Transparency International eyes violations in outsourcing process of Pakistan’s major airports

Transparency International Pakistan

KARACHI – Transparency International Pakistan Chapter has written a letter to Director General, Civil Aviation Authority (CAA) warning him against the violation of Public Private Partnership (PPP) Act while engaging International Finance Corporation (IFC) in the outsourcing of Operation and land assets at three major airports of the country.  In its letter No- TIP 2023/0418/1A dated April 18, 2023, the watchdog said.

The appointment of IFC as an advisor on an unsolicited basis and without open competition is a violation of the Public Private Partnership Authority Act 2017, 2022 (amendment) and Regulations 2023 and can potentially cause loss to the national exchequer.  The letter further said, “The IFC will get $6 million as success fee on completion of outsourcing of three airports, $2 million fragmented against each airport”.

Interestingly in 2022, Pakistani airports generated about Rs. 90 billion, while over the next 30 years, the airports had the potential of generating more than Rs. 2,700 bn and yet the outsourcing is taking place at Rs850bn.  The complainant alleged that on March 30, 2023, the federal government kicked off the outsourcing of operations and land assets at three major airports including Karachi, Lahore and Islamabad to be run through a public-private partnership with a foreign country to generate foreign exchange reserves. The government has engaged the World Bank’s private-sector financing arm, International Finance Corporation (IFC), as an advisor for the outsourcing process against the principles of Transparency, and PPP Act 2017.

Transparency International Pakistan has reviewed the allegations of the complainant, and prima facie, the allegations seem to be correct.  On 29th March 2017, the federal government enacted The Public-Private Partnership Authority Act, 2017. Chapter III, clause (d) requires the implementing agency to follow a competitive bidding process, as quoted below: Chapter III: Functions of the Implementing Agency and Government Support (d) – “procure a project only through a competitive bidding process as prescribed”.

However on 1st September 2022, the National Assembly Secretariat vide No.F.22(62)/2021-Legis.- enacted Public Private Partnership Authority (Amendment) Act, 2022. In the said Act, after section 30, sections 31 and 32 were added, Section 31 is quoted below:

Clause 31: Hiring of consultants and experts.-Notwithstanding anything contained in the Public Procurement Regulatory Authority Ordinance, 2002 (XXII of 2002), any rules and regulations made thereunder or any similar laws, the Board may, by regulations, prescribe the manner, method and procedures for the hiring of transaction advisers by implementing agencies in connection with public-private partnership projects or certain classes thereof, and such prescribed conditions. once notified, shall govern the hiring of consultants by implementing agencies for providing such transaction advisory services to the extent prescribed therein, including with respect to the direct contracting of international financial institutions as transaction advisers for certain public-private partnership projects or classes of public-private partnership projects, to the extent and on such terms and conditions as prescribed therein. On 6th January 2023, the federal government vide S.R.O. 04 (I)/2023 notified The Public Private Partnership Authority (Direct Contracting of IFIs as Transaction Advisers) Regulations, 2023.

But according to part II (6) (3), the federal government is to conduct the selection process through open competition. Clause 6 Selection of IFI as Transaction Adviser (3): In the event more than one IFI is eligible to perform or render the services, the implementing agency shall require such IFIs to provide relevant information within a period of ten days from the issuance of such request (in this case, only those IFIs that provide the required information within this stipulated time frame shall be eligible for further consideration.  It is known that IFC is not the only IFI which has experience as Transaction Adviser, and it is mandatory that the Ministry of Privatization shall have contacted all IFI’s for this project.

On 31st January 2023, during the 38th meeting of the Board of Directors of Sindh Public Procurement Regulatory Authority (SPPRA) deliberated on the amendments in SPP Rules, 2010 to allow direct contracting with IFIs or Multilateral  Development Banks for the Development of PPP Project, and decided, “The Board, after threadbare discussions, concluded if the proposed amendment is approved, then it will open floodgates for procuring agencies to hire services of IFIs through direct contracting without open competitive bidding which is against the spirit of the SPP Rules 2010 as it is enacted for regulating public procurement of goods, services and works in the public interest.

TI Pakistan requested the DG Aviation to examine the allegations of the complaint in light of The Public Private Partnership Authority Act Regulations, 2023 and if found correct issue directives to the concerned departments to ensure compliance with PPP Act Regulations2023 and issue an open tender for the selection of IFI as Transaction Adviser in Outsourcing of Operations and Land Assets at Three Major Airports. DG Aviation must also ensure that the proper competitive and transparent process is adopted in the Outsourcing of Operations and Land Assets at Three Major Airports, to avoid a loss to the national exchequer.