論文

The Airport Governance and Challengesof Policy Coordination in Airport
Infrastructure Building: The Case Study
of Kyrgyzstan’s Airports
Kanatbek BEISHENALIEV

1. Introduction
Along with globalization trends and global air traffic growth, many countries
focus on developing a ir connectivity to integ rate their economies into
international markets. In this context, their governments pay special attention
to the airport industry, which connects to global markets.
Airports are the main component of air transport and are an essential partof a country’s economy. They contribute to local, regional, and national
economies by facilitating people, goods, business connections, and investments.
(ACI 2018, p.17). Moreover, they drive the growth of the global economy,connecting markets worldwide (ACI 2020).
As states have generally come to recognize the significance of the airport
industry for economic growth, many have started to liberalize the airport
industry through institutional reform. Liberalization has often taken the form ofprivatization. This privatization trend happened in many countries, becoming a
global phenomenon in the last few decades (Button 2006, p.6).
Among many states, Kyrgyzstan, a landlocked developing economy, is one of
the countries that has attempted to reform its airport industry by introducing
some degree of privatization. Kyrgyzstan is the second lowest-income state in
the Commonwealth of Independent States (CIS), and thus economic growth iscrucial. Besides, it has had the lowest performance in the “quality of airtransport infrastructure” among the transitional economies in the region (WEF
2018). Under these circumstances, Kyrgyzstan implemented partial private
participation in the airport industry in 2001. Consequently, a quasi-privatecompany called “Manas International Airport” (MIA) that owns all Kyrgyzstan’s
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文

civilian airports was established as an open joint-stock company.
In theory, privatization should promote effective governance of the airport
industry. Yet, one of the biggest problems in Kyrgyzstan’s air industry, thebuilding of infrastructure, has not been solved even after privatization.
Kyrgyzstan’s airports were built in the period from the 1960s to the 1980s(CAA 2006). However, the main airports’ facilities, such as runways, taxiways,
and aprons of most of Kyrgyzstan’s airports, have not been reconstructed till
today (Ibid). This lack of maintenance has brought about a situation where fiveof eleven of Kyrgyzstan’s airports were banned from servicing aircraft by the
Civil Aviation Agency of Kyrgyzstan (CAA) since the late 2000s (Ibid, pp. 3, 5,
7, 17). The reason was that these five airports did not fulfill the international
standards set by the International Civil Aviation Organization (ICAO) thatevery state must comply with for the management of their air industry. In
addition, CAA has limited aircraft operation in three other domestic airports
due to the low physical capacity of their runways, taxiways, and aprons.
Therefore, several key government policy documents have addressed theneeds of airport infrastructure building since 2002. The policy documents
identified the reconstruction of the airports as one of the most significant tasks
to undertake. Among the documents are the Concept of Civil Aviation
Development of the Kyrgyz Republic for 2002-2010, National Strategy for
Sustainable Development for 2013-2017, Civil Aviation Development Program(CADP) for 2016-2020, and National Development Strategy (NDS) for 2018-2040.
However, the airports in Kyrgyzstan have remained poor, and the addressed
policy of rebuilding the airports has hardly been implemented.
This study aims to examine the challenges in airport governance and theirimpacts on the infrastructural building and maintenance of the airports in the
Kyrgyz Republic. This article first investigates the structure of policymaking in
the airport industry. Then, this study focuses on the critical component ofgovernance: resource allocation and policy coordination. For this purpose, thispaper employs a qualitative analysis of governance literature, primary
documents in Kyrgyzstan’s policy documents such as National Development
Strategy 2018-2040, Civil Aviation Development Program 2016-2020, and MIA
corporate information and disclosure. What are the significant obstacles to thisproblem? Why has the privatization of the airport industry in Kyrgyzstan notbrought about an improvement of effective governance that should positively
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The Airport Governance and Challenges of Policy Coordination in Airport Infrastructure Building: The Case Study of Kyrgyzstan’s Airports

impact the maintenance of airport infrastructure? These questions are
addressed in this article and will be answered.
Kapur (1995, p. 14) argues that primary political reasons affecting theinefficiency of government-owned airports include “political interference in theappointment of management” and “fiscal drain on the national economy whenfunds should be diverted to more social programs.” In addition, Shleifer and
Vishny (1998) demonstrate that ties connected politicians and managers offormer government-owned entities, allowing the government to confiscate anentity’s resources.
Kyrgyzstan’s privatization was nominal and minimal because the government
share of the airports remains big. Thus, this study highlights the relationshipbetween airport governance and infrastructure building capacity.
As stated by Wilmsmeier and Monios (2016, p. 4), governance refers to “theinstitutions, mechanisms, and processes through which economic, political andadministrative authority is exercised.” According to Slack and Rodrigue (2020),
governance is associated with policy designing and a better allocation of
resources to fulfill the policy. In this context, Legacy et al. (2012, p.8) argue thatgovernance in transport planning requires a focus on the formal and informal
mechanisms which link actors in the sector’s policymaking. In this article,“airport governance” is defined as a process through which government
agencies and the airport operating company coordinate in making policy for
airport infrastructure building.
Following the introduction, this article first sheds light on Kyrgyzstan’s
airport governance and policy instruments to demonstrate policymaking
mechanisms in airport infrastructure building. Then, the study presents how
airport governance and policy instruments impact MIA’s profit flow distribution
between shareholders and reinvestment to infrastructure building. Finally, by sodoing, this article demonstrates how policy coordination between government
agencies affects infrastructure capacity building of Kyrgyzstan’s airports.

