ISLAMABAD: The government approved an advisory service agreement with a World Bank Group arm on Thursday to hand over operations of three of Pakistan’s international airports to a foreign country, pledging political support to complete the deal as soon as possible.
According to a Ministry of Finance handout, the Economic Coordination Committee (ECC) of the Cabinet approved the draft Transaction Advisory Agreement (TASA) reached by Pakistan Civil Aviation Authority (PCCA) with the International Finance Corporation (IFC) to outsource three airports.
The draft agreement, on the other hand, appears to favor the IFC due to safeguards provided in the form of penalties in the event that Pakistan decides to terminate the contract.
The ECC endorsed the same terms to which it had objected four days earlier after the IFC, a member of the World Bank Group, refused to apply its advisory fee toward the transaction’s completion. The fee will be paid based on the completion of various milestones. Furthermore, if Pakistan decides to terminate the service agreement at any point, it will be subject to penalties.
Pakistan has agreed to pay the IFC fees based on the achievement of milestones. The IFC will receive $200,000 upon submission of the inception memo and another $300,000 upon submission of a draft technical report on three airports. A total of $200,000 will be paid upon submission of the transaction structure, with an additional $300,000 paid upon request for proposal and bid evaluation. The IFC will receive a success fee of $6 million upon completion of the outsourcing of three airports, with $2 million allocated to each airport.
According to the draft, Pakistan will pay interest rates of 0.1% above the Federal Reserve Bank of New York benchmark rate for failing to pay the IFC’s due fee on time. Some ECC members objected to endorsing the IFC-favored transaction advisory agreement, according to sources, but the ECC overruled those objections and allowed the PCCA to sign the agreement.
According to the draft agreement, if Pakistan terminates the agreement after its execution but before the delivery of the Transaction Structure Report, it will pay the IFC $1.5 million in penalties.
It will pay a $1.8 million penalty for three failed deals if the termination occurs after the presentation of the transaction structure report but before the delivery of the final request for proposal. If the agreement is terminated after the final request for proposal is delivered, Pakistan will pay the IFC a $2.4 million termination fee.
According to the finance ministry, the ECC has been informed that the outsourcing of the three airports has begun in accordance with the Public-Private Partnership Act-2017 (PPPA 2017) in order to engage private investors and airport operators through a competitive and transparent process. This will enhance avenues for commercial activities and maximize revenue potential, according to the statement.
The government chose the PPPA-2017 route to expedite the transaction. The IFC has been approved to act as a transaction advisor.
Earlier this week, the ECC postponed the summary and directed the secretaries of the Aviation Division, as well as the Ministries of Privatization and Law, to meet and determine whether the outsourcing of the aforementioned airports is permissible under the PPPA 2017. It had also requested that the successful concessionaire pay a milestone fee at the close of the transaction rather than the PCAA.