The federal cabinet which is scheduled to meet today with prime minister in the chair, will consider a plan to outsource major airports of Pakistan, official sources told Business Recorder.
The federal cabinet on Oct 29, 2019 directed the Aviation Division to share the "expression of interest" invited by them in the recent past, with Board of Investment(BoI), with a view to see whether the proposed incentive structure was appropriately attractive for foreign investors. The task shall be completed within two weeks."
In compliance with the cabinet decision, the expression of interest for the grant of concession i.e. Operation, Management and Development Agreement (ODMA) and "Airport Services License" (ASL) were shared and discussed by the aviation minister with BoI chairman on Nov 21, 2019. It was informed that during Feb 2017 to Feb 2018, the plan was advertised four times. Several reputed international airport operators had showed their interest, however, main concern raised by bidders was on the issuance of a "sovereign guarantee from the GoP, in lieu of payment obligations of M/s Pakistan International Airlines Corporation Limited." However, because of sovereign guarantee condition none of the bids could materialize.
A joint working group (JWG) was subsequently constituted, consisting of representatives from BoI and Aviation Division to re-examine the process and mechanism of outsourcing of airport services of major airports of Pakistan.
JWG in its initial meeting discussed the following benefits of outsourcing ;(i) international experience and expertise to fully exploit commercial potential of the Islamabad International Airport Pakistan. Accordingly, the commercial concession of airport duty free shops, restaurants, commercial outlets and all allied non-aeronautical services will also become comparable to any leading international airport; (ii) the good will of international operator will ensure operation and management of aeronautical and non-aeronautical assets, airline operations etc. in accordance with the best industry practices and; (iii) investment in aviation sector will restore the confidence of private investors in related commercial ventures and generate number of job opportunities for qualified unemployed youth.
After deliberations, the JWG decided to proceed as follows; (a) prepare RFP to outsource the CAA Airport Services functions at passenger terminal building (at JIAP, AIIAP, IIAP) to world class airport operators under a license; (b) the RFP to include utilization of land for aeronautical and non-aeronautical purposes as per CAA Land Lease Policy 2019 and in line with PPRA rules; (c) CAA to get RFP vetted from a reputed financial consultancy firm; (d) summary to be submitted to the prime minister / cabinet for approval before advertising in press for award of concessions in CAA revenue interest; (e) Islamabad airport has the potential to double its existing annual passenger traffic to 09 million which is sizeable traffic to attract investment, therefore, Islamabad airport shall be considered as the model airport. The commercial concessions at Lahore and Karachi airports are already outsourced for a period of up to 5 years.
The RFP was accordingly developed and was vetted through M/s PricewaterhouseCoopers (PWC) and M/s ABS (financial and legal consultants respectively).
After several meetings, the agreed upon position of JWG is as follows; (i) Airport Services License (ASL) of airports owned and operated by PCCA is mainly dependent upon a viable plan for realization of PIA receivable of PIA and loss of business opportunities. Due to this reason, all earlier attempts in this regard had failed. At IIAP Islamabad, AIIAP Lahore and JIAP Karachi, PIA contributes approximately 24 percent of PCAA's aeronautical revenues and 7.5 percent of non-aeronautical revenues. The contribution in total share of PIA at the three airports is 21 per cent. PCAA's total loss of revenue with respect to PIA at these airports is Rs 14.6 billion per annum; (ii) Master Retailers (MR) & Master Advertisers (MA) is considered as appropriate option to commercially exploit in terminal concession at Islamabad airport; (iii) exploitation of land parcels at Islamabad as per CAA land lease policy 2019 is also recommended, keeping in view the current ground realities and; (iv) potential of MR and MA has a reserve price of Rs 13.75 billion for 10 years, while for initial land parcel is Rs 16.82 billion for 52 years.
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