Treatment Of New Investment At Regulated Airports

ing from the Project Control Group approach used by Brisbane Airport Corporation Limited (BACL), two features have particular economic significance. First, the Project Control Group is open to all airlines and involves itself very early in the development of investment proposals. Airlines are consulted in the design stage, and continue to participate through to the post completion review stage. This full involvement is economically significant because it works strongly to reduce the information asymmetry between the investor and the users of the investment. The ACCC’s preliminary view in the draft BACL decision28 was: “BACL’s proposal for user involvement combined with the requirement for user support appears to give airport users considerable influence in determining the scale and scope of new investments by BACL. The Commission’s preliminary view is that there is limited opportunity for BACL to over-invest as part of its proposal.” It should be noted that all of the incentive schemes considered so far involve user input into the decision-making process. However, the difference between the PCG approval process and its logical opposite, namely the expected investment requirements scheme, relates to how the user input is incorporated into the decisionmaking process. In the expected investment requirements scheme, the regulator takes in submissions from the airports and airlines and then digests and interprets the submissions, thus coming to a conclusion. By contrast in the PCG scheme, what the regulator has to digest and interpret is a submission which would not have been produced unless it received whatever assent from the users is required by the particular PCG rules. To put it simply, the preferences of the users are incorporated first hand rather than second hand. The PCG process dictates that the users are more directly involved in the decision-making process than they would be in the expected investment scheme. This is because the way that the PCG process is structured compels the airports to take greater account of the preferences of the airlines than they would in the expected investment scheme. In the expected investment requirements scheme, the airports also take into account the preferences of the airlines when designing their submission but primarily for the purpose of influencing the regulator’s assessment of the relative merits of the proposals of airports and airlines to the advantage of the airports. It could be argued that there is within the context of the bargaining between the parties in the expected investment requirement scheme, more opportunities for game playing and for exploiting the information asymmetry of the airports and reduced opportunities for the airports and airlines to share their information in such a way that their use of their respective information advantages would more closely resemble the information advantages and incentives faced by a vertically integrated airport/airlines entity. 28 Brisbane Airport Proposal to increase aeronautical charges to recover the costs of necessary new investment, Draft Decision, February 2000, p. 20.