ISLAMABAD: After failing to privatise the ailing national flag carrier, the government is set to miss the mid-April deadline for carving out core business of Pakistan International Airlines (PIA) due to delay in finalisation of administrative and financial arrangements.
It is also reluctant to take an estimated Rs250-billion hit on its books, which is the value of legacy loans and non-guaranteed liabilities, said sources in the privatisation ministry.
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So far, no revenue stream had been indicated to settle these liabilities after their parking in ‘bad PIA’, they added.
With only five weeks left before expiry of the validity period set out in the PIA Conversion Act 2016 for separating its core and non-core businesses, the government is yet to come up with a workable business plan to divide the air carrier’s business into two.
Federal Minister for Privatisation Daniyal Aziz is eager to do the job within the stipulated timeline, but so far he has not been able to bring all stakeholders on the same page.
Aziz chaired a high-level meeting on Thursday of the Aviation Division, Civil Aviation Authority (CAA), Ministry of Finance, PIA and the Securities and Exchange Commission of Pakistan (SECP) for drawing up a restructuring plan.
The participants could not agree on the financial restructuring plan as the finance ministry was reluctant to take a hit of Rs250 billion to Rs300 billion, according to a government official.
As per the proposed plan, the government will have to take over Rs225 billion to Rs250 billion worth of bad loans of PIA, said the official.
“This bad money has to be parked somewhere, but we do not know the revenue stream that can gradually lessen this burden from the finance ministry’s shoulders,” said the officials.
In addition to that, the finance ministry is also expected to take responsibility of Rs18 billion worth of annual financing cost of PIA loans.
Against these liabilities, the government will have non-core assets that have not been assessed yet.
Moreover, the position of financial adviser has also been vacant since the contract of previous adviser expired.
The privatisation ministry has not got fresh evaluation done of the non-essential real estate assets. According to the 2015 valuation, Roosevelt Hotel in New York and Hotel Scribe in Paris are estimated to be worth over $600 million.
“It was proposed in the meeting that non-essential assets including Roosevelt, Hotel Scribe, domestic and foreign properties and the Precision Engineering Complex will be kept by the government,” said a statement issued by the privatisation ministry after the meeting.
It added that the airline would achieve a positive balance sheet after the transfer of legacy liabilities from PIA, which would enhance its operational and structural outlook.
But the finance ministry was not willing to agree to that until it was given assurances about the final treatment of legacy liabilities of over Rs250 billion, said the sources.
“The April 15 deadline appears to be too tight and given the complexity of the issue, PIA cannot be divided into two entities,” another official said.
“During the validity period and subject to a prior company request, the federal government may issue orders for the transfer of specified assets to a relevant entity on the terms set forth in the relevant arrangement,” said Section 4 of the PIA Conversion Act.
If the government failed to separate PIA’s core and non-core assets under the PIA’s special law, the Companies Act 2017 would be applied, which was a very long process, said the officials.
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In that scenario, the court would be involved for approval and implementation of the Scheme of Arrangement, said the officials. This may take a minimum of six months to one year.
The government has already missed many deadlines that it gave to the International Monetary Fund (IMF) to privatise the ailing airline.
The privatisation ministry’s statement emphasised that there would be no impact on PIA employees and they would continue to perform their duties as they were performing now.
Published in The Express Tribune, March 9th, 2018.
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