UPROAR-United Portmarnock Residents Opposing Another Runway

Land Use at Dublin Airport

60 Martello Court
Portmarnock
County Dublin

3 August 2005

Dear Commissioner
Following my comments of 24 June 2005 on behalf of Uproar on your Draft Determination (CP2/2005) and my complaint to the Ombudsman of 8 July which I forwarded to you, I would like to explore further the issue of the value of land at Dublin Airport. You may treat these comments as supplementary to our earlier observations or simply as information for your attention and a request for some clarification.

You will recall that in my complaint to the Ombudsman I raised the issue of the alternative use-value of the land at Dublin Airport that is to be occupied by the proposed new runway and related facilities. I argued that it should be included in the cost-benefit analysis which has not been done even though required by the Department of Finance guidelines. In our submission on the Draft Determination we did not ask if the full opportunity cost of land had been used in the draft determination. We have, however, since reflected on the land issue and how it has been treated in your draft determination, given the treatment of land values by the Dublin Airport Authority (DAA) in its annual report for 2004.

Before I deal with the land question could I refer you back to a comment made in a press release in 2001(1) see footnotes,where the Commission chided Aer Rianta, inter alia, for:

- "inadequate or non-existent cost-benefit-analysis or business cases undertaken to justify specific CAPEX projects;"

In the light of Uproar's complaint to the Ombudsman that no proper cost-benefit analysis has been done, could you say if you are happy with the case that has since been made by the DAA in its submission to you, especially as regards the new runway component of the CAPEX? If you are not, do you have the authority to demand that an independent cost-benefit analysis be done either to conform to the Department of Finance guidelines or to conform to your stated position as Commissioner, that "an assessment as to the required CAPEX programme and its efficiency is….a central element of the economic regulation of airports"?(2) If so, will you exercise that authority? If you are satisfied that DAA standards have improved on those of Aer Rianta in 2001 to the extent you expect, could you explain why you believe so. Has a cost-benefit analysis been done? Uproar has been unable to find any trace of a cost-benefit analysis.

To return to the airport land issue, I note that the Environmental Impact Statement (EIS) submitted by the DAA to Fingal County Council (FCC) states at 0.1.1.8 that the new runway will occupy 261 hectares (645 acres) of land owned by the DAA.(3) At 0.1.1.19 it is stated that the predominant land-use of the site of the proposed new runway is agricultural. If a runway can be built on it by the DAA, it is obviously not exclusively agricultural land.

I have examined the DAA's 2004 Annual Report and Accounts(4) and have noted in a footnote to Table 9, page 40, that the land, as distinct from airfields, is valued at €19.6 million. I take it that this is undeveloped land. I do not know how extensive such land is, but it must include the 261 hectares destined for the runway. The total land area at Dublin Airport is something over 1000 hectares or about 2500 acres.(5) A value of €19.6 million seems a remarkably low figure for a land bank with development potential that is at least 261 hectares and may be 400 hectares. If valued at average North County Dublin farmland prices of about €20,000 per acre, 400 hectares (988 acres) would come to some
€20 million (6).It would seem therefore that undeveloped land at Dublin Airport has been valued at farmland prices. This would be consistent with the DAA position that this is agricultural land(7).

This is not exclusively agricultural land if a runway can be built on it. It is public land that could easily be rezoned as industrial. Hopefully it would never be zoned residential. Industrial land in North County Dublin generally has been put at about €500,000 per acre(8). As industrial land close to Dublin Airport and the Port Tunnel it could be sold for about €1 million per acre(9).

How was this land treated in the Commission's Draft Determination? In perusing both the CP2/2005 and CP8/2001 documentation on the Commission's site I could not find a clear explanation. It should obviously be included in the Regulatory Asset Base (RAB) used to in the determination of airport charges but I cannot find a specific designation of land's share of the RAB. The RAB total for 2006 is put at some €625 million in Scenario 3(10). If the 1000 acres or so of undeveloped land at the disposal of DAA are worth €1m million per acre in 2005, its value of €1b would totally swamp the Commission's RAB. The 645 acres designated for the runway would alone exceed the 2006 RAB. What valuation was put by the Commission on that land? Was it the DAA's €19.6 million? If so, the Commission's valuation of all the assets of the DAA may be much less than half their true economic value.

