ECC okays outsourcing of airports

ISLAMABAD:

The government on Thursday approved an advisory service agreement with an arm of the World Bank Group to hand over operations of three of Pakistan’s international airports to a foreign country, providing its political backing to conclude the deal at the earliest.

According to a handout from the Ministry of Finance, the Economic Coordination Committee (ECC) of the Cabinet approved the draft Transaction Advisory Agreement (TASA) reached with the International Finance Corporation (IFC) by Pakistan Civil Aviation Authority (PCCA) to outsource three airports.

The draft agreement, however, appears in favour of the IFC due to protections provided in the shape of penalties, in case Pakistan decides to terminate the contract.

The ECC endorsed the same old terms to which it had objected four days ago after the IFC – a member of the World Bank Group – refused to take its advisory fee towards the conclusion of the transaction. The fee will be paid on achievement of various milestones. In addition to that, if Pakistan decides to terminate the service agreement at any stage, it will have to pay penalties.

Pakistan has agreed to pay the fees to the IFC on achievement of milestones. On submission of the inception memo, the IFC will get $200,000, and on a draft technical report of three airports it will receive another $300,000. On submission of the transaction structure, $200,000 more will be paid while an amount of $300,000 will be paid on the request for proposal and bid evaluation. The IFC will get $6 million as success fee on completion of outsourcing of three airports, $2 million fragmented against each airport.

As per the draft, for failing to pay the due fee to the IFC in a timely manner, Pakistan will pay interest rates of 0.1% over and above the Federal Reserve Bank of New York benchmark rate. Sources said that some of the ECC members objected to endorsing the IFC-favoured transaction advisory agreement, but the ECC overruled those objections and allowed the PCCA to sign the agreement.

If Pakistan terminates the agreement after its execution, but prior to delivery of the Transaction Structure Report, it will pay $1.5 million in penalties to the IFC, according to the draft agreement.

If the termination occurs after the presentation of the transaction structure report, but before the delivery of the final request for proposal, it will pay a $1.8 million penalty on account of three failed deals. If termination occurs after the delivery of the final request for proposal, Pakistan will pay the IFC a termination fee of $2.4 million.

The finance ministry stated that the ECC was informed that outsourcing of the three airports has been initiated within the scope of the Public-Private Partnership Act-2017 (PPPA 2017) to engage private investors and airport operators through a competitive and transparent process. This will develop appertaining land assets and enhance avenues for commercial activities and to garner full revenue potential, it added.

The government took the PPPA-2017 route to complete the transaction on fast track. The IFC has been qualified as a transaction advisor.

Earlier this week, the ECC had deferred the summary and instructed the secretaries of the Aviation Division, and the Ministries of Privatisation and Law to meet and bring clarity as to whether the outsourcing of the said airports can be undertaken within the scope of PPPA 2017. It had also asked to explore the possibility of payment of milestone fee by the successful concessionaire at the close of the transaction instead of the PCAA.

In 2019, Qatar had shown interest in taking over the management, operation, and development of the New Islamabad International Airport, Lahore’s Allama Iqbal International Airport and Karachi’s Jinnah International Airport. The IFC informed Pakistan that it would not be possible for it to delay the payments against the milestone fee until the end of the transaction. The corporation, however, did agree that as suggested by the ECC, the entire milestone fee paid by the PCAA could be recovered from the concessionaire at the time of awarding concession as in the case of success fee. As a result, this will bear no cost for the PCAA.

As per the draft, the investor or the operator will be required to take an entrepreneurial risk and make a sizable investment into improving the airport infrastructure as well as to leverage the potential of acquiring lands to the maximum extent. Most of the functions being undertaken, including the collection of various fees and charges, and services being presently provided by the PCAA at these airports will be handed over to the investors.

Other decisions

Apart from this, the ECC approved a supplementary grant worth Rs7.3 billion to carry out politically oriented projects in Sindh, Khyber-Pakhtunkhwa, Punjab and erstwhile Federally Administered Tribal Areas. It approved Rs607.6 million in favour of the Ministry of Energy (for the execution of development schemes in Sindh).

The ECC also approved Rs1.7 billion in favour of the Ministry of Housing and Works for the execution of development schemes under the Sustainable Development Goals (SDGs) Achievement Programme (SAP) in K-P and Sindh. It also sanctioned Rs5 billion in favour of the Ministry of Housing and Works for the execution of development schemes in erstwhile FATA.

The cabinet body further approved the Declaration of Commerciality and Field Development Plan over Hilal and Iqbal discoveries in favour of M/s Mari Petroleum Company Limited (MPCL), and granted a second two-year renewal over the Kirthar exploration block license to the Polish Oil and Gas Company Limited. Additionally, the meeting granted permission of extended well testing over Ghazi-1 discovery to MPCL.

Published in The Express Tribune, March 31^st, 2023.

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