Three airports: ECC all set to reconsider engaging IFC as transaction adviser

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet is all set to reconsider Aviation Division’s summary on engagement of International Finance Corporation (IFC), an arm of World Bank, as Transaction Advisor for outsourcing of airports (Islamabad, Karachi, Lahore) on Thursday (today).

Aviation Division, in its summary to the ECC, noted that in view of international better practices, the federal government has been considering various options to outsource the operation of major airports in Pakistan with the aim of effecting an improvement in passenger service and optimizing the realization of their revenue potential for the last few years.

In this regard, the federal cabinet conveyed various decisions, and in compliance with these, inter alia, Expression of Interest (EoI) was also invited to hire an audit firm for preparing proposals for corporatisation of airports.

Federal cabinet also constituted committee of Ministers to oversee the entire process. However the process could not attain finality.

Govt decides to outsource topmost airports

During a meeting held on December 30, 2022, the Prime Minister, inter alia directed that outsourcing of the operation of three airports viz. Karachi, Lahore and Islamabad, shall be completed expeditiously by engaging a leading International Financial Institution (IFI) under the Public-Private Partnership Authority Act, 2017.

Section 31 of the Act ibid read with regulation 5(2) of the Public-Private Partnership Authority (Direct Contracting of IFIs as Transaction Advisers) Regulations, 2023 provides for the hiring of an IFI as a Transaction Advisor through direct contracting subject to the approval of Public-Private Partnership Authority Board.

Accordingly, after due consideration of a request from the Pakistan Civil Aviation Authority (PCAA), the Public-Private Partnership Authority Board allowed them to directly engage an IFI as Transaction Advisor for outsourcing the operation of three airports on January 11, 2023.

Subsequently, the PCAA engaged with all IFIs eligible for direct engagement as Transaction Advisors under the Regulations.

However, only IFC, a part of the World Bank Group, indicated their interest. They were asked to share their experience and other credentials which were evaluated against the selection criteria approved by the PCAA Board and were considered as qualified to work as transaction advisor. In terms of regulations 6 and 7 of the Regulations, the PCAA Board allowed the PCAA to negotiate with the IFC for settling the terms of their engagement.

The sources said, after protracted negotiations and giving due consideration to the views of Ministry of Finance, Federal Board of Revenue and Ministry of Foreign Affairs, a draft Transaction Advisory Agreement (TASA) was reached with the IFC which was presented before the PCAA Board in its meeting held on March 2, 2023.

The PCAA Board approved the presented draft TASA subject to legal vetting by the Ministry of Law and Justice. At the same time PCAA Board observed that since the TASA is based on success fee model with penalties for failure to proceed with the transaction on the part of the client, there is a need for strong political commitment for the outsourcing of the operation of three target airports from Pakistan side.

Aviation Division informed the ECC that in view of the past experience a clear demonstration of such a commitment will also be crucial not only for the completion of this process but more importantly, promoting good competition and thus fetching true monetary benefits from outsourcing of the airports.

At the same time, it will also help in building confidence of the IFC as to our adherence to the terms and conditions of TASA and payment of their fee etc. in dollar terms. For these reasons, the PCAA Board directed that the draft TASA be placed before the Economic Coordination Committee of the Cabinet for information and concurrence.

The sources maintained when the proposed draft was placed before the ECC in its last meeting some of stakeholders raised objection on the way the Aviation Division presented the summary without prior consultation as per the Rules of Business.

After hearing comments from relevant Ministries, the ECC directed Aviation Division to submit the summary after consultation with Law and Justice Division and Privatisation Division.

Copyright Business Recorder, 2023