Govt begins outsourcing of three major airports

Published March 31, 2023
A view of the Allama Iqbal International Airport, seen from the window of an aeroplane in Lahore, Pakistan March 23, 2023. — Reuters
A view of the Allama Iqbal International Airport, seen from the window of an aeroplane in Lahore, Pakistan March 23, 2023. — Reuters

ISLAMABAD: The government on Thursday kicked off outsourcing of operations and land assets at three major airports to be run through a public-private partnership, a finance ministry statement said, a move to generate foreign exchange reserves.

The Economic Coordination Committee (ECC) has approved the hiring of the International Finance Corporation (IFC) — the private sector arm of the World Bank Group — as a transaction adviser to outsource Karachi, Lahore and Islamabad airports to the private sector for at least 25 years.

The committee’s meeting, presided over by Finance Minister Ishaq Dar, deferred a summary submitted by the power division on implementing an agreement signed between the government and K-Electric on the pending issue of payment of duties and taxes. It also approved a series of supplementary grants, mostly for political schemes, under the Sustainable Development Goals (SDGs).

“The outsourcing of three airports has been initiated within the scope of public-private partnership … to engage private investor/airport operator through a competitive and transparent process to run the airports, develop appertaining land assets and enhance avenues for commercial activities and to garner full revenue potential,” the ministry said.

ECC allows appointment of World Bank’s IFC as adviser for the transaction

Officials said there had been a difference of opinion among cabinet members over the appointment of IFC for outsourcing airports that whether this should go through the privatisation process under the privatisation law or through the public-private partnership law.

The federal cabinet decided in December that outsourcing the operation of these three airports would be completed expeditiously by engaging leading international financial institutions under the Public-Private Partnership Authority (P3A) Act.

The act provides for hiring an international financial institution as a transaction adviser through direct contracting with the approval of the P3A’s board.

The Civil Aviation Authority (CAA) contacted many institutions but only the World Bank’s IFC agreed to advisory service and finally reached an agreement for a transaction adviser early this month for a fee of about $4 million.

To clarify the situation, a ministerial committee told the ECC that there had been no decision in the past about privatising these airports and therefore it was never considered under the privatisation law.

The committee was informed that the outsourcing of the three airports had been initiated to find a suitable private sector airport operator through a transparent, competitive process to run the airports, develop appertaining land assets, enhance avenues for commercial activities to realise the true revenue potential of these vital assets and subsequent revenue transfer to the CAA and improve passenger service and satisfaction.

The option was suitable under the P3A law for commercial transactions between an implementing government agency and a private party. Some neighbouring countries, particularly Middle Eastern parties, had shown interest in taking over the airports.

Based on these considerations, the ECC allowed the hiring of the IFC to prepare a transaction structure under the public-private partnership mechanism against fees linked to various transaction milestones, which could be subsequently recovered from the concessionaire at the time of awarding the concession, as in the case of success fee to avoid any cost to the CAA.

The committee also approved three summaries of the petroleum division for the declaration of commerciality and field development plan over Hilal and Iqbal discoveries to Mari Petroleum Company Ltd, second two-year renewal over Kirthar exploration licence block to Polish Oil and Gas Company Ltd from Aug 28, 2022, and extended well testing over Ghazi-1 discovery to Mari Petroleum.

The meeting also approved about Rs7.3bn worth of three supplementary grants, including Rs607.6 million to power division development schemes in Sindh, Rs1.69bn to the Ministry of Housing and Works for development schemes under SDGs Achievement Programme in Khyber Pakhtunkhwa and Sindh, and another Rs5bn to the housing ministry for executing development schemes in the erstwhile Federally Administered Tribal Areas.

Published in Dawn, March 31st, 2023

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