The federal cabinet has reportedly put outsourcing of airports on pause till clearance by the Steering Committee headed by the Finance Minister, well-informed sources informed the news.
On August 29, 2023, the Aviation Division gave a detailed presentation to the Cabinet on outsourcing the International Airport of Islamabad to private stakeholders.
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Privatizing Islamabad Airport for 15 Years:
It was explained by the ministry that the private sector participation in airports’ operations was an established and successful international practice for improvement in the quality of services, unlocking a new potential to earn more revenue and also attracting investment from other entities.
Islamabad Airport to be outsourced for 15 years: Government
The Cabinet Meeting also talked about that worldwide privately-operated airports accounted for 40% of global air traffic; that 40 of the highest revenue-earning airports were based on a partnership of public-private model and that B major airports of India (including Delhi, Mumbai, Bangalore, Hyderabad etc) were leased out as public-private hybrid partnership projects.
It was explained in the meeting that several options were explored, and efforts were made in the last few years, but outsourcing of Islamabad, Lahore, and Karachi airports could not be materialized due to some issues.
Fresh efforts were initiated in December 2022 and after much participation of the government, it was decided to steer this effort within the framework of the Public-Private Partnership Authority Act 2017, through an international competitive process.
The aim was to come up with a private partner to design, build, rehabilitate, finance, operate, and maintain the Air terminal and after the termination of the concession, transfer it back to the Pakistan Civil Aviation Authority (PCAA).
It was also added in the meeting that this would be the first public-private partnership project in the aviation sector of Pakistan. After Islamabad, this model is likely to be implemented in the Aviation hubs of Karachi and Lahore.
IFC Appointed as Advisor for Airport Outsourcing
The cabinet was informed that the International Finance Corporation (IFC), a member of the World Bank Group, was appointed as transaction advisor on April 11, 2023, under the Public Private Partnership Act, 2017, after seeking approval from the federal cabinet.
Describing the features of the Islamabad International Airport, it was presented that the Islamabad International Airport had emerged as a hub for PIA and was already the second busiest airport in Pakistan, after Karachi. It was relatively new and was built in 2018 with no major legacy issues, and mainly for this reason it was decided that the outsourcing shall start from Islamabad.
Aviation Division also added that a Steering Committee, under the Minister for Finance, was earlier set up to oversee and guide the outsourcing of the project.
As Islamabad had no major legacy issues, it was decided to proceed with Islamabad Airport first, which will then be followed by Lahore and Karachi Airbases. It was further informed that this committee had decided to keep the concession period at fifteen years.
Concession Fees and Cultural Considerations
The concession fee would comprise an upfront payment of $100m and a variable component. It was informed that the committee also approved salient features of the concession and state support agreement.
It was explained that the transaction structure was approved by P3A on July 26, 2023, by CDWP and ECNEC on August 4, 2023, and the state support agreement was approved by the Federal cabinet on August 9, 2023.
The Minister for Culture and National Heritage suggested that our infrastructures were the showcases of national culture and being mindful of the cultural heritage our airports should have the depiction of Pakistan’s culture in them.
It was added that as far as the projected CAA revenue shares over the concession period were concerned, 48% of total airport revenues were outside the PPP project scope and would continue to accrue to PCAA directly (navigation, taxiway, baggage).
It was also informed that the approved transaction structure was based on a combination of upfront and variable fees.
With an upfront fee of $100m, more than half of revenues falling in the project scope would be transferred to PCAA. Over a fifteen-year period, variable fee accruing to PCAA was estimated at $1360mn in nominal terms and $598 m in NPV terms – actual value would depend on bids. The net value for money of the project was estimated at $214mn.