2. The Structure of Policymaking in Kyrgyzstan’s Airport
Industry
Before the analysis of airport policymaking, it is necessary to address the
background for privatization of the airport industry. Immediately after gaining
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independence in 1992, the government established the National Air Company“Kyrgyzstan Aba Zholdoru” which was operating aircraft and airports underthe monopolistic control of the government. However, the government attempted
to promote the privatization of the airport sector together with other sectors
and made a roadmap of separating and privatizing three domains of airtransport operations in 1999 (MOJ 1999). The aims were to demonopolize airtransport services, improve management efficiency, and support the needed
investment in air transport infrastructure. Three domains were airlines, airnavigation, and airport infrastructure. Consequently, three separate companies
were established in 2001. MIA was established as an airport operating company
that owns all airports in Kyrgyzstan. About 12.5% of MIA’s share has been soldto the private sector (KSE 2020a).
On the one hand, the above-mentioned roadmap has set a plan of achieving up
to 33.3% of private sector participation in MIA (MOJ 1999). However, thegovernment considered MIA in the list of highly securitized national property
and limited its privatization in 2003 (MOJ 2003a; MOJ 2003b). As a result, about
ha lf of pla nned privatization has been implemented. Thus, the Kyrg yz
government’s initial plan mentioned above did not take place. Instead, the State
Property Management Fund (SPMF), a government agency, came to exercise
its power as a dominant stakeholder in MIA (more details will be discussed
later).
The process of policymaking is one of the most significant elements for thegovernance of any industry. Rodrigue et al. (2017, p.311) define transport policy
as “the institutional responsibility and proposals developed by the government
institutions to achieve specific goals and objectives related to the functioning
and improved transport system performance.” Thus, the goal behind transport
policy is to lay effective decisions and guidelines about transport resource
allocation and the regulation and management of transport activities.
The government is usually one of the most significant actors in transport
policymaking because it owns or controls most transport means such as roads,
railways, seaports, and airports, providing vital public service and imposing a
regulatory framework (Ibid). In the case of Kyrgyzstan, it is also the case: thegovernment is a key player. This section investigates the significant features ofpolicymaking mechanisms in the country’s airport sector.

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The Airport Governance and Challenges of Policy Coordination in Airport Infrastructure Building: The Case Study of Kyrgyzstan’s Airports

The Government’s Overall Control on Policymaking
The government has a highly centralized structure in terms of policymaking
and implementing policies in Kyrgyzstan. However, according to the general
theory of transport policy, as Rodrigue et al. (2017, p. 313) emphasize, there are
six major policy instruments in policymaking. They are public ownership,
subsidies, regulatory control, research and development, labor regulation, andsafety and operation standards. Among these six instruments, public ownershipcontrol and regulatory control mechanisms are relevant to how Kyrgyzstan’s
government authorizes the policymaking process, how public ownership ispracticed, and how the regulations control the transport sector, and are among
the most significant elements of their structure of airport governance.
Figure 1 describes airport industry policymaking in Kyrgyzstan. It includes
the policy stakeholders, the key government agencies, and the process throughwhich they interact to formulate the airport regulations, to provide airport
infrastructure for all airport users. There are two f lows of government
directions of control which manifest in both direct and indirect ways. One isfrom the government to the SPMF, “public ownership control,” a natural policy
mechanism. There is also a line of the Ministries, namely, the government to
the Ministry of Transport and Communications (MOT). This line is the“regulatory control ” of the government, which refers to indirect policy
instruments.

Figure 1. The Airport Governance Structure of Kyrgyzstan (2020)[Source: The author, based on the following data: MOJ 2010; MOJ 2013a; MOJ 2016a; KSE 2020a.]51

