there are $1.2 million net losses per annum to acquirers over a period of three years. Overall, the Commission considers that, on the balance of probabilities, no net benefits would accrue to acquirers through the imposition of control, irrespective of the position chosen in the WACC range.
10.165 In considering whether it is necessary or desirable in the interests of acquirers to control the airfield activities supplied by CIAL, the Commission also notes the fact that it has not found evidence of a trend of excess returns historically. This reinforces the Commission's view that excess returns are not likely in the future under the current regulatory environment.
10.166 The Commission, therefore, considers that control does not appear to be necessary or desirable in the interests of acquirers of airfield activities. The test in section 52(b) is not met. The requirements for controlling the airfield services supplied by CIAL are not satisfied.
10.167 In calculating the costs of control, the Commission has assumed price cap regulation, as this is one of the more common forms of regulatory control overseas. Use of this form of control, for the purpose of estimating the costs of control, should not be seen as predetermining the form of control that the Commission would employ if control were declared. The Commission notes that a wide range of regulatory controls are available under Part V, which are likely to be less intrusive or less costly than price cap regulation. It would also need to be determined, however, how effective different control mechanisms would be in achieving the benefits of control, i.e., the overall cost-effectiveness of control would need to be assessed for control mechanisms besides price cap regulation. The Commission has not considered the efficacy of other forms of control.
10.168 In terms of other control mechanisms, section 70(2) enables the Commission to use formulas or other methods from which prices or revenues, or any part of a price or revenue, may be determined. One suggestion, from BARNZ, is that the parties could commercially negotiate, based either on the principles resulting from this report, or pricing principles established by the Commission as a form of control. In addition, the Commission notes there may be other policy options available to the Minister. Irrespective, the Commission is cognisant that any form of control utilised would need to be commensurate with the level of market power available to CIAL, the size of the anticipated excess return, and resulting net benefits to acquirers.
Back to Top