As the Commission knows, commercial accounting practice does not always reflect true economic value or even current market values and opportunities. If the Commission has simply accepted the accounting procedures of the DAA in valuing land with development potential at Dublin Airport at agricultural prices, it is not following the economic efficiency paradigm it advocates. In chiding the DAA for not doing adequate cost-benefit analyses of capital project proposals, the Commission is implicitly asserting the need to evaluate the opportunity cost of assets correctly. If the true opportunity cost of these lands were reflected in the determination of the charges needed to remunerate properly the assets of Dublin Airport, the proposed passenger charge would need to rise by about €3.65, or two-thirds (and that assumes the rest of the RAB does not further undervalue the land and other assets at Dublin Airport in true opportunity cost terms). What is the total extent of undeveloped land at Dublin Airport that could, potentially, be sold for industrial use without interfering with existing airport operations? To what area does the €19.6m valuation apply? Did the Commission order an independent survey and valuation of these lands? Should it not do so now before its final determination?

If such an increase in charges were in the Commission's determination, the optimal economic decision in the national interest would follow easily. In our opinion, this public asset has been hoarded, grossly undervalued, and unremunerated for many years. If the commercial airlines could not bear an immediate, approximately two-thirds rise in charges, this land's further retention as undeveloped land, or its use for a new runway would not be viable economic options. If that were so, the DAA must sell this land for industrial development to the highest bidder, repay DAA debts and accept that much cheaper, agriculturally zoned land further from Dublin be acquired for development, if additional runway capacity is really required for the Dublin region. It would also make sense to improve the existing runway infrastructure to maximise the returns from very valuable assets, as suggested by Ryanair.

John Hourican, Managing Director of Bord na Móna says he has public land, six times the size of Dublin Airport (6000 hectares) available, less than 30 km from Dublin beside the M4(11) . It seems evident that such a proposition, and other alternatives, should be studied in the independent cost-benefit analysis that Uproar is calling for. It is not just evident, it is also required by Minister Cowen's Department of Finance guidelines, which have been ignored.

Yours sincerely on behalf of Uproar,

Matthew Harley

(1) See: http://www.aviationreg.ie/downloads/press270801.pdf

(2) See Draft Determination CP2/2005, page 42.

(3) It is clear visually from EIS figure 9, Construction Zones and Compounds, that about 30% more DAA land at either end of the new runway site could not be developed if the runway were built. That amounts to about a further 80 hectares or 190 acres and brings the DAA land needed for the new runway to 340 hectares or 840 acres. With construction costs conservatively put at €141m and development land valued at €1m per acre (see later in text), that puts the capital investment in this runway at about €1b. Even before any consideration of operating costs, is it very unlikely that such an investment could be remunerated to give an acceptable rate of return, without increasing charges to levels intolerable for the airlines.

(4) DAA Annual Report and Accounts 2004 at:
http://www.dublinairportauthority.com/AR_Corporate/Live/Lv_pres_GenTemplate.asp?strPage_Name=CR_AnnualReport

(5) See John Burke interview, former Aer Rianta Chief Executive at:
http://www.aci-europe.org/upload/aci%20nov_dec%202002%20burke.pdf
where he also repeats the "existing assets" fallacy.

(6) See: http://www.ireland.com/newspaper/ireland/2005/0202/3653959413HM5PRISON.html
where the value of agricultural land in North County Dublin was put at €20,000 per acre.

(7) It is also possible that the entire airport site of 2500 acres has been valued at about €8000 per acre. We do not know to what area the value of €19.6m applies.

(8) "Land values [commercial] in the area [Balbriggan] are around €450,000-€500,000 per acre and have potential for significant growth over the next few years." See: http://www.ireland.com/newspaper/commercialproperty/2005/0601/1451944554CPBUTLER.html

(9) "A price of €3.3 million was secured in January for a 1.33-hectare site on the Old Airport Road opposite Airways Industrial Estate." [€1m per acre]. See article in previous endnote.

(10) S3 in Draft Determination Tables annex10trl.pdf at http://www.aviationreg.ie

(11) See: http://www.finfacts.com/irelandbusinessnews/publish/article_10002693.shtml