Option Four: Make a Decision Now to Impose a Robust Information Disclosure Regime and a Negotiate/Arbitrate Regime (for International Airports) Under the Revised Commerce Act.
54. This option involves deciding now to replace the current regime for airport pricing in the Airport Authorities Act and the Civil Aviation Act (for joint venture airports9) with:
- An enhanced information disclosure regime for airports above a $2 million threshold;10 and
- A negotiate/arbitrate regime for major international airports (AIAL, WIAL and CIAL).
55. The specifications for these regimes are provided in the companion paper on the proposed amendments to the Commerce Act as follows:
- information disclosure (paragraphs 43-44 and section F of Appendix B); and
- negotiate/arbitrate (paragraphs 45-48 and section G of Appendix B).
56. The costs of the option would be similar to those for the previous option with regard to information disclosure. In addition there would be the costs of any arbitration. This is hard to estimate because it will depend of the scope of any arbitration. An estimate however is an average of $300,000 per arbitration. This allows for 40 days11 for an arbitrator at $3000/day, plus $100,000 for specialist assistance, plus $80,000 for travel, accommodation, administration and sundries.
57. The benefits of a more robust information disclosure regime (with pricing principles and binding methodologies) are covered under the previous option (paragraphs 40-42).
58. A negotiate/arbitrate regime could provide an independent circuit breaker if the parties are unable to negotiate a commercial agreement. This in turn could provide much stronger incentives than otherwise for the parties to reach a commercial settlement to avoid the costs and risks of an arbitrated arrangement.
59. If this regime was put in place, decisions would be needed on matters such as the scope of airport services to be regulated in this way and the parties to be represented at the negotiations, how parties other than incumbent airlines are represented, the timetable for negotiations, procedural matters, the form of arbitration and the like. These are all quite complex design issues.
60. Airlines favour the introduction of a negotiate/arbitrate regime. The airports on the other hand consider that negotiate/arbitrate amounts to heavy-handed regulation and is unnecessary. They also argue that it would create gaming problems, delays, and stall investment. Airlines dispute this, arguing that they share an interest in upgraded airport facilities and noting that an arbitrator (not airlines or airports) would make decisions on investments in the event of an inability to reach a commercial agreement.
61. We (Ministers of Commerce and Transport) are of the view that any model based on negotiation would require further work on the costs and benefits of additional regulation before a decision could be made. Enhanced information disclosure and price monitoring (option three) and the real possibility of introducing additional regulation could deliver outcomes consistent with a more workably competitive market.
62. We therefore propose that MED lead work to be undertaken in 2008/09 on whether the scope of regulation should cover more airports or services and whether additional regulation is required.
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