PML-N government paves way for PIA privatisation

Published: December 6, 2015
Email
PHOTO: AFP

PHOTO: AFP

ISLAMABAD: 

President Mamnoon Hussain on Saturday promulgated the Pakistan International Airlines (PIA) Corporation Conversion Ordinance, paving way for the privatisation of the national flag carrier under a condition of the International Monetary Fund (IMF) loan programme.

The government chose to issue the ordinance on a day when all eyes were on the final phase of local government elections in Punjab and Sindh, hushing up the controversial decision using the same tactic it used while introducing the Rs40 billion new tax measures. The mini-budget was introduced when the second phase of those polls was being conducted.

No, says govt to PIA’s demand of Rs248b bailout

Through the PIA Corporation Conversion Ordinance, the government has repealed the PIA Act of 1956 – which remained a legal hindrance for the airline’s privatisation – and converted PIA Corporation into PIA Company Limited with immediate effect.

The promulgation of the ordinance marks the second time in less than a week that the government has bypassed parliament in order to save the two-year-old $6.2 billion IMF bailout. The decree was issued just 48 hours before the new National Assembly session was scheduled to begin.

Ordinances are traditionally issued in cases of emergency, but there was no such urgency in this situation as the government has known since February that it has to amend the PIA Act to privatise the airline.

PIA privatisation: As IMF deadline looms, govt to bypass parliament again

The affairs of the company will now be out of the domain of the federal government, giving greater freedom to the buyer in taking decisions regarding the company including those pertaining to employees, a finance ministry official said.

Although the government has protected PIA employees’ benefits for the time being, the wording of the ordinance suggests that the terms governing the employees could be changed in future, if needed.

There are about 18,000 employees of the PIA and many of them are on contract. The PIA has one of the highest aircraft-to-staff ratio, hovering over 500 per plane against the industry average of 150. The PIA is overstaffed by at least 5,000 employees.

PIA still a manageable entity, says former MD

“Salaries of those employees of the corporation who upon conversion become employees of the company shall not be changed to their disadvantage, unless such change is in accordance with applicable law,” reads Clause 6(ii) of the ordinance.

“The employees will continue to enjoy all the benefits”, said Privatisation Commission Chairman Mohammad Zubair. He said the financial adviser hired for PIA’s privatisation will now finalise the privatisation structure, which will be taken to the Cabinet Committee on Privatisation for approval within two weeks.

Under a condition of the IMF loan, Pakistan is bound to invite investors to participate in PIA’s privatisation through media advertisements before the end of this month and to sell off the carrier by June next year.

The government has given a written assurance to the IMF that it will sell at least 26% of shares but an official said some prospective buyers have shown interest in acquiring a majority stake. A consortium belonging to Punjab and a Gulf country is said to be interested in acquiring the airlines.

PIA’s privatisation: Government gives fresh commitment to IMF

In the second phase, the government will divide PIA Limited into two entities, separating the airline’s liabilities so that they are not transferred to the new buyer. As of March this year, PIA’s liabilities have ballooned to Rs297 billion, Rs248 million of which is debt.

By the end of March, PIA owed Rs65 billion in long-term financing and Rs54.5 billion in short-term debt. In addition to this, PIA owed over Rs104 billion in trade and other payables, Rs19.6 billion in term of finance certificates and Sukuk, and Rs5 billion in running finance facility.

According to Clause 4 of the ordinance, the federal government may issue orders providing for the transfer of specified assets to a relevant entity substantially on terms set forth in the relevant arrangement.

Published in The Express Tribune, December 6th, 2015.

Facebook Conversations

Reader Comments (13)

  • Parvez
    Dec 6, 2015 - 12:39PM

    After piling up huge loses which the government will absorb, the grounds for privatization is being prepared so that the brothers from Canada will get this organisation for a song. Despite this blatant chicanery……I say privatize it because in the long run the country will benefit.Recommend

  • Parvez
    Dec 6, 2015 - 2:06PM

    The same Canadian brother who would most likely pick up PIA for a song are the ones responsible for bringing it to the stage where it makes sense for the government to get rid of it……..despite this chicanery I say privatize PIA because in the long run the exchequer and the country will benefit.Recommend

  • Rathore
    Dec 6, 2015 - 3:06PM

    This is amazing news – kudos to the government! – first it looked so hard that we would be able to get hands off PIA but now not only has this government restructured PIA but is finally getting the privatization process together. This will be hailed as one of the most crucial civil sector reforms of the decade.Recommend

