ISLAMABAD: The Aviation Division is to outsource three airports on Public Private Partnership (PPP) mode, after the Economic Coordination Committee (ECC) of the Cabinet agreed that this does not fall in the scope of Privatisation Commission Ordinance, 2000, well-informed sources told Business Recorder.
Initially, the proposal was discussed on March 28, 2023 on the basis of a summary of March 17, 2023. The item was deferred with the following directions: (i) Secretaries, Aviation Division, Ministry of Privatisation and Ministry of Law & Justice shall meet to bring clarity as to whether outsourcing of airports can be undertaken within the scope of Public-Private Partnership (PPP) Act, 2017; and (ii) possibility of payment of milestone fee by the successful concessionaire at the close of transaction instead of Pakistan Civil Aviation Authority (PCAA) may be checked with International Finance Corporation (IFC)
On March 30, 2023, Ministry of Aviation noted that as to the first direction, neither the Ministry nor the directions of the Prime Minister of December 30, 2022 or previous directions of the Federal Government were in favour of privatisation of the targeted airports.
Hence, this project was never intended to be dealt with under the Privatisation Commission Ordinance, 2000. Instead, the consistent view had been that a suitable private investor/airport operator may be engaged through a competitive and transparent process to run the airports, develop appertaining land assets and enhance avenues for commercial activities in such a way that their full revenue potential was realized.
As a larger part of these revenues would eventually be transferred to the PCAA, therefore, it would lead to an increase in its revenues. For this purpose, the investor/operator was expected to take entrepreneurial risk and make sizeable investment into improving airport infrastructure as well as to leverage potential of appertaining lands to the maximum extent.
This was especially true for Karachi and Lahore airports which were old and required substantial improvements.
On the other hand, it was also understood that most of the functions being undertaken, including collection of various fees and charges, and services being presently provided by PCAA at these airports, would be handed over to the investor/operator, the sources quoted Aviation Ministry as saying in the summary.
With the additional investment and induction of private entrepreneurship, it was expected that passengers’ experience would improve significantly. The Ministry added that these views were in line with the international better practices and experience.
Ministry of Aviation apprised that all of these objectives neatly fit into the scope and various specific provisions of the Public-Private Partnership Authority Act, 2017, which were more comprehensive and fully covered the envisaged scope and requirement of outsourcing of airports.
It was also highlighted that section 14A of the Public-private partnership Authority Act, 2017 was an over-riding provision which allows any implementing agency to enter into public-partnership arrangements notwithstanding anything contrary contained in any other law for the time being in force including the above provision of Privatisation Commission Ordinance, 2000
Regarding second observation of the ECC, Ministry of Aviation informed that IFC had been consulted and they had clarified that it would not be possible for them to delay the payment against milestone fee till the end of the transaction.
However, IFC did agree that as suggested by ECC entire milestone fee paid by PCAA could be recovered from the concessionaire at the time of award of concession as in case of success fee. This would result in no cost for the PCAA.
Ministry of Aviation sought approval of the ECC to the proposal as contained in summary of March 17, 2023 reproduced as: “The PCAA Board approved the presented draft Transaction Advisory Services Agreement (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 outsourcing of the operation of three target airports from Pakistan side.
The Aviation Division further stated that in view of 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 the true monetary benefits from outsourcing of 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 shall be placed before the ECC for their information and concurrence.”
Copyright Business Recorder, 2023
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