PIA sell-off on cards: Govt may face hurdle created by its own 2016 legislation barring sale

Govt has informed NA it wants to sell 26pc equity stake in PIA along with management control to a private partner

ISLAMABAD: In yet another about-turn, the government has informed the National Assembly that it wants to sell a 26 per cent equity stake in Pakistan International Airlines along with management control to a private strategic partner –a move that would be illegal under an existing law.

“The restructuring plan (of PIA) will be followed by divestment of 26 per cent government of Pakistan equity stake to a strategic partner with management control,” according to the Fiscal Policy Statement 2017-18 that the Finance Ministry has tabled in the lower house of Parliament.

The Finance Ministry further informed the legislators that the PIA management was working on a business plan to restructure the airlines with an aim to reduce its losses, which currently stand at over Rs326 billion.



The government did not officially disclose the quantum of losses and debt incurred by PIA in the policy statement. Interestingly, in the last statement, the federal government had also claimed that a new business plan for PIA revival was under consideration, suggesting that no progress could be made in past one year.

However, the statement is contrary to the PIA Corporation Conversion Act of 2016 that Parliament had unanimously passed in April 2016. This law bars the government from transferring the management control into private hands.

“Management control of the company and any of its subsidiary companies in the above circumstances shall continue to vest in the majority shareholder, which shall be the federal government and whose shares shall not be less than 51 per cent” according to an explanation inserted in clause 4 of the PIA Corporation Conversion Act of 2016.

The controversy over PIA’s status stirred in mid-January when Privatisation Minister Daniyal Aziz announced the planned sell-off of the national flag carrier. However, a week later, the adviser to the prime minister on aviation reassured Parliament that the government did not have plans to sell PIA.

But the Finance Ministry’s latest statement that has been laid in the National Assembly this week suggests that the government is quietly working on a sellout plan.



The Finance Ministry laid the fiscal statement under a provision of Fiscal Responsibility and Debt Limitation Act of 2005 that binds it to share the fiscal performance of the last year with the legislators by January every year.

However, the policy statement covered only PIA, Pakistan Steel Mills and Pakistan Railways. It is completely silent on the power sector, which is the main drain on scarce financial resources. Like the previous year, the government has again kept Parliament in the dark about the financial deterioration in the power sector.

The Fiscal Policy Statement 2017-18 is silent about the performance of power distribution companies, even though their haemorrhaging carries huge financial implications.

According to some estimates, the power sector circular debt has crossed Rs525 billion, excluding Rs430 billion parked in a holding company.

The government had hired the financial advisers for the privatisation of power distribution companies (DISCOs) and generation companies (GENCOs).  A majority of the power distribution companies are running up huge losses, including some that are considered efficient.

On PSM privatisation, the government could not report any further progress except saying that a liability settlement plan in consultation with its creditors is being finalised. The plan is under consideration for the last couple of years.

Fiscal performance

While sharing its fiscal performance for 2016-17, the government informed the NA that its expenditures slipped beyond the budgetary allocations. Against budgeted expenditure of Rs6.623 trillion, the federal and four provincial governments cumulatively spent Rs6.8 trillion, according to the statement. The slippages were both on account of current as well as development expenditures.

Within the current expenditures, the foreign debt servicing was 13 per cent higher than the budgeted amount. The defence expenditures also exceeded the limit by 3.3 per cent, standing at Rs888.1 billion, according to the Fiscal Policy Statement. The subsidies also exceeded the budgetary limit of Rs140.6 billion and stood at Rs155 billion.

Compared to this, the total revenues fell behind the target almost 8 per cent, amounting to Rs4.93 trillion.

Due to higher than anticipated expenditures and low revenues, the budget deficit in the last fiscal year stood at Rs1.863 trillion – the highest ever in the country’s history in absolute terms.