Regulatory, airport service functions: Body sets aside MoD's security concerns

ISLAMABAD: Setting aside the security concerns of Ministry of Defence (MoD), a cabinet committee headed by Prime Minister's Advisor on Commerce and Investment, Abdul Razak Dawood has decided to incorporate two authorities i.e. for regulatory and airport services functions, with enabling provisions to have subsidiaries under the Companies Act, 2017, well-informed sources in Civil Aviation Authority told Business Recorder.

Sharing details, the sources said that on May 19, the federal cabinet considered the summary initiated by Aviation Division on "outsourcing of major airports of Pakistan" and directed that the segregation of regulatory and operational functions of the CAA should be completed, along with the two draft legislations, by June 30, 2020. The Cabinet also constituted a six-member committee under the convenership of Abdul Razak Dawood to evaluate various available options, while keeping in view segregation of regulatory and operational functions of the Authority, for outsourcing of the major airports and recommend the way forward.

Prime Minister Advisor on Institutional Reforms and Austerity, Dr. Ishrat Hussain was the convener whereas, Prime Minister Special Assistant on Parliamentary Affairs, Babar Awan, Chairman, Board of Investment and Secretary Civil Aviation Division were the members of the committee.

The Cabinet Committee has held six meetings to discuss and deliberate on separation of the regulatory functions from service provider and corporatization of airports to invite the foreign investors to invest in airports. Cabinet Committee was apprised that a Change Management Committee (CMC) was constituted in July 2019 for segregation of the Authority on the basis of regulatory and commercial /operational functions. The CMC had proposed segregation of PCAA in two phases: initially the functional separation to be carried out within the Organization, and in second phase the organizational separation of the Authority into two entities to take place by establishing Regulatory body and a Services body and ensuring uninterrupted operations at the Airports and resolution of potential impediments that may arise post segregation of PCAA.

Representative from Privatization Commission suggested that instead of making a single company for different airports, it may be suitable if a company is incorporated for each airport separately. Further, if the Committee suggests appointment of a Financial Adviser for privatization of airports, the same needs to be processed through the Privatization Commission. Addressing the same, Secretary Aviation clarified that the main objective of the Committee is structural reforms of the PCAA and to prepare a way forward and attract the investors to development of services at airports and to strengthen the regulatory functions of the state by segregating it from the Service Providers. The committee initiated its proceedings with consideration of various models for outsourcing of airports. The different models of airports outsourcing across the world were shared with the committee for investment and concession fee respectively, for which draft rules have already been prepared by the PCAA. One of the models involved the inclusion of provision to transfer of assets to corporate entities incorporated for operating airports for which legislative and policy change is required; whereas another required incorporation of company by PCAA that would operate airports under airport operator licence. The committee was further informed that drafts for two legislative bills have been prepared by PCAA within the timeline - one bill shall replace the existing CAA Ordinance 1960 while strengthening the scope of Regulatory body in accordance with the international commitments as a contracting state of ICAO and the second bill shall propose amendments to the CAA Ordinance 1982 to establish a standalone regulator by excluding airport services and air navigation services.

It was also deliberated that a single legal instrument may be prepared amalgamating the provisions and laws defined in both the ordinances i.e. 1960 and 1982. However, considering that the law constituting an authority or the national point of contact with reference to the international treaties is to be covered by a standalone law and state obligations are to be defined in another law to outline the scope of services with provision to incorporating a corporate entity under Companies Act 2017, the committee agreed to the two separate legal instruments.

While it was agreed in the initial meetings of the committee that regulatory functions shall be entrusted to an authority; the structure for service provider entity remained under discussion. It was decided by the committee that an audit firm shall be engaged to devise proposals on the corporate structure of services entity. It was agreed that RFP/EoI shall be prepared in collaboration with Chairman Board of Investment.

The Cabinet Committee was also informed about the Lahore High Court decision of November 6, 2018 on the aspects of outsourcing of airports; the court had limited the scope of outsourcing of airports to provision of airport services from car park to terminal building only. The decision of Supreme Court of Pakistan of February 19, 2020 also came under discussion whereby it was directed that "no land around Jinnah International Airport, Karachi will be used for any commercial exploitation..."

The Cabinet Committee after having detailed deliberations and considering the concerns raised by the Ministry of Defense / PAF, the employees' grievances on security of terms and conditions and keeping in view the fact that only four airports are profitable, decided with consensus that two authorities shall be incorporated i.e. for Regulatory and Airport Services functions, with enabling provisions to have subsidiaries under the Companies Act, 2017. It was also agreed that the Air Navigation Services and Flight Operations shall always remain a fully owned subsidiary under the State / Authority.

The Committee while considering the categories / status of airports agreed that there may be a need to incorporate three subsidiaries. One subsidiary may have three commercially viable airports i.e. JlAP, AIIAP and MAP which may be considered initially for outsourcing / inviting international investments; the second subsidiary shall have medium level airports requiring private sector exposure for development; and the third one shall have airports established for socio-economic purposes for which government may offer a subsidy for operations.

Copyright Business Recorder, 2020