CAA to be split into two regulators

ISLAMABAD: The federal government is likely to constitute two regulatory bodies to segregate regulatory and operational functions of Civil Aviation Authority (CAA) meant to outsource operations of country’s major airports, well informed sources told Business Recorder.

This plan was finalized by a committee headed by Prime Minister Advisor on Commerce and Investment, Abdul Razak Dawood, Minister for Aviation, Adviser to the Prime Minister on Parliamentary Affairs, Special Assistant to the Prime Minister on OP&HRD, Chairman Board of Investment and Secretary, Aviation Division.

The model will be submitted to the federal cabinet during third week of the current month after which further process will be initiated.

The main Authority (regulator) will deal with the regulatory functions whereas the Special Purpose Vehicle (SPV) will deal with services of airports through necessary legislation. In the present law, there is no provision to establish SPV to deal with airport services.

In May this year, federal cabinet had constituted an inter-ministerial committee with the direction to submit its recommendations by June 30, 2020. The committee held four meetings to evolve consensus on the recommendations but failed to meet the deadline set by the cabinet.

“As the federal cabinet clears the recommendations, Financial Advisors (FAs) will be appointed which will submit different models which are already working in different countries,” the sources added.

Regulator will perform its own specified functions but the second body will establish one or more companies to place one or more airports under it for outsourcing, leasing or joint venture.

“One proposal is that the three major airports i.e. Islamabad airport, Lahore airport and Karachi airport be placed under one company,” the sources said, adding that the best option will be presented by the FAs.

The terms of employment for airports’ employees will remain the same and they will enjoy existing perks and privileges. The country’s 42 airports will be placed under the administrative control of SVP which will prepare utilization of airports in consultation with the consultants.

The proposal by the Qatar government, floated last year is almost dead as no further progress is witnessed on this issue due to lack of interest on both sides.

On October 29, 2019, the Cabinet had directed the Aviation Division to share the “expression of interest” invited by them in the recent past, with the Board of Investment, with a view to see whether the proposed incentive structure was appropriately attractive for foreign investors. The task shall be completed within two weeks’ time.

In compliance with the Cabinet Decision’s instructions, expression of interest for the grant of concession i.e., “Operation Management and Development Agreement” (OMDA) and “Airport Services License” (ASL) were shared and discussed by the Minister for Aviation with Chairman Board of Investment (Bol) on November, 21, 2019. In February, 2017 to February, 2018 the proposal 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 Government of Pakistan, in lieu of payment obligations of M/s Pakistan International Airlines Corporation Limited”. Because of this none of the bids could materialize.

A Joint Working Group (JWG) was subsequently constituted, consisting of representatives from BOI & Aviation Division, to re-examine the process and mechanism of outsourcing of airport services of Major Airports of Pakistan. The 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, a commercial concession of 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 best industry practices; duty free shops, restaurants, commercial outlets and all allied non-aeronautical services will also become comparable to any other leading international airport 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: (i) prepare RFP to outsource the CM Airport Services functions at Passenger Terminal Building (at JIAP, AIIAP, IIAP) to world-class airport operators under a license;(ii) 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;(iii) CM to get RFP vetted from a reputed Financial Consultancy Firm;(iv) summary to be submitted to the Prime Minister / Cabinet for approval before advertising in press for award of concessions in CAA revenue interest;(v) 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 sources said, 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 following was agreed upon by the JWG: (i) Airport Services License (ASL) of airports owned and operated by PCAA is mainly dependent upon a viable plan for realization of PIA receivables and loss of business opportunity. Due to this reason, all earlier attempts in this regard had failed. At IIAP Islamabad, AIIAP Lahore and JIAP Karachi, PIA contributes approximately 24% of PCAA’s aeronautical revenues and 7.5% of non-aeronautical revenues. The contribution in total revenue share of PIA at the three airports is 21%. PCAA’s total loss of revenue with respect to PIA at these airports is Rs 14.6 billion per annum;(ii) Master Retailer (MR) & Master Advertiser (MA) is considered as appropriate option to commercially exploit in Terminal Concession at Islamabad Airport;(iii) exploitation of land parcels at Islamabad as per CM Land Lease Policy 2019 is also recommended, keeping in view the current ground realities;(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 50 years.

According to sources, large investments are usually accompanied by credible expert operators. This would be more in line with the spirit of the Cabinet’s decision to modernize the airport services at par with international standards and not just generate revenue through outsourcing commercial areas.