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As is shown in the figure, among many stakeholders, significant players are
the MOT, CAA, SPMF, State Antimonopoly Committee of Kyrgyz Republic(SAMC), and MIA. The SPMF and MIA, connected through the vertical line ofgovernance indicated in the gray part in Figure 1, play the central role within
the operation of the airport industry. Regulatory agencies in Kyrgyzstan, suchas MOT, CAA, and SAMC, play a critical role in shaping Kyrgyzstan’s airport
industry.
The following subsections will address the two instruments mentioned above:
public ownership control and regulatory control mechanisms. The former line ofauthority is (A), and the last line of governance is shown as (B) in Figure 1.
(A) Public Ownership Control
The public ownership mechanism is a direct policy instrument for thegovernment to exercise its general power in expanding the value and capacityof airports, thereby contributing to the objectives of freight a nd tradedevelopment, air service liberalization, or air connectivity improvement.
As mentioned previously, Kyrgyzstan established MIA merely as a quasiprivate operating company and the government has retained large shares in
MIA. The State Property Management Fund of the Kyrgyz Republic owns 79%
of MIA’s shares. The other government agency, the Social Fund of the Kyrgyz
Republic, holds an additional 8.5%. The private sector holds only 12.5% ofshares, including individuals with 9% of the percentage of MIA (KSE 2020a, p.1).
Therefore, this indicates that the level of airport privatization is not high in
Kyrgyzstan, and MIA is still primarily controlled by the government. Moreover,the government share in the airport operating company is implemented under
the control of SPMF (KSE 2020a). SPMF is a non-aviation government bodythat manages and administrates state property in Kyrgyzstan. In the airport
industry, SPMF exercises the powers as the major shareholder in MIA (Figure
1 (A)). According to Regulation on the SPMF, the agency has two main nonaviation functions and tasks related to the airport industry. Firstly, SPMF
makes proposals on candidates to be elected to the governing body of MIA(MOJ 2012). Secondly, SPMF is responsible for receiving funds generated by thestate’s share (i.e., dividends) and transferring them to the central state budget.
Hence, SPMF, on behalf of the government, being the main shareholder of MIA,
has the most significant influence on the governing body’s decisions and profit
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allocation through ownership mechanisms.
(B) Regulatory Control
It is generally conceived that airport regulatory control plays a crucial role inenforcing policy processes (Rodrigue, et al., 2017, p.313). By setting up stateagencies to implement economic and safety regulations on the airport industry,
the government can impact the industry’s whole administrative structure andperformance. Furthermore, by designing regulatory and policy documents, thegovernment creates a framework and guidelines to follow the procedures (Ibid).
Government agencies, such as MOT, CAA, and SAMC, play a critical role inshaping policy and regulatory frameworks in Kyrgyzstan’s airport industry.
MOT and CAA are air transport regulating agencies. Their organizational andlegal framework in air transport regulation was designed based on the ICAO
(2018b, p. I-3-1) recommended template structure of national law. MOT shapes
Kyrgyzstan’s overall air transport policy (MOJ 2016a). MOT designs a single
sector program among many tasks and objectives in air transport, including
airport industry development functions. CAA is one of MOT’s departments thatdevelops airport safety standards, conducts airport certification and licensing,and oversees airport flight safety (MOJ 2010). Also, CAA is responsible forcoordinating airport pricing along with SAMC.
In international practice, the government is responsible for the economic
oversight of airport pricing regulation if the airport operating company
dominates a given market. According to ICAO (2018b, p. I-3-2; 2013, p. 1-6), thegovernment should minimize the risk that airport providers could engage inanti-competitive pricing or abuse any dominant position they may have in themarket. According to Kyrgyzstan antitrust law, MIA, the only airport operatingcompany, is considered a natural monopoly. Therefore, the government delegated
the functions of airport price cap regulation to SAMC. It is a non-aviation
government agency responsible for antimonopoly regulation in Kyrgyzstan.
Among the agency’s many roles in developing and protecting competition, the
SAMC regulates airport pricing in Kyrgyzstan; it approves and controls the
airport tariffs set by MIA (MOJ 2013a).
Meanwhile, according to ICAO, the airport company is recommended to set
airport tariffs based on the infrastructure cost recovery principle. By so doing,
the airport operating company should collect generated profits and address
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論文them to ensuring adequate infrastructure, equipment, facilities, and services toserve passengers, shippers, and airlines, with particular attention to flightsafety. (MOJ 2015; ICAO 2013, pp.1-3 - 1-5).1
Government Control Power and its Adverse Impacts on Implementing Private
Participation
As stated above, despite the privatization of Kyrgyzstan’s airports, thegovernment continues to control airports. This trend of government control hassome important impacts. First, the government has strong leadership indecision-making in airport management through public ownership mechanisms.
Secondly, this structure excludes competition between Kyrgyzstan’s airports.
Thirdly, this is the financial flow of money between MIA and the government;
the decision to increase dividends or investments comes from MIA’s governing
body, the Board of Directors, selected by the government agency. This meansthat the government did not implement the initial plan of airport privatizationand has made privatization nominal, not functional.
I n add it ion to gover n ment p ower, a i r p or t ow ner sh ip a nd st rateg ic
development of MIA became politicized. As mentioned above, the government
has listed MIA among highly securitized national properties. This imposessome limitations on M I A’s privatization ; according to Kyrg yz law, thegovernment must decide the type of airport privatization. Then, the parliament
must approve it (MOJ 2003b). Indeed, parliament members usually review
investment proposals and strategic projects on airport development within thegovernment’s Coordinating Council, which was created in 2014 (MOJ 2014). Oneof the major functions of the Council is to review proposals for airport
investment.
Regarding the government’s control on the airport industry, parliamentarians
contested the way of privatization through the Council. For example, thegovernment’s attempt to sell 51 percent of MIA shares to foreign investors was
blocked by the Kyrgyz Parliament in 2014 (Euroasianet 2014). Furthermore,forced by the parliamentarians, the government decided to attract investment
in airport infrastructure through the Public-Private Partnership (PPP) instead
1

However, the MIA’s tariffs approach is beyond the study’s objective, and thus further
research will address the commercial attractiveness of Kyrgyzstan’s airports for theirusers.

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The Airport Governance and Challenges of Policy Coordination in Airport Infrastructure Building: The Case Study of Kyrgyzstan’s Airportsof selling MIA shares (MOJ 2019). After a long process of selecting theconsultants to implement the PPP, in October 2021, the government signed anagreement with the International Finance Corporation (IFC) for the IFC to
conduct a feasibility study on MIA’s development and attract PPP investment(IFC 2021). This series of events indicates how much airport governance iscontested and politicized.
As mentioned above, the government has attracted the private sector to
airport ownership and separated economic and safety oversight from airport
operation. In general, the airport governance structure of Kyrgyzstan follows
basic ICAO recommendations. In addition, as demonstrated above, the existing
policy mechanisms in Kyrgyzstan’s airport industry, in theory, should ensure
adequate airport infrastructure. First is policy documents and sector programs
designed to develop airports. The second mechanism is the public responsibility
to provide excellent infrastructure through public ownership control and theobligations of airport operating company to implement sector programs byreinvesting profits to airport infrastructure building.
However, the government has created an airport governance structure
primarily controlled by the government and continues to dominate airport
decision-making. So, what is the resource allocation of MIA for prioritizing thetask of airport infrastructure building? The following section will investigate
how airport governance and policy instruments impact MIA’s profit distribution
through dividend allocation. Then the study will describe another key policy
mechanism, the inter-agency coordination tool.

3. I mpacts of Policy Mechanisms on Resource Allocation of
Kyrgyzstan’s Airport Operating Company: A Special Focus
on Dividend
As mentioned in section 2, the government’s overall control of MIA also
affects how MIA is managed. As shown at the bottom of Figure 1 (C), MIA
manages and operates airports through the Directors Board, Council Board,and its two branches, Manas and Osh. The structure of the Bishkek branch
includes six airports, namely, Manas, Issyk-Kul, Karakol, Talas, Naryn, andKazarman. The Osh branch operates five airports as Osh, Batken, Isfana, JalalAbad, and Karavan. Each unit runs the operation of airports independently.
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However, strategic decision-making in infrastructure building is made by the
Board of Directors. These questions include which branch’s infrastructure
projects to implement and what resources to allocate to these projects. The
primary source of project financing is the company’s funds.
Indeed, MIA is financed independently of the government. Therefore, it has
not received any subsidization nor loan from the government. In fact, as theprimary stakeholder of MIA, the government does not financially support thedevelopment of airport infrastructure (Arsen 2016, p.38) since the government
has continuously faced financial problems due to a high budget deficit. Hence,subsid i z i ng M I A to ma i nt a i n a i r p or t i n f ra st r uct u re wa s b eyond t hegovernment’s capacity ( IMF 2019, p.10). Therefore, MIA should financeinfrastructural building through the revenue gained from servicing passengers,
freight, and airlines. Thus, the question is whether or not MIA’s income has
been reinvested into the infrastructure. Before answering this question, it isnecessary to examine the trend of MIA’s revenue in the past ten years.
Operational and Financial Performance in Kyrgyzstan’s Airport Industry
Along with air traffic growth, MIA has achieved significant growth in its
revenue in the last decade. Figure 2, Graph (a) shows that aircraft movements
i n Ky rg yz st a n’s a i r p or t s g rew 6 0 p ercent over t he prev ious dec ade .
Kyrgyzstan’s passenger traffic also grew by 225 percent, and freight movements
i n t he a i r por t s i ncrea sed to 14% i n 2 010 -2 019, a s show n i n Graph ( b).
Consequently, the revenue has also grown. MIA’s revenue increased triple inthis period; the enterprise’s revenue increased from KGS 2.52 billion (USD 53.6
million) in 2010 to KGS 7.23 billion (USD 104 million) in 2019 (Figure 2 Graph(c)). 2 This number includes the profits of the airport operating company.

