Font Size

- Aa +

Fri 9 Sep 2016 12:11 AM

Font Size

- Aa +

GCC airport expansion faces financing crunch amid low oil prices

New Deloitte report says alternative financing solutions required as oil price slump challenges gov't budgets

GCC airport expansion faces financing crunch amid low oil prices

The continuing expansion of airport infrastructure across the Gulf region will require alternative financing solutions as low oil prices challenge government budgets, according to a new Deloitte report.

Its latest report on the construction industry in the region highlights the need to counteract the potential reduction in the ability to raise necessary finance.

It also predicts continuing success of the region's airports, particularly Dubai, Abu Dhabi and Doha, enabling them in the future to seek to leverage their global brand and pursue international opportunities.

With declining funding from government for major projects, Deloitte said it is observing the region's airports increasing their focus on maximizing returns from existing assets as well as leveraging public-private partnership (PPP) delivery models of standalone projects such as baggage system upgrades, security and car parks.

"Airport privatisation and the appeal of PPPs have long been talked about in the region with varying application of PPPs as a financing solution," said Dorian Reece, head of aviation at Deloitte Corporate Finance Limited Middle East.

"However, there is a broad spectrum of differing financing options across the risk, return and control considerations when tapping the PPP market."

He added: "The track record of successful airport PPPs provides a cautionary tale and one that the Middle East region's governments and investors should consider. Some of the challenges witnessed include lack of regulatory clarity, optimism bias, and weak dispute resolution." 

"We are increasingly seeing airports within the region seeking to better understand opportunities to generate additional revenue to improve overall profitability. Recent examples of this are a number of airports introducing a transfer charge for all passengers," said Cynthia Corby, partner and construction leader at Deloitte in the Middle East.

This week, Qatar's government said it is levying a new airport tax on passengers as the country seeks new revenue streams amid falling oil prices.

Every passenger leaving Qatar from Doha's Hamad International Airport, including transit passengers, will be charged 35 riyals ($9.61) for using airport facilities.

Airports in the UAE announced similar taxes earlier this year.

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.