The government on Friday approved a Rs20-billion bailout package for Pakistan International Airlines (PIA) - the fifth such relief in less than one and a half year - and enhanced sovereign guarantee ceiling to Rs195 billion to keep the national air carrier afloat.
According to an announcement made by the Prime Minister’s Office, the Economic Coordination Committee (ECC) approved the bailout so that PIA could meet expenditures for the overhaul of aircraft engines. Prime Minister Shahid Khaqan Abbasi chaired the ECC meeting.
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In order to facilitate PIA in obtaining these loans, the ECC increased the guarantee limit from Rs175 billion to Rs195 billion to enable the loss-making carrier to meet its expenses.
In a letter in September 2008, the federal government, being the majority shareholder in PIA, had given assurances that it would keep PIA as a going concern and had since been injecting money. And in November last year, the ECC increased the limit from Rs161.5 billion to Rs175 billion, which turned out to be insufficient due to mounting losses.
When the PML-N government came to power, the maximum borrowing limit for PIA was Rs137.4 billion, which the ruling party increased by 42% in five years. In June 2013, the cumulative losses of PIA stood at Rs170.3 billion, which have now doubled to Rs340 billion.
PIA’s audited financial statement till December 2017 is not yet available due to legal hitches after its conversion from a corporation to a company.
PIA would get commercial loans of Rs20 billion at an interest rate of Karachi Interbank Offered Rate (Kibor) plus 1%, said officials of the finance ministry.
The ECC has approved the fresh borrowing backed by sovereign guarantees at a time when contingent liabilities of the finance ministry have soared above Rs1 trillion.
PIA was on the active list of privatisation that the government shared with the International Monetary Fund under the last three-year $6.2-billion bailout package. But it not only failed to turn around the carrier, but matters were also complicated by poor governance.
In April 2016, parliament had amended the PIA Act of 1956, which prevented the transfer of management control to private investors and converted the entity into a company.
Under the new law, the PML-N government was supposed to carve out core functions of PIA within two years. However, the validity period set out in the PIA Conversion Act 2016 for separating its core and non-core businesses expired on April 15 this year without completion of the task.
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The ECC directed the Aviation Division and the finance ministry to ensure that the Rs20-billion support must be utilised only for the defined purpose of aircraft overhaul in the next eight months.
The ECC approved a proposal for introducing necessary amendments to the Oil and Gas Regulatory Authority (Ogra) Ordinance 2002 to tackle the growing circular debt in the liquefied natural gas (LNG) sector.
The amendments will cover the entire LNG/RLNG supply chain in the Ogra regulatory framework and remove anomalies in the dispatch, receipt and billing of RLNG volumes.
The bill payment cycle of the power sector is currently one month. Power purchasers are required to make all payments within the stipulated time to independent power producers. However, unlike other electricity plants, the maximum payment cycle for LNG-fired power plants is only 10 days.
Due to priority payments to LNG power plants, other plants were facing liquidity pressures, said officials of the Ministry of Energy. The country was meeting its LNG needs through imports and due to delay in payments, there was over Rs45-billion circular debt in the LNG sector, they said.
The total circular debt in the power sector is more than Rs1 trillion, including debt parked in a holding company.
The ECC also approved exemption from regulatory duty on the import of fresh fruits, vegetables and dry fruits from Afghanistan which was announced by the prime minister during his visit to Kabul.
Previously, the government had imposed the duty on imports from Afghanistan as part of broader measures to contain the soaring import bill.
The ECC also approved the supply of 35,000 tons of wheat from the Pakistan Agricultural Storage and Services Corporation (Passco) to the World Food Programme for distribution amongst temporarily displaced persons (TDPs) of Fata.
Published in The Express Tribune, May 12th, 2018.
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