CAAB Ordered to Pay Tk 1,650 Crore in HSIA Terminal Dispute

An international arbitration board has directed the Civil Aviation Authority of Bangladesh (CAAB) to pay approximately Tk 1,650 crore to a foreign contractor following a significant financial dispute over the construction of the Third Terminal at Hazrat Shahjalal International Airport (HSIA) in Dhaka.

The ruling, delivered by a three-member board, addresses a conflict between CAAB and the Aviation Dhaka Consortium (ADC), the joint venture responsible for the terminal's construction. This decision represents a major financial liability for the state aviation authority and highlights the contractual complexities of large-scale infrastructure projects. The outcome could influence the final stages of the Tk 21,398 crore (US$1.8 billion) terminal project, a central piece of Bangladesh's strategy to modernize its aviation infrastructure.

The Arbitration Ruling

The dispute board, composed of arbitrators from Malaysia, the United Kingdom, and Germany, was established to resolve disagreements over project costs and timelines. According to the award, the board determined that the project's scope of work had not been lawfully extended by CAAB. This finding has direct implications for project milestones and certifications.

Consequently, the board stated that the timeframe for issuing the project's performance certificate has not yet arrived. In a related decision, the board rejected ADC's request for the return of its performance security deposit. The ruling is binding on both parties and must be implemented unless a different resolution is reached through mutual agreement or a subsequent final arbitral award. The board also clarified that CAAB does not have jurisdiction in determining the costs associated with the adjudication procedure itself.

Project Background and Scope

Construction on the landmark Third Terminal at HSIA began on December 28, 2019, with the project considered practically completed around January 2024. The ADC consortium is a powerful partnership of international engineering firms, including Japan’s Mitsubishi Corporation and Fujita Corporation, along with South Korea’s Samsung C&T Corporation.

The expansion is a critical national project, financed in part by a substantial loan of Tk 112.15 billion from the Japan International Cooperation Agency (JICA). The new terminal is designed to dramatically increase the airport's capacity, which currently handles about 80% of Bangladesh's total air traffic. According to CAAB, the expansion will boost annual passenger handling capacity from 8 million to 24 million and increase annual cargo capacity from 200,000 to 500,000 tonnes. The new facilities will also allow for 37 aircraft to be parked simultaneously, a significant operational enhancement. Further details on the project are available on the official HSIA development works page.

The Core of the Dispute

The financial conflict reportedly stems from several key issues. CAAB withheld certified payments to the ADC due to audit observations. Furthermore, the consortium claimed it incurred additional costs for ongoing maintenance because of delays by CAAB in appointing a permanent operator for the new terminal. This delay left ADC responsible for the upkeep of the nearly completed facility.

According to a senior civil aviation official, CAAB has a 28-day window to challenge the dispute board's decision. If no challenge is made or resolved, the matter could proceed to formal arbitration, where a final, legally binding award would be issued. CAAB Chairman Air Vice Marshal Mostafa Mahmud Siddiq confirmed that the authority is addressing the issue but indicated that a final resolution will likely take a long time.

Broader Industry Context

This dispute occurs as Bangladesh undertakes a broad restructuring of its aviation sector. Following recommendations from the International Civil Aviation Organization (ICAO), the government plans to split the Civil Aviation Authority of Bangladesh into two distinct entities: an independent regulator and a separate airport and air navigation services operator. This move is intended to eliminate potential conflicts of interest, such as those that can arise when a single body acts as both operator and regulator.

The government also intends to outsource the operation and maintenance of the new terminal to an international company under a Public-Private Partnership (PPP) model. This strategy aims to ensure world-class service standards and operational efficiency, aligning with global trends in airport management.

What Comes Next

CAAB officials have stated that the matter will be formally communicated to the civil aviation ministry, which will provide instructions on the subsequent course of action. The primary decision is whether to accept the board's ruling or to challenge it within the stipulated 28-day period, escalating the dispute to a formal arbitration process. Given the significant sum involved, the decision will require careful consideration at the ministerial level. The resolution process is expected to be protracted, potentially impacting the final handover and full operational launch of the new terminal.

Why This Matters

This arbitration award underscores the critical importance of clear contractual terms and diligent project management in large, publicly funded infrastructure projects. For Bangladesh, it presents a significant financial liability and could influence the framework for future international partnerships on major developments. The outcome will be closely watched by global construction firms and financing agencies that participate in similar large-scale airport expansions worldwide, serving as a case study in international dispute resolution.

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