2

The currency rate: 1 USD=47.09 KGS for 31 December 2010; 1 USD=69.64 KGS for 31
December 2019 (https://www.nbkr.kg/index1.jsp?item=1562&lang=ENG, accessed 21
November 2021).

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The Airport Governance and Challenges of Policy Coordination in Airport Infrastructure Building: The Case Study of Kyrgyzstan’s Airports(a) Aircraft Movements(c) MIA's Revenue

Number of handled aircraftin airports, thousand

40

20

KGS billion

30
freight

10

passengers

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

0

8
7
6
5
4
3
2
1
0

Year

Year

Figure 2. Air Traffic in Kyrgyzstan’s airports and MIA’s Revenue for 2010-2019.
[Source: The author, based on the following data:1）Kyrgyzstan’s air traffic statistics 2010-2019 from Civil Aviation Agency of Kyrgyz Republic.
2）A nnual financial results of MIA OJSC for 2010-2019 from MIA OJSC Information disclosing
listing on Kyrgyz Stock Exchange. (https://www.kse.kg/ru/ListingDetails/MAIR, accessed
10 March 2021).]

Table 1 demonstrates the performance of MIA’s revenue and profits for 20102019. The total income generated by MIA amounted to about KGS 46.32 billion(USD 746 million), while the net profit is around KGS 13.95 billion (USD 235
million) within a decade. Hence, the MIA’s financial performance demonstrates
that MIA can accumulate recourses and address them to the infrastructurebuilding and airport development as an investment. 3
Table 1. Revenue and Net-Profit of Manas International Airport OJSC for 2010-2019
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Growth201020102019
2019

Revenue,
KGS billion

2.52

2.94

3.11

3.05

3.43

4.56

6.54

7.10

5.83

7.23

46.32 286%

Net-Profit,
KGS billion

0.82

1.28

1.56

1.08

0.82

1.30

1.57

1.79

1.62

2.11

13.95 256%

Revenue,
USD million

53.6*

63.1*

65.7*

61.9*

58.2*

60.1*

94.4*

103*

83.4*

104*

746*

193%

Net-Profit,
USD million

17.4*

27.5*

31.8*

21.9*

14.1*

18.1*

23.5*

26.8*

23.3*

30.3*

235*

174%

Note: * converted from Kyrgyzstan’s national currency, KGS to the USD.4[Source: The author, based on the data on annual financial results of MIA OJSC for 2010-2019, fromMIA OJSC Information disclosing listing on Kyrgyz Stock Exchange. (https://www.kse.kg/ru/
ListingDetails/MAIR (Accessed 10 March 2021).]

3

The government of Kyrgyzstan has included three infrastructure projects as“Reconstruction of Manas Intranational Airport”with the cost of USD 109 million,“Re c o n s t r u c t io n o f I s s y k -K u l I n t r a n a t i o n a l A i rp o r t”- U S D 1 5 . 6 m i l l i o n , a n d“Reconstruction of Osh Intranational Airport”- USD 9.2 million into the National
Development Strategy 2018-2040 (The President Office, 2018).

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As described in Table 1, MIA has demonstrated significant revenue and net
profit growth in the last decade. However, MIA is often facing a shortage off i n a nc i a l re s ou rc e s . Ab dy m a lyk B . , D i re c t or of t he I nve st me nt a nd
Infrastructure Development Department, Manas International Airport, said asfollows:
O u r a i r por t wa s fou nd i n 19 7 5 , a nd si nce t hat t i me , it wa s u nder
government control. During the Soviet time, it was one of the mostdeveloped air hubs in the country. However, after collapse of the Soviet
Union, life has changed. At this moment, the Manas International Airportis the most developed in the country, but airports in other parts of thecountry are underdeveloped, has poor facilities and infrastructure. Some ofthem can accept aircrafts only at day time, as they don’t have special
luminance systems. This all is caused by inability of the government tomaintain airport facilities. There is always shortage of financing, most of
our proposed projects are rejected due to lack of funds. On top of that, theairport management supposed to be independent, but it is far from being
sovereign. We are dependent on many factors, especially from politicalflows (Arsen 2016, p.38).
Then, the question is how the MIA’s profits are distributed. Thus, thefollowing focuses on resource allocation from the perspective of policymaking.
Dividends as a Decisive Factor in Infrastructure Building
A dividend is a share of a company’s net profit distributed among company
shareholders and a return that stakeholders receive for their investment in thiscompany. A company’s dividend policy determines the amount of a company’s
dividend paid out to its shareholders. The board of directors decides dividend
policy and whether the company’s net profit will be distributed among the4

The official exchange rates as follows: 1 USD=47.09 KGS for 31 December 2010; 1
USD=46.48 KGS for 31 December 2011; 1 USD=47.4 KGS for 31 December 2012; 1
USD=49.24 KGS for 31 December 2013; 1 USD=58.88 KGS for 31 December 2014; 1
USD=75.89 KGS for 31 December 2015; 1 USD=69.23 KGS for 31 December 2016; 1
USD=68.83 KGS for 31 December 2017; 1 USD=69.85 KGS for 31 December 2018; 1
USD=69.64 KGS for 31 December 2019 (https://www.nbkr.kg/index1.
jsp?item=1562&lang=ENG, accessed 21 November 2021).

