Executive Summary

• Belgrade Nikola Tesla Airport is the largest airport in Serbia and one of the largest in Southeast Europe, located in Surcin and opened in 1962;
• Officially called Nikola Tesla in 2006, the Belgrade Airport is the busiest airport in broader region and a quite profitable;
• The airport was conceded to the French company Vinci Airports in 2018 for EUR 1.2 Billion, more than half of this amount should go into airport modernization;
• Other local airports, until recently owned by municipalities, were taken over by the Government of Serbia and transferred to the new public enterprise, called Airports of Serbia;
• Nis' Constantine the Great Airport is the only other airport open for international flight and, before the agreement with Vinci, with the highest growth rate of passengers per year;
• While it is announced that the Ladjevci Morava Airport near Kraljevo is going to be opened for civil aviation, number of flights from Nis is constantly reduced, even though the flag carrier of Serbia, Air Serbia, established the airlines of public importance from the same airport.

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Project Key Facts

Regional and Local Context

Belgrade Nikola Tesla Airport, operated until last year  as a public enterprise. It was conceded to Vinci Airports on March 22nd 2018. This concession agreement attracted a lot of attention and subsequent criticism due to its indirect impact on the other local airports in Serbia. Summarizing bellow are the most important aspects connected to the project:

1. In January 2018, the Government of Serbia announced tender for concession of the Belgrade Nikola Tesla Airport. On March 22, Vinci Airports signed a 25-year concession contract with the Government of Serbia, represented by the Ministry of Construction, Transportation and Infrastructure. The concession agreement covers financing, operation, maintenance, extension and upgrade. The new operator took over the management of the airport’s operations on December 22, 2018.
2. To complete this transaction, the Vinci Airports contracted loans from 4 international institutions: International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD), Proparco (subsidiary of French Development Agency (AFD)) and German Investment Corporation (DEG, subsidiary of KfW Group); and from 6 commercial banks:  UniCredit, Intesa San Paolo, Erste, Societe Generale, Kommunalkredit and Credit Industriel et Commercial (CIC).
3. From these loans, Vinci Airports has covered the EUR 501 Million upfront concession fee, as well as the airport upgrade and expansion required by the contract. The ambitious investment plans for the airport’s development, upgrading and renovation will amount to EUR 732 Million over the whole concession period, including an overhaul of existing and construction of a completely new runway. There is also an annual concession fee of between EUR 4,4 Million and EUR 15.1 Million, depending on the Airport’s profitability.
4. On January 21, 2019, Vinci Airports signed a  EUR 262 Million contract with the Greek construction company, Terna, and created new company Vinci Terna Construction JV responsible for all the construction works on the airport
5. Additionally, the Government, alongside the Belgrade City Hall, plans to build a new railway from Zemun Rail Station to the Airport, connected with the planned two-line Belgrade Metro.
6. Simultaneously, the Government of Serbia established a new public enterprise, called the Airports of Serbia. It took over all the other local airports with a commercial potential, like the Nis Konstantin the Great Airport and Ladjevci Morava Airport near Kraljevo.

Actors and strategies

Project insights

An upgrade and expansion of the Belgrade Nikola Tesla Airport through the concession given to Vinci Airports is one of the major infrastructure projects in Serbia, but also questionable one. Main question looming regarding this concession is whether it is the best way to ensure the further development of the airport. Also, some of the opposition leaders are questioning whether the negotiated terms are truly in the general public's interest. In the context of these discussions there are several important aspects connected to this project which must be highlighted.

Legal

• Contract confidentiality - The concession contract is not public and there is no final date when it will be made public. This raises concerns regarding the exact conditions negotiated and what are the real gains behind this concession. This is not unique to this project, but present in numerous other cases of public-private agreements.
• New public enterprise - There is a questionable legitimacy of the whole process of transferring all the local airports from the municipalities to the state and unifying them under the public enterprise Airports of Serbia, because decisions were made in municipal assemblies by the members of the ruling party without actually asking the citizens.

Economic

• Cost-effectiveness of the concession - The Government has received the EUR 501 Million upfront concession fee, which divided by 25 years, means an annual income of more than EUR 20 Million. Additionally, the Government will receive an annual concession fee between EUR 4,4 Million and EUR 15,1 Million, depending on the Airport’s profitability , which makes a total annual income in range of the Airport’s pre-concession profit. Considering the EUR 732 Million investments, we can conclude that Vinci Airports expects even higher net income. On the other hand, the Government could have taken a loan in order to fund necessary investments and later reap the profit from it.

