No feasibility study for Durban airport
THE King Shaka International Airport, which cost R6.7bn and has yet to prove that it is a viable investment, was built by Airports Company SA (Acsa) without a feasibility study, it has emerged in correspondence linked to a court process.
The airport, near Durban, was built as part of Acsa’s investment leading up to the 2010 World Cup, but has since failed to attract significant traffic to warrant the size of the investment.
Acsa’s annual results, released on Friday, show King Shaka International Airport made a profit of R93m in 201516, after a loss in 2014-15 of R80m. However, the profit does not take into account the cost of the debt raised to build the airport, which, if accounted for, would reflect a substantial loss.
The absence of a feasibility study emerged in a court application by minority shareholder African Harvest Strategic Investments, which has taken Acsa to court for “oppressive conduct” under the Companies Act.
Alun Frost, adviser to African Harvest, said on Friday that he had been informed by Acsa’s legal counsel that no feasibility study had been conducted prior to the decision to proceed with the construction of the airport.
African Harvest, which came into Acsa in 1998 as a black
empowerment equity partner alongside Aeroporti Di Roma, wants to exit Acsa but has refused to accept the offer made on its shares, which it says Acsa has grossly undervalued. This is the basis of its oppressive conduct case. The company is now owned by Ghanaian businessman Sam Jonah.
African Harvest is also aggrieved because it bought into the company on the grounds of a prospectus that promised a full privatisation would follow and the company would be run on commercial lines. Neither has happened and African Harvest argues that investments such as King Shaka International Airport went against commercial principles.
Asked on Friday at Acsa’s results presentation about the airport’s performance, CE Bongani Maseko defended the investment decision, saying its finances were improving and passenger numbers were expected to increase, along with projected investment in the Dube TradePort area. Maseko implied that a feasibility study had not been necessary, as plans to relocate the airport dated back to the 1970s.
“We always knew that it would be a slow start, but there were always definite plans to relocate the site .... The work that we do with the province and the city to attract new traffic will help that airport perform better, especially with international traffic,” he said.
At Acsa’s annual general meeting on Friday, African Harvest submitted a memo for consideration by the board, which outlined a host of problems.
While Maseko stated the cost of the construction of the airport to Acsa to be R6.7bn, Frost said in his memo that in its 2010 annual financial statements, the airport’s reportable assets were R9bn. “In 2016, King Shaka’s capacity utilisation was 33% and profit before tax and interest was R93m. However, after accounting for interest on the loans to fund the construction cost of R9bn, King Shaka’s loss for the 2016 financial year is approximately R1bn,” it stated.
During the meeting, Maseko said he could not respond to African Harvest on the matter of the airport because this could compromise the court case.
The memo raises several other issues, including a dispute over how Acsa has applied its accounting policy, which it is argued is inconsistent.
The memo also quotes the Presidential Review Commission report on stateowned enterprises in 2013, which conducted a case study on the decision making for the construction of King Shaka airport. The report outlines a fraught process of decision making in which Acsa was forced by “national interest” to take on the project, despite the lack of available funding from the provincial government which had lobbied for it in the first place.