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The Airport Governance and Challenges of Policy Coordination in Airport Infrastructure Building: The Case Study of Kyrgyzstan’s Airports

stakeholders or invested in expanding assets (Omerhodžić 2013, pp.43, 52).
Along with this, as Charbti (2020, p. 42) argues, a trade-off exists between
short-term and long-term goals in managing the distribution of an entity’s profit.
In the short term, how to cater to investors by paying dividends aiming tomaximize the company’s current market price is significant. On the other hand,such short-term management often becomes an adversary to the long-term
development of the airports (Ibid). It is usually held that high dividends increase
the company’s attractiveness for potential investors while destroying its longterm development (Ibid). In other words, growing dividends to raise thecompany’s market value reduces its ability to accumulate its investments.
Therefore, a company’s dividend policy is a part of its strategy, which defines its
development needs and resources (Ibid).
Strategic factors include a company’s need for investment to maintain or
expand assets and infrastructure building policy. In other words, when acompany identifies the needs of improving infrastructure, the company
redistributes the necessary resources to infrastructure building by reducing thedividend share. Otherwise, an irrational dividend policy could lead to inefficient
resource allocation and poor infrastructure, reducing the company’s capacity,
affecting the airport’s efficiency.
From this point of view, Walter (1956) argues that dividend policy can be
granted as a definition of a rate of profit retention. However, this profit inreserve mainly limits the volume of internal financing of a company and its
investment opportunities. Therefore, Walter assigns dividends a secondary role:
this comes after the company has made an investment and financing decision(Charbti 2020, p.12). Hence, based on the assumption that the distribution ofdividends reduces its ability to finance infrastructure projects, in this case, it
seems necessary to give preference to retained earnings and reinvest them in
airport infrastructure. On the other hand, political factors can also dramatically
impact resource allocation, especially in an entity with government control
interests.
Political factors include government-level governance. This characteristic canadversely affect the relationship between government ownership and dividend
policy. Notably, in government-owned airports, “political interference in theappointment of management” can cause a “fiscal drain on the national economy
when funds should be diverted to more social programs” (Kapur 1995, p.14).
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Moreover, if the ties connections between politicians and managers of former
government- owned entities still exist, the government will continue toexpropriate the entity’s resources (Shleifer and Vishny 1998). As stated earlier,the government has privatized the airport operating company, MIA. But thequestion is what dividend policy has been implemented in Kyrgyzstan’s airport
industry.
MIA’s Resource Allocation to Airport Infrastructure Building ThroughDividend Policy
Figure 3, (a) and (b), illustrate the share of dividends and reinvestment in
MIA’s annual profit for 2010-2019. In general, the dividends of airport operatingcompany have continuously increased since 2014. Meanwhile, reinvestment was
unstable: with growth in 2011, 2012, 2015, 2016, and drops in 2013, 2014, 2018.
This instability suggests that MIA caters to the shareholders by increasing
dividends a nd pays less attent ion to in frastr ucture rehabilitat ion a ndmodernization investment.
As a significant shareholder, the government of Kyrgyzstan receives thelargest share of the airport operating company’s profits. As shown in Figure 3,
Graph (a), it distributed about KGS 2.1 billion (USD 30.3 million) of net profit in2019 as follows: KGS1.26 billion (USD 18.1 million), which is 60 percent of net
profit distributed among shareholders in the form of a dividend. The remaining
KGS was 0.84 billion (USD 12 million), and a 40 percent net profit was directed
to airport infrastructure. Along with this, given the fact that the government
holds 87,5 percent of MIA’s shares, it has received about KGS 1 billion (USD
14.5 million) (i.e., 87.5% of a total dividend) to Kyrgyzstan’s central budget as adividend from MIA in 2019 (KSE 2020).

60

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The Airport Governance and Challenges of Policy Coordination in Airport Infrastructure Building: The Case Study of Kyrgyzstan’s Airports(b) Share of Dividend & Reinvestment in
MIA's Profit
100%

Dividend

Reinvestment

Dividend

Reinvestment

2019

2018

2017

2016

2015

Year

Profit0%
20142010 2011 2012 2013 2014 2015 2016 2017 2018 2019

2013

0.00

50%

2012

1.00

2011

2.00

Percentage

KGS bilion

3.00

2010

(a) Distribution of MIA's Profit

Year

Figure 3. Distribution of MIA’s Annual Profit and Share of Dividend and Reinvestment(2010-2019).
[Source: The author, based on the results of MIA’s annual general meetings for 2010-2019 fromhttps://www.kse.kg/ru/PublicInfo/JSC_MAM. (Accessed 10 October 2020).]

