CAA to get $1.36b in upfront fee

Outsourcing of key airports to generate fee for aviation authority over 15 years

ISLAMABAD:

Pakistan Civil Aviation Authority (CAA) is expected to collect $1.36 billion in upfront fee over a period of 15 years following the outsourcing of key airports.

According to a presentation given to the cabinet last month, as far as the projected CAA share in revenues was concerned, 48% of the total airport revenues, including navigation, taxiway and baggage, over the concession period were outside of the project scope and would continue to accrue.

The approved transaction structure was based on a combination of upfront and variable fee.

With the upfront fee of $100 million, more than half of the revenues falling within the project scope will be provided to CAA.

Over 15 years, the variable fee accruing to CAA was estimated at $1.36 billion in nominal terms and $598 million in NPV terms while the actual value would depend on bids.

According to salient features of the concession agreement, the land tariff is unregulated while the air tariff will be revised by CAA every three years with 50% adjustment of cumulative inflation and the risk of remaining 50% increase will be passed on to the concession holder on expectation of operational efficiencies.

Read CAA issues new air traffic directives

The government will support the concession holder for opening and maintaining foreign currency accounts, making available foreign exchange, convertibility and transferability in order to meet foreign payment obligations.

design: Ibrahim Yahya

Presentation was also given on the outsourcing of Islamabad International Airport.

The Aviation Division, in its presentation, explained that private sector participation in airport operations was an established and successful international practice for improvement in quality of services, unlocking the airport’s revenue potential and attracting investment.

The cabinet was informed that worldwide privately operated airports accounted for 40% of the global air traffic, 40 of the highest revenue-earning airports were running on the public-private partnership model and eight major airports in India, including Delhi, Mumbai, Bengaluru and Hyderabad, were leased as public-private partnership projects.

The Aviation Division explained that several options had been explored and efforts were being made for the past few years, but the outsourcing of Islamabad, Lahore and Karachi airports could not be done.

Fresh efforts were initiated in December 2022 and after much deliberation, it was decided to steer the effort within the framework of the Public-Private Partnership Authority Act 2017 through an international competitive process. The aim was to pick a private partner to design, build, rehabilitate, finance, operate, maintain the airport and after the termination of concession, transfer it back to CAA.

It was stressed that it would be the first public-private partnership project in the aviation sector of Pakistan. After Islamabad, the model is likely to be replicated for the airports of Karachi and Lahore.

The cabinet was informed that the International Finance Corporation (IFC), a member of the World Bank Group, was appointed transaction adviser on April 11, 2023 under the Public-Private Partnership Act 2017, after seeking approval of the federal cabinet.

The IFC enjoys a rich experience in advising and supporting public-private partnership projects and has already undertaken 360 projects in 120 countries since 1989, with 40 airport-related projects since 2005.

 

Published in The Express Tribune, October 22^nd, 2023.

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