"including isolation of storage and enforcement of system prompts to access privacy impacting capabilities on a per-site basis"
One scenario is that today there is one instance of WebKit owned by the Home Screen process shared amongst all of the PWA apps which is enforcing that prompt. With third party engines that prompt would appear for the first app invocation but not any subsequent ones.
This is only an issue with PWA since for normal apps the browser process is per-app rather than shared.
Now they could rewrite the Home Screen execution environment to support one engine per app but their argument is that it's not worth their effort.
Apple surely does this on purpose to prevent PWAs from being useful. Can't let any App store competition arise.