Commission finds $2 million/year net benefit from monopoly control
The Commerce Commission recommended by a 3-2 majority that Auckland International Airport Ltd’s airport activities be controlled, while those in Wellington & Christchurch shouldn’t be controlled.
A key issue was the valuation method — the majority opted for historical cost, the minority for the method supported by the airport company, optimised depreciated replacement cost (ODRC).
The commission valued airfield land on an alternative-use base, which the airport company said effectively represented a business exit value. The company said the appropriate value would be what a new entrant would pay.
The commission excluded the land Auckland International Airport holds for future runway development. The company said the timing of its purchase of land for its second runway development was appropriate, so it should be included in the asset base for valuation & pricing.
The commission found a potential $2 million/year pretax net benefit of monopoly control, representing 35% of airfield revenue. The company disputed this evaluation.
Auckland International Airport Ltd said the commission’s historical cost approach to the valuation of specialised assets could have significant consequences on other New Zealand infrastructure companies and the regulatory framework in which those sectors operate.
The commission’s report runs to 600 pages, which I haven’t read. I suspect the commission’s majority has opted for historical cost valuation because other infrastructure businesses, notably the electricity industry, set about fleecing their customers (in favour of new large shareholders who have proved to be short-term investors trying to skip off with windfall profits) as they jacked up asset valuations under optimised deprival valuation methodology.