Figure 3, Graph (b) above shows the distribution and proportion of MIA’s
a n nua l net prof it i n t he form of d iv idends a nd i nvest ments to a ir por t
i n frast r ucture for t he last decade. SPM F a nd M I A supported a ir port
development by distributing a significant gain to infrastructure in 2012-2016.
MIA had been receiving 75 percent of profit as an investment to airport
development in 2012-2016. This policymaking has been one of the vital tools to
support airport infrastructure.
However, the proportion of reinvestment fell significantly by 2019; investment
distribution decreased by 31 percent in 2019 compared to 2016 (Figure 3, Graph(a)). At the same time, payments to stakeholders (i.e., out of MIA) in dividends
significantly increased; they rose by about 210 percent in 2019 compared to
2016.
Therefore, the dividend policy of SPMF (through the ownership mechanism)
in MIA is very problematic. As stated earlier, along with an increase in air
traffic and profits (Figure 2), the condition of all Kyrgyzstan’s airports is wornout. Moreover, as the government implements air service liberalization,
Kyrgyzstan’s air traffic is expected to significantly increase (Beishenaliev 2020,p.20), thus, increasing physical pressure on airport infrastructure. On the otherha nd , M I A needs more f u nds to rehabilitate t he a ir ports . I ndeed , t heredistribution of MIA’s profit was not adequately met, especially in 2016-2019;
when the airport infrastructure needed more funds for rehabilitation andcapacity building, MIA continuously decreased reinvestment in airport
development and dramatically increased dividends (Figure 3; KSE 2020b).
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Moreover, a long-term loan or debt frequently restricts the ability of acompany to pay dividends (Charbty 2020, p.128). However, having the capacity
to accumulate its resources (Figure 3, Graph (a)), MIA has borrowed tens of
millions USD from the Russian-Kyrgyz Development Fund (RKDF). MIA alsoborrowed money from the Europe Bank of Reconstruction and Development(EBRD) for infrastructure projects in 2016-2019 (MIA 2018, p.31; RKDF 2016).
Along with this, MIA distributed significant dividends of about USD 47.8 million
to the government in 2016-2019. Hence, MIA’s decision to withdraw funds fromt he compa ny to pay d iv idends a nd b or row ex ter n a l loa ns to supp or t
infrastructure building is not rational. Instead of receiving loans with interest
rates, MIA should have reinvested most of its profits into infrastructure bydecreasing the share of dividends.
Therefore, MIA shows an irrational dividend policy, allocating a significant
proportion of profits to dividends rather than reinvesting in its primary priority,
infrastructure development. This dividend policy suggests that SPMF employs
its power in MIA through the ownership mechanism to maximize sources tofulfill the central state budget. Hence, the investment in airport development isdecreasing, making the airport operating company unable to accumulatefunding for airport infrastructure projects. Thus, SPMF and MIA ignore theimplementation of government programs (CADP). This neglection is, in essence,the question of policy coordination, which the next section will examine.

4. Policy Coordination for Airport Infrastructure Development
Public policymaking often deals with designing, improving, and implementing
critical programs for the country’s development. For example, as the airport
i ndust r y of ma ny developi ng cou nt r ies is usua l ly a mong t he nat iona ldevelopment programs, the effective planning and implementation of objectivesof airport capacity building depend on available resources and policy integrationin resource allocation. Therefore, it often happens that to implement one
program requires coordination with the stakeholder institutions.
It is generally considered that coordination is a mechanism of interaction of
agents and functions towards producing a result. It is an important policy
mechanism through which state agencies can come together to rationallyd ist r ibute resou rces a nd to ach ieve set goa ls . Thus , i n desig n i ng a nd62

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The Airport Governance and Challenges of Policy Coordination in Airport Infrastructure Building: The Case Study of Kyrgyzstan’s Airports

implementing policy, inter-institutional coordination is a fundamental mechanism
to resolve conflicts in priorities and policies between sector agents (Panday
2 011, pp. 157-15 9 ; Peters 2 018 , p. 6 , 2 ). I n cont rast , i nter-i nst it ut iona l
miscoordination can cause failure in policy design and implementation. So, howis the situation of policy coordination in Kyrgyzstan’s airport industry in whichsuch inadequate airport infrastructure is practiced? The following demonstrates
two domains of coordination, vertical and horizontal.
Vertical Coordination in Airport Infrastructure Building
Figure 4 demonstrates the policy coordination in airport governance between
the government, MOT, SPMF, and MIA. It includes two vertical coordination
detentions. First is “Government-MOT-MIA,” and second is the “GovernmentSPMF-MIA.” Vertical coordination is a higher coordination level based on ahierarchy. This type of coordination often refers to a need for political leadershipand commitment at higher levels of government. It is often coordination
between government and ministries, or ministries and agencies at lower-level
hierarchy (Figure 4). SAMC is not included in the chart of airport governancecoordination since its tariff regulation function is related to monopoly behavior
control rather than governance in airport infrastructure building, the scope ofstudy’s objective.

Figure 4. Policy Coordination in Airport Governance[Source: the author, based on Section 2 and Figure 1.]

As stated above, the government has adopted the objective of airport
infrastructure building in the NDS 2018-2040 (national level policy document)
and CADP 2 016 -2 02 0 (sector-level policy document). Hence, the airport
development objective is a single policy that should, in theory, guide the63

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文

government, MOT, SPMF, and MIA to achieve the goals of the policy. In thiscontext, through “Government-MOT-MIA” coordination, the government should
enforce MIA to improve airport infrastructure safety by implementing NDS
a nd CA DP. On t he ot her ha nd , t hrough t he “G overnment- SPM F-M I A”
coordination mechanism, the government should force MIA to develop corporate
strategy and distribute MIA’s profits to meet NDS and CADP objectives.
However, t he ver t ic a l c o ord i n at io n of “ G over n me nt- MO T- M I A” a nd“Government-SPMF-MIA” is inconsistent in achieving the single sector policy.
Consequently, the outcomes of miscoordination are the MIA’s irrational dividend
policy and worn-out airport infrastructure.
O n t he one ha nd , i n t he “ G over n ment- MO T- M I A” co ord i nat ion , t hegovernment has adopted the airport development policy and empowered the
MOT to control the single sector policy implementation. Accordingly, the MOT,
through regulatory control instruments, requires MIA to implement a sector
program. In addition, MOT governs MIA’s airport infrastructure safety throughthe certification and oversight mechanisms.
Indeed, the outcome of this coordination is that the policy documents are far
from being implemented. For example, the NDS’s mid-term objective for Manas,
Osh, and Issyk-Kul airports’ modernization, which is planned in 2018-2022, is
not being implemented. In addition, only six out of sixteen airports carried out
development tasks in CADP 2016-2020. But the other ten measures are still notcompleted and have been included in the draft of the new CADP 2021-2025(COM 2020). Consequently, due to safety reasons, CAA (which is MOT’s
department) has banned five of eleven MIA airports from operation and limited
aircraft operation in the other three airports. One reason that policy documents
are poorly implemented is the lack of MIA’s investment, as the vice-president of
MIA stated (Arsen 2016, p.38). The second reason is that MOT, through theregulatory control mechanism, is less effective on MIA than the ownershipcontrol mechanism SPMF exercises.
On the other hand, vertical coordination “Government-SPMF-MIA,” which isregulated through the public ownership mechanism, hampers infrastructuredevelopment objectives. The government empowered SPMF to control state
property and the government’s share in MIA. SPMF, in turn, forms and elects
the MIA’s governing body and determines airport strategy and MIA’s dividend
policy. Indeed, the influence of SPMF on the airport operating company is much
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The Airport Governance and Challenges of Policy Coordination in Airport Infrastructure Building: The Case Study of Kyrgyzstan’s Airports