• Suppressing the competition - There is a suspicion among our sources about a secret agreement between the Vinci Airports and the Government of Serbia about suppressing the competition. After decision to take over local airports from the municipalities and unify them under one public enterprise, the Government decided to establish the flights of public importance from the Nis Constantine the Great Airport and entrust them to the flag carrier of Serbia, Air Serbia, in which Etihad Airways gained 49% stake in 2013. By doing so, the Government overlapped the flight paths of the low-cost air transportation company Ryanair, and basically made its operation from that airport unsustainable. 

• Involvement of local companies - The Vinci Airports chose the Greek construction company, Terna, as a partner and main contractor for an upgrade and expansion of the Belgrade Nikola Tesla Airport. This was done without outlying any mechanisms through which local construction companies could participate, even as subcontractors.

Construction/Engineering

• New second runway - The construction of new second runway will be done by the Vinci Terna Construction JV, as well as the works on new terminal. There are  several problems with the construction of new second runway, including the unresolved land property rights and the possible environmental impact.

• Connection with Belgrade Metro - Connection of the Airport with Belgrade Metro is much needed in order to improve it’s connectivity with the city center, but this project suffers from the same problems as the previous one, the unresolved land property rights and the possible environmental impact.

Forecast

We can expect the project to move further given its political support and future investments. Even if it loses support due to government change, the contract will be in power for 25 years, and any unjustifiable violation by the Government will be sanctioned in front of arbitration. Regarding development of the airport, in the contract signed between the Vinci Airports and the Greek construction company, Terna, a five-year deadline has been agreed for the construction of the new terminal, but we can expect the works on the new second runway as well. Given the rising number of passengers, the Belgrade Nikola Tesla Airport needs professional and experienced management, as well as long-term strategy, a requirement which Vinci Airports can satisfy better than Serbian government. Vinci Airports has also an ability to attract more air transportation companies and make the Belgrade Nikola Tesla Airport a regional hub. As for the other airports in Serbia, their future is currently uncertain, not matter what the Government announcements.

Strategy and Operational options for EU actors

There are three distinct ways in which EU companies could engage in the airways infrastructure development in Serbia:

1. 1. Financing - whilst the financial construction for the project seems to be completed by the number of international financial institutions and commercial, when it comes to financing other airway infrastructure projects in Serbia, the European banks can engage with the new public enterprise Airports of Serbia and support the development of other local airports;
   2. Construction - there is a clear opportunity for European construction companies to participate in Serbia’s airway infrastructure development, not only as subcontractors for Vinci Terna Construction JV, but also on the development of other local airports as main contractors;

• Consultancy and further support - the Government of Serbia looks to improve the country's airway infrastructure, in this effort, the government will require both financial and knowledge assistance;

• Transportation - with an upgrade and expansion of the Belgrade Nikola Tesla Airport, as well as potential development of regional airports around Serbia, the European air transportation companies will now have an opportunity to establish new routes through each of them.

Sources

1. Belgrade Airport. About the Concession. Available at: https://beg.aero/eng/corporate/about_the_concession (Accessed on: 14.11.2019)
2. eKapija. Vinci and Terna sign agreement on works at Nikola Tesla Airport worth EUR 262 million – New runway, terminal, taxiways, parking… Available at: https://www.ekapija.com/en/news/2375880/vinci-and-terna-sign-agreement-on-works-at-nikola-tesla-airport-worth (Accessed on: 14.11.2019)
3. Fly Naissus. Niš ostaje bez četvrte linije - Ryanair ukida letove Stokholm-Niš. Available at: https://www.flynaissus.com/post/ni%C5%A1-ostaje-bez-%C4%8Detvrte-linije-ryanair-ukida-letove-stokholm-ni%C5%A1 (Accessed on: 14.11.2019)
4. Istinomer. Za vreme bivše vlasti profit Aerodroma bio 130.000 evra. Available at: https://www.istinomer.rs/izjava/za-vreme-bivse-vlasti-profit-aerodroma-bio-130-000-evra/ (Accessed on: 14.11.2019)
5. PUC Belgrade Metro and Train. Development plans. Available at: https://www.bgmetro.rs/index.php/en/bg-voz/development-plans (Accessed on: 14.11.2019)
6. SeeNews. Serbia's Aerodrom Nikola Tesla 9-mo net profit plunges. Available at: https://seenews.com/news/serbias-aerodrom-nikola-tesla-9-mo-net-profit-plunges-676489 (Accessed on: 14.11.2019)
7. Simple Flying. Why Regulators Have Blocked Ryanair’s New Service To Niš. Available at: https://simpleflying.com/ryanair-nis-service-blocked/ (Accessed on: 14.11.2019)
8. Vinci Airports. Belgrade Airport. Available at: https://www.vinci-concessions.com/en/infrastructure/belgrade-airport (Accessed on: 14.11.2019)

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