1. Integrating Central Asia into the World Economy: Role of Reforms in Aviation Sector The Special Case of Tajikistan Central Asia Regional Economic Cooperation Program (CAREC) Washington DC October 22, 2007

2. Aviation Sector: Needed Reforms a less restrictive aviation policy that allows competition a less restrictive aviation policy that allows competition a stronger institutional structure by separating: a stronger institutional structure by separating: Policy Making from Technical Regulation and Accident InvestigationPolicy Making from Technical Regulation and Accident Investigation Airline, Airport and Air Traffic ControlAirline, Airport and Air Traffic Control Strengthened Technical Regulation (ICAO) Strengthened Technical Regulation (ICAO)

3. What reforms may bring? Competition ->Productivity ->Growth Airport will be more interested in attracting more international flights Airport will be more interested in attracting more international flights Airport can Attract Investment Airport can Attract Investment Airport will not have to Subsidize the National Airline Airport will not have to Subsidize the National Airline Airport is likely to encourage competition for national airlines Airport is likely to encourage competition for national airlines Providing ground handling equipment for competing types of aircraftProviding ground handling equipment for competing types of aircraft Competitive fuel supplyCompetitive fuel supply Fees and charges are used to improve airport infrastructureFees and charges are used to improve airport infrastructure

4. Status of Reforms in CA Uzbekistan: Uzbekistan: Airline owns AirportsAirline owns Airports Partial Privatization of Airline Planned for 2008Partial Privatization of Airline Planned for 2008 Tajikistan: Tajikistan: Airline owns AirportAirline owns Airport Separation of Airline Airport and ATC planned for 2008Separation of Airline Airport and ATC planned for 2008 Kazakhstan and Kyrgyz Rep. Kazakhstan and Kyrgyz Rep. Airports are virtually SeparateAirports are virtually Separate Both attracting New InvestmentsBoth attracting New Investments New Private Airlines have EmergedNew Private Airlines have Emerged

5. Increasing International frequency would bring more benefits to the CA economies Direct benefits: Direct benefits: Marginal increase in demand for fuelMarginal increase in demand for fuel Landing and navigation feesLanding and navigation fees Indirect benefits: Indirect benefits: Expand Markets for Products and Services: e.g., Consumables, Tourism Products, hotel, translation, transportation, catering, visa…Expand Markets for Products and Services: e.g., Consumables, Tourism Products, hotel, translation, transportation, catering, visa… Taxes and other feesTaxes and other fees

6. Tajik Aviation Sector Background Country in Peace and Recovering Country in Peace and Recovering Technical Competence in Sector Technical Competence in Sector FSU Legacy is Small FSU Legacy is Small Strong Government Reform Agenda Strong Government Reform Agenda

7. Tajikistan is trying to increase exposure to the potential trade & tourism sources Country Flights to Western Destinations (per week) Istanbul Bishkek (Manas) 107 Almaty377 Ashkabad169 Dushanbe22 Tashkent346

8. Tajik Aviation Sector: Analysis Despite the relatively high volume of passengers, Air ticket prices for the main route between Moscow and Dushanbe are more expensive than tickets on comparable routes to other destinations in Central Asia; ( As of June 2005. Dushanbe prices are higher now) Despite the relatively high volume of passengers, Air ticket prices for the main route between Moscow and Dushanbe are more expensive than tickets on comparable routes to other destinations in Central Asia; ( As of June 2005. Dushanbe prices are higher now)

9. Tajik Aviation Sector: Analysis TSA Ticket distribution systems not fully integrated with International Booking Systems TSA Ticket distribution systems not fully integrated with International Booking Systems The premium on ticket prices are a significant burden on the annual net income of a typical migrant worker The premium on ticket prices are a significant burden on the annual net income of a typical migrant worker

10. Tajik Aviation Sector: Government Actions By the introduction of Turkish Airlines, the Government has increased operating flights to the West; By the introduction of Turkish Airlines, the Government has increased operating flights to the West; This will help to Strengthen Tajikistan's ability to attract foreign investment and affluent tourists and Business Travelers. This will help to Strengthen Tajikistan's ability to attract foreign investment and affluent tourists and Business Travelers.

11. In airlines business, capacity creates demand… Tajik example Huge demand: rejection rate is 50 percent Huge demand: rejection rate is 50 percent Load Factor: 97 percent Load Factor: 97 percent 80 percent of passengers are western citizens 80 percent of passengers are western citizens 50 percent western passengers traveling to Tajikistan for the first time 50 percent western passengers traveling to Tajikistan for the first time

12. The Benefits for the Tajik Aviation Sector alone would be significant Status-QuoNew Flights Two flights/week Three flights / week Four flights / week Fuel Delivery 408 612 816 Airport 528 792 1,056 Air Traffic Control 31 47 63 Airlines - 66 133 Services 2,779 4,169 5,559 TOTAL 3,746 5,686 7,626 Marginal Increase 1,940 3,879 Sensitivity analysis of income generation by increasing flight frequency with Istanbul (thousands of US dollars)

13. The Tajik Government plans to build on this trend…. Turkish Airlines is interested in increasing frequency Turkish Airlines is interested in increasing frequency Tajikistan Plans to take advantage of growing interest by internationally reputable operators: Air Arabia, Jet Airways and Qatar Airways are interested in flights to Tajikistan Tajikistan Plans to take advantage of growing interest by internationally reputable operators: Air Arabia, Jet Airways and Qatar Airways are interested in flights to Tajikistan

14. Aviation sector reform: it brings integration and economic benefits in medium and long term; some examples Access to Markets: Integration with the World, Investment Trade and Tourism Access to Markets: Integration with the World, Investment Trade and Tourism Growth: generally, air services output grow approx 50% faster than the economy (2003 Survey) Growth: generally, air services output grow approx 50% faster than the economy (2003 Survey) Reformers: Reformers: Riga - 28 flights a day to hubs, New Zealand – 50 flights to Sydney…Riga - 28 flights a day to hubs, New Zealand – 50 flights to Sydney… For comparison: Armenia three flights to Western hubs and four flights to Moscow a dayFor comparison: Armenia three flights to Western hubs and four flights to Moscow a day Other examples: Netherlands (output increase by 51 % in routes with US); Czech Republic, Lebanon, Other examples: Netherlands (output increase by 51 % in routes with US); Czech Republic, Lebanon, US liberalization (1970s): fares are estimated to be lower by 24 percent than they would be if market was regulated. Productivity gains and more accessible service. US liberalization (1970s): fares are estimated to be lower by 24 percent than they would be if market was regulated. Productivity gains and more accessible service.