more inf luential than regulatory control exercised by the air transport
regulating agency, MOT. Hence, as stated earlier, SPMF, through the ownershipmechanism, has continuously increased dividends, thereby catering to thegovernment a nd hampering the objectives of a single policy of a irport
infrastructure development.
Therefore, the government’s vertical coordination in “Government-MOT-MIA”
and “Government-SPMF-MIA” is inconsistent and controversial. Here is a clear
example of the lack of government coordination in implementing airport
development policy through regulatory and ownership policy instruments.
However, the failure of vertical coordination can be understood through the lackof horizontal coordination. Therefore, horizontal coordination is also crucial.
Horizontal Inter-Agency Coordination
Horizontal coordination refers to the coordination between agencies on thesame level in the managerial hierarchy; for this study, between line ministries MOT and SPMF. Unfortunately, there is no horizontal inter-agency coordinationin airport governance. As shown in Figure 4, MOT and SPMF do not interact
in airport governance and implementing NDS and CADP objectives. Moreover,miscoordination causes a conflict of interests between these agencies. Indeed,
the difference in policy objectives of non-aviation and air transport regulating
agencies can significantly influence the operating environment in air transport(ICAO 2018b, p.I-4-2). The SPMF is a non-aviation agency, but it affects certain
aspects of the airport industry. The primary function of SPMF does not include
how to regulate aviation (MOJ 2020). However, it dominates MIA’s decisionmaking, as demonstrated earlier. SPMF, through ownership instruments, caterto the government’s short-term goals, such as increasing dividends to replenish
the central budget or impact the MIA’s decision to invest in airport projects
that are not related to airport safety improvement.
One example of horizontal miscoordination is that SPMF, as a significant
MIA shareholder, agreed that MIA should reconstruct passenger terminals of
Batken, Jalal-Abad, Isfana, Karavan, and Kazarman airports. On the other
hand, MOT requires MIA to rehabilitate and extend these airports’ runways,
taxiways, and aprons for AVRO RJ-85. 5 Safe operations, which still have not
5

AVRO Rj-85 is the only aircraft type that Kyrgyzstan’s airline operates and can land
and take off at domestic airports.

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been done, unlike the terminals of Batken, Jalal-Abad, Isfana, Karavan, andKazarman, were reconstructed in 2016-2019. Hence, SPMF’s policy objectives
may be different from the objectives of MOT in the question of airport
infrastructure and can raise conflicts between government agencies.
Another example of lacking inter-agency coordination refers to the conflict inresource allocation. The air transport regulating agency, MOT, utilizing
regulatory control instruments, pursues improving airport safety through NDS
and CADP objectives in airport development. However, this policy requires
significant funds that MIA can accumulate systematically (Table 1). On theother hand, airport resource allocation is significantly influenced by the SPMF
through the ownership policy instrument. Notably, one of SPMF’s functions
refers to receiving dividends from the MIA’s profits and the execution of thecentral state budget. Therefore, the conflict of policy interests of MOT and
SPMF causes the MIA’s irrational dividend policy. Consequently, the policy
objective for airport infrastructure building has failed, and the cash flow from
MIA to the central budget has significantly increased. From this point of view,the government uses the airports of MIA as a milking cow to replenish thecentral state budget, thereby deteriorating the infrastructure of Kyrgyzstan’s
airports.
Table 2. The Quality of Air Transport Infrastructure, Country Rankings for 2017
State
Azerbaijan

2017
24

Armenia

52

Russian Federation

59

Georgia69

Tajikistan

70

Moldova86

Kazakhstan

90

Ukraine92

Kyrgyzstan

120

Belarus

No data in ranking

Turkmenistan

No data in ranking

Uzbekistan

No data in ranking[Source: WEF Global Competitiveness Index 2017-2018 (WEF 2018)]

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Therefore, Kyrgyzstan went down by 9 points according to the Quality of Air
Transport Infrastructure Index from 2007 to 2017, as measured by the World
Economic Forum Global Competitiveness Index. In 2017, Kyrgyzstan was
ra n ked 1 2 0 t h out of 13 7 cou nt r ies , as show n i n Table 2 ( W EF, 2 018). 6
Remarkably, among the former USSR, Kyrgyzstan demonstrated the worst
performance in terms of airport infrastructure. On the other hand, even
Tajikistan, the lowest-income country in Central Asia, showed better airport
infrastructure performance with a score of 70 (Table 2).
As demonstrated above, in Kyrgyzstan’s airport industry, due to ineffective
governance in the form of government intervention and poor policy coordination,
airports do not have sufficient funds to reinvest in airport infrastructure. Hence,
CADP is poorly implemented, and airport facilities with equipment are in worncondition. This reality supports Slack and Rodrigue (2020, section 5) statement,
wh ic h a rg u e s t h at e f fe c t ive g ove r n a nc e e n su re s t h at a i r t r a n s p or t
infrastructures are adequately funded, maintained, operated, and expanded.
Therefore, considering the importance of airports to the country’s economy
and air connectivity with developed markets, Kyrgyzstan’s government, throughvertical coordination, should facilitate the rehabilitation of airport infrastructure,
which is a national strategic objective. Notably, it should exclude intervention on
MIA’s decision-making through appropriately functioning privatization. MIA
should ensure adequate infrastructure by deciding independently. First, theyshould determine the volume of reinvestment for infrastructure building, andthen the share of dividends. Otherwise, through coordination and ownershipme c h a n i s m s , t he g ove r n me nt s ho u ld forc e M I A t o fo c u s o n a i r p or t
infrastructure, ensuring infrastructure and service safeguarding all airport
users. Horizontal coordination should also be adequately established so that
MOT and SPMF come together to resolve conflicts in their policy interests,
rationally distribute resources, and achieve policy objectives in providing safe
airport infrastructure. In other words, ownership and regulatory policy
instruments should be coordinated to attain sector policy objectives.
6

