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House of Lords Hansard
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National Air Traffic Services Ltd: Regulatory Regime
23 January 2001
Volume 621
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asked Her Majesty's Government:Whether they have received advice from the Economic Regulation Group of the Civil Aviation Authority on the economic regulatory regime for the public/private partnership for National Air Traffic Services Ltd. [HL456]

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The monopoly services provided by the National Air Traffic Services Ltd public/private partnership will be subject to price regulation by the RPI-X method, which is the standard model for monopoly regulation in the United Kingdom. The charge cap, or "X" factor, will be set for a period of five years and will, for the first five-year period only, be set by the Government.We received advice from the CAA in August which set out how it proposed to approach the economic regulation of NATS and recommended that the "X" factor for NATS' UK monopoly services be set at 5 per cent per year for each of the first five years. We have considered this advice carefully, alongside representations from NATS and the projections of bidders as the sale process developed, and have decided to set charge capping at 2.2 per cent for 2001, 3.0 per cent for 2002, 4.0 per cent for 2003, and 5.0 per cent for each of 2004 and 2005. There will thus be a progressive tightening across the initial years following the introduction of the PPP.Furthermore, since delays are a major concern to airlines, we have decided that the charge cap should include a delay term, so that the "X" factor will automatically tighten, thereby reducing NATS' revenues, if delays increase beyond their present level. We are setting the maximum delay term at £2 million per year for 2001–02, and £5.7 million per year for 2003–05.The CAA's advice on the charge cap was based on a well-considered and comprehensive analysis of NATS' operational and investment plans and the potential for efficiency savings. And we are satisfied that the advice fully reflected the Government's, and the CAA's, commitment to giving the highest priority to safety.In reaching our decision, we have been concerned to achieve a smooth transition to the PPP, which we believe will be encouraged by such price control in its first few years. This will better enable NATS' management to focus on getting the change and investment programmes right during the early years of the PPP, including the commissioning of the Swanwick Centre, the development of the new Scottish Centre, and further investment in the capacity wanted by airlines.NATS' management accept that efficiency gains of the level required to meet the charge cap we are setting, whilst challenging, are achievable without detriment to NATS operations.