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    Cost-efficiency - Latvia

    Download Report

    Terminal charging zone

    Unit cost (KPI#1)

    Actual and determined data
    Total costs - nominal (M€) 2020-2021 2022 2023 2024
    Actual costs 12 6 NA NA
    Determined costs 12 6 7 7
    Difference costs 0 0 NA NA
    Inflation assumptions 2020-2021 2022 2023 2024
    Determined inflation rate NA 10.0% 3.9% 3.1%
    Determined inflation index NA 119.7 124.3 128.1
    Actual inflation rate NA 17.2% NA NA
    Actual inflation index NA 127.5 NA NA
    Difference inflation index (p.p.) NA +7.8 NA NA
    Focus on unit cost

    AUC vs. DUC

    In 2022, the terminal AUC was +17.4% (or +25.37 €2017) higher than the planned DUC. This results from the combination of significantly lower than planned TNSUs (-12.6%) and higher than planned terminal costs in real terms (+2.6%, or +0.1 M€2017). It should be noted that actual inflation index in 2022 was +7.8 p.p. higher than planned.

    Terminal service units

    The difference between actual and planned TNSUs (-12.6%) falls outside the ±10% threshold foreseen in the traffic risk sharing mechanism. The resulting loss of terminal revenues is therefore shared between the ANSP and the airspace users, with the ANSP (LGS) bearing a loss of -0.2 M€2017.

    Terminal costs by entity

    Actual real terminal costs are +2.6% (+0.1 M€2017) higher than planned. This is the result of higher costs for the main ANSP, LGS (+2.6%, or +0.1 M€2017) and the NSA (+5.9%, or +0.015 M€2017) and lower costs for the MET service provider (-6.8%, or -0.006 M€2017).

    Terminal costs for the main ANSP at charging zone level

    Higher than planned terminal costs in real terms for LGS in 2022 (+2.6%, or +0.1 M€2017) result from:
    - Higher staff costs (+2.9%) due to LGS providing air traffic control for military airports, and in 2022 more staff were allocated to Terminal activities for that purpose;
    - Higher other operating costs (+2.5%) also due to the transfer of costs between the En Route and Terminal parts in accordance with the ABC costing method;
    - Slightly higher depreciation (+1.0%) due to commissioning of several large CAPEX projects that were launched prior to the COVID crisis;
    - Significantly higher cost of capital (+10.6%). As for the en-route part, this can be explained by the fact that a number of investments were commissioned slightly earlier than planned, resulting in higher costs.

    Actual unit cost incurred by the users (AUCU) (PI#1)

    AUCU components (€/SU) – 2022
    Components of the AUCU in 2022 €/SU
    DUC 161.51
    Inflation adjustment 7.10
    Cost exempt from cost-sharing 2.67
    Traffic risk sharing adjustment 13.38
    Traffic adj. (costs not TRS) 2.72
    Finantial incentives 0.00
    Modulation of charges 0.00
    Cross-financing 0.00
    Other revenues -14.26
    Application of lower unit rate 0.00
    Total adjustments 11.60
    AUCU 173.12
    AUCU vs. DUC + 7.2%
    Cost exempt from cost sharing by item - 2022 €'000 €/SU
    New and existing investments 71.3 2.21
    Competent authorities and qualified entities costs 15.0 0.46
    Eurocontrol costs 0.0 0.00
    Pension costs 0.0 0.00
    Interest on loans 0.0 0.00
    Changes in law 0.0 0.00
    Total cost exempt from cost risk sharing 86.3 2.67
    Focus on AUCU

    The actual terminal unit cost incurred by airspace users (AUCU) in respect of activities performed in 2022 (174.54 €) is +8.1% higher than the nominal DUC (161.51 €). The difference between these two figures (+13.02 €/SU) is due to:
    - the positive inflation adjustment resulting from higher than planned inflation (+7.10 €/SU);
    - the impact of adjustments resulting from the costs exempted from cost-sharing mechanism (+4.09 €/SU);
    - the addition of the traffic risk sharing adjustments (+13.38 €/SU);
    - the addition of the traffic adjustment (+2.72 €/SU) for the costs not subject to traffic risk sharing; and
    - the deduction of the other revenues (-14.26 €/SU).
    The share of the regulatory result in the AUCU (before the deduction of other revenues) is 4.0%.

    Regulatory result (RR)

    Focus on regulatory result

    LGS net gain on activity in the Latvia terminal charging zone in the year 2022

    LGS reported a net loss of -0.3 M€, as a combination of a loss of -0.03 M€ arising from the cost sharing mechanism, with a loss of -0.2 M€ arising from the traffic risk sharing mechanism.

    LGS overall regulatory results (RR) for the terminal activity

    Ex-post, the overall RR taking into account the net loss from the terminal activity mentioned above (-0.3 M€) and the actual RoE (+0.5 M€) amounts to +0.2 M€ (4.2% of the terminal revenues). The resulting ex-post rate of return on equity is 2.4%, which is lower than the 5.0% planned in the PP.

     
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