The Government of Pakistan has initiated the process to delegate the operations and management of Karachi, Islamabad, and Lahore airports – with the aim of generating foreign exchange to support the economy. This development was conveyed to the National Assembly Standing Committee on Aviation by the management of the Pakistan Civil Aviation Authority (PCAA) during a meeting held on July 13.
The PCAA elucidated to the Committee that it is not relinquishing ownership of the airports, but rather conferring control over their operation and management for a specified duration. “Rest assured, no airport is being sold. This is merely a process of delegating specific activities while retaining state ownership of the asset,” declared PCCA’s spokesperson, Saifullah Khan.
The transaction to any potential bidder is set to be governed under the Public Private Partnership Authority Act (2017).
Which airport is set to go first?
The PCAA, however, did not delineate which airport is set to be outsourced first. The Committee also did not broach the aforementioned question during the meeting. Based on the meeting alone, one would surmise that all airports might be simultaneously outsourced – but that is not the case.
Media reports from last month indicate that the Government of Pakistan has opted to initially commence with the Islamabad Airport, as they have encountered practical complexities in executing the outsourcing for the Karachi and Lahore airports for now. These two are set to follow suit after the Islamabad airport has been successfully outsourced.
What does outsourcing an airport mean?
Outsourcing control of airports can take many forms, but there are three main approaches: outsourcing airport services, airport concession and lease agreements, and divestiture of ownership. The final option does not exist in the case of Pakistan. So what about the remaining two?
Outsourcing airport services involves the state retaining ownership and control of the airport, but contracting out specific services to private companies—such as cleaning, maintenance, or technology. For instance, the state-owned airport in Athens, Greece, outsourced its ground handling services to Swissport, a private company. This approach enables the state to retain overall control of the airport while benefiting from the expertise and efficiency of private companies. However, it also means that the state remains responsible for the overall management and development of the airport.
Airport concession and lease agreements involve the state transferring most of the authority and control of the airport to a private enterprise for a long period of time—while imposing regulatory conditions to protect the public interest. The private enterprise pays a royalty to the state for using its assets. An example of this is the 30-year concession agreement between the Brazilian government and the private consortium Invepar-ACSA for the operation and expansion of São Paulo-Guarulhos International Airport. This approach allows for greater private sector involvement in the management and development of the airport while still ensuring some level of public oversight. Nevertheless, it also means that the state has less direct control over the operations of the airport.
Which form of outsourcing is Pakistan taking again?
The initial meeting, chaired by Prime Minister Shehbaz Sharif on 31st December 2022, envisaged a twenty-year arrangement between the Government of Pakistan and the party that wins the tender for the airport. Based solely on the duration of the transaction, it is likely that the agreement will be arrangement number two.
Furthermore, looking back at the transactions involving the terminal at berths 6-9 on Karachi Port – a concession agreement was agreed upon both times: with PICT in 2002, and more recently with Abu Dhabi Ports Group last month.