  • Imran
    Dec 6, 2015 - 5:30PM

    Rathore can you please plz highlight which restructuring has taken place in PIA under this governmentRecommend

  • Rathore
    Dec 6, 2015 - 7:38PM

    @Imran

    Other than the legal/financial restructuring mentioned in this article: The Govt. has increased the number of aircrafts from 23 to 42 by the end of this year which has completely changed the aircraft to employee ratio. On top of that, they have shut down multiple international offices (e.g. the one in Amsterdam) which were nothing but a huge cost overhead; and reallocated flights to more profitable routes. The on time flight proportion has increased from 69% to 82% (international peer group comparison: Middle Eastern Airlines are usually at 85%).
    I foresee that the PIA will undergo the same transformation as Sri Lankan airlines. Before privatization, it was blacklisted by GOP and I have seen circulars in Pak Army saying that no one is allowed to travel by Sri Lankan Airlines – now Sri Lanka Airlines (after partial acquisition by Emirates) is a regional leader and their service levels are beyond amazing. Try flying from Karachi to Colombo to witness the difference first hand.Recommend

  • Hamid shafiq
    Dec 6, 2015 - 9:41PM

    Good decision by the govt and should sale it as urgently as possible to save the Tex money of common man and spend on people life.Recommend

  • khan
    Dec 6, 2015 - 11:42PM

    What a wonderful decision that is, the only concern about this decision that I have is, the fact that it should have been done years back. Five hundred people per aircraft ?. That is beyond the joke. And the cherry on the top is that these thousands of well paid good for nothing people provide one of the most pathetic services in the world. Rude, overage, not so good looking bunch of PIA employees that keep sucking on our money and start protesting whenever someone tries to reform the airline/ They will be out on the streets soon but I hope nobody listens to them.Recommend

  • Midas
    Dec 7, 2015 - 6:55AM

    On the face of it this may look like a good business decision. But behind closed doors they are going to rip it apart and a nation flag carrier will just be a flag. They will disinvest and loot the assets like the hotels in NY and Nice and sell to wheel corporations owned by their own goons abroad, and leave the liability for the nation to pay over the lifetime of their grandchildren. Great decision but history states that this was tried twice before and both times the government was wrapped up before that happened, three times might be lucky. Thanks to the PM and finance minister for their service to the nation.Recommend

  • NH
    Dec 7, 2015 - 7:30AM

    PPP please let this happen. How long can you keep it as your vote reservoir and that too at cost of public funds and national humiliation. Recommend

  • NH
    Dec 7, 2015 - 7:42AM

    It looks there is un-necessary criticism of IMF in Pakistan public discourse. IMF provides cheap funding and guides governments restructure their economies. In case of PIA , it is urgent and a must solution. Political parties must not un-necessarily oppose privatizations.

    Steel mill should be the next in line for restructuring. Recommend

  • furqan
    Dec 8, 2015 - 12:06PM

    I have deep concerns over the way PIA is running and can sense that the loss es of PIA are artificial and infact they are created to make the way of privatization.I am saying this after looking at the financial statements of PIA and comparing it with one of the leading airline of the world .I was astonished to see that the revenue of both the airlines was almost same but the artificial losses of PIA were due to 2 reasons firstly the other cost including wages and secondly the fuel cost and when I approximately calculated the ratio of revenue to these costs of both the airlines the ratio of PIA was far greater than that of other airline ,Now somebody tell me how has this been possible,I knew one thing that in PIA there are 500 employees on every aircraft in comparision to standard which is 150 on every airline but now I can sense that they are doing hand in fuel cost as well,I therefore request the overburdened authorities to look into the mater and do the danda Recommend

  • AK
    Dec 8, 2015 - 3:37PM

    PIA will be (reportedly) sold to Gulf emirs. It will be most probably be shut down as it is unprofitable and replaced with some Gulf airline with poor quality of service and derogatory treatment of Pakistanis in their own country by their employees.

    Then even to go to Quetta from Karachi passengers will have to travel through Abu Dhabi or Dubai at exorbitant fares.

    If the political parties had not used it as an employment agency then PIA would not have suffered such a fate. The biggest culprit is Zardari and the “Wadera politicians”. And they would be the ones to clamour the most now.

    As far are Gulf investors are concerned we have already seen the fate of K-Electric and PTCL.Recommend

  • M Ghayas
    Dec 12, 2015 - 8:00PM

    @Rathore:
    Have you any idea what you are talking about?
    What do you know about PIA?Recommend

More in Business