The quality of air transport infrastructure indicator is one of the Global CompetitivenessIndex components by the World Economic Forum. It demonstrates an evaluation of the
airport quality in a given country based on the WEF survey results. Thus, the country
score for an indicator is based on the respondents’opinions on airports’quality(extensiveness and condition) in a given country (WEF, 2018, p.343).

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5. Conclusion
The airport industry is a crucial part of Kyrgyzstan’s transportation system,
connecting the land-locked country with the world. It contributes to the national
economy’s growth by providing direct and indirect jobs and facilitating the flowof people, goods, and investment in Kyrgyzstan. In this sense, the government
has privatized airports and developed a sector program to develop airport
infrastructure. Unexpectedly, even though MIA demonstrates a sustainablegrowth rate in terms of increased traffic growth and revenue generated, theairport sector program has not been completed. Airport infrastructure is still inworn condition.
This study reviewed the governance of the airport industry and its impact on
airport infrastructure. In particular, this article examined airport governanceand policy coordination to explore the reason for poor investment in airport
infrastructure. The results of this study suggest that despite the government
having created a classic airport corporate governance and board structure, it
has strong leadership in airport decision-making, which prevails in resource
allocation. Along with this, the study also found a lack of coordination between
state agencies in designing and implementing airport development programs,
leading to poor airport infrastructure.
Notably, this study provides evidence that the government has designed apolicy to develop airport infrastructure written in government programs.
However, other government decisions are inconsistent; it pursues politicalinterests under the name of the state’s economic challenges and thus, hampers
the possibility of airport infrastructural improvement. From this perspective,
the government utilizes the country’s airports as a milking cow to replenish thestate budget; it compels MIA to increase payments to the central budget
through dividends rather than increasing investment into airport infrastructuredevelopment.
In Kyrgyzstan’s case, this study suggests that ineffective airport governancein the forms of government power in decision-ma king a nd poor policy
coordination causes inadequate resource allocation, which has led to poor
airport infrastructure. This study also makes some policy recommendations: theconsideration of designing a mid-term policy. As the government has alreadydrafted the Government Civil Aviation Development Program for the Kyrgyz
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Republic for 2 021-2 025, it is recommended to focus on improving interinstitutional coordination. In addition, the government also should, as this study
identifies, minimize intervention in decision-making processes. In other words,
the government should ensure independent selection and operation of thegoverning board members of the airport operating company.
One of the ways to promote independent decision-making with minimum
government intervention in the airport industry is to create a mechanism
through which privatization appropriately functions and moves forward PublicPrivate Participation. This study of Kyrgyzstan, being a land-locked developing
country, also presents policy implications for other countries that have faced thechallenge of privatization of the industry that directly or indirectly affects thelevel of airport infrastructure.

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論文

Abstract

The Airport Governance and Challengesof Policy Coordination in Airport
Infrastructure Building: The Case Study
of Kyrgyzstan’s Airports
Kanatbek BEISHENALIEVIn general, airports, connecting worldwide markets, are the main componentof air transport and an essential part of a country’s economy. Many scholars
have pointed out that private participation in airport ownership improves therevenue generated by air services and brings about a capital investment that
improves infrastructure capacity (Oum et al. 2 0 0 8). Therefore, airport
privatization has become extremely important for developing landlocked
economies, which face the challenges of poor airport infrastructure and low airconnectivity, such as Kyrgyzstan and other small-sized economies in the
Commonwealth of Independent States. However, Kyrgyzstan has continued to
face the challenge of poor airport infrastructure, though airport ownershipshifted to partial privatization in 2001. Moreover, Kyrgyzstan’s government
introduced an air service liberalization policy in 2018, which potentially canincrease the physical impact on infrastructure quickly. On the other hand,
Manas International Airport Open Joint Stock Company (MIA), an operatingcompany that owns all airports in Kyrgyzstan, has successfully increased its
revenue. Thus, in theory, MIA can accumulate more budget to improve airport
infrastructure. This article is a partial research study of an unpublisheddoctoral dissertation (Beishenaliev 2021). This study examines Kyrgyzstan’scase of airport governance through the inter-agency policy coordination that
affects infrastructural building and maintenance of the airports. Governance isdefined in this study as the process through which state agencies and airport
operating entities coordinate to develop and implement policies for airport
infrastructure building. For this, the author employs a qualitative analysis ofprimary documents in Kyrgyzstan’s government policy to explore the reasons
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The Airport Governance and Challenges of Policy Coordination in Airport Infrastructure Building: The Case Study of Kyrgyzstan’s Airports

for continuous low airport infrastructure investment. This includes an analysisof challenges Kyrgyzstan has in implementing airport policies; notably, it
examines the policy instruments of airport governance and conflict of interests
between government agencies in airport recourse allocation. One of the findings
showed significant government influence on decision-making in managing MIA’s
airport operation. This study found that a large amount of airport revenue has
been redistributed to the country’s central budget rather than to the airport
infrastructure budget. This suggests that the government pursues politicalinterests under the name of the state’s economic challenges and thus hampers
the possibility of airport infrastructural improvement. The importance of thisstudy is that understanding how poor governance affects airport infrastructure
may help policymakers and practitioners to improve coordination mechanisms
in the design and implementation of aviation development plans, explicitly
designing the Government Program for Civil Aviation Development for the
Kyrgyz Republic for 2021-2025.

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