Govt approves Rs17b bailout package to keep PIA afloat
Move meant to keep national flag carrier in skies for next two months amid increase in losses to Rs360 billion
Finance secretary suggested the appointment of a qualified CEO having relevant industry experience and reconstitution of PIA’s board of directors. PHOTO: INP
ISLAMABAD:
The government on Monday approved a Rs17-billion bailout package for Pakistan International Airlines (PIA) to keep the national flag carrier in the skies for the next two months amid a phenomenal increase in its losses that shot up to Rs360 billion.
It is the first bailout package approved by the government of Prime Minister Imran Khan, who is also the minister in charge of the Aviation Division. The Economic Coordination Committee (ECC) of the cabinet, chaired by Finance Minister Asad Umar, approved the Rs17.02-billion ‘dose of oxygen’ - the second in last six months.
The Pakistan Tehreek-e-Insaf (PTI) government followed in the footsteps of the last Pakistan Muslim League-Nawaz (PML-N) government that had kept PIA afloat for five years by providing such bailouts.
The money will be borrowed from commercial banks on the back of sovereign guarantees of the finance ministry. In order to facilitate the borrowing, the ECC extended the guarantee limit to Rs212 billion, said officials in the Ministry of Finance.
The ECC was told that continuing liquidity crisis in PIA had now reached alarming levels, which may lead to grounding of the fleet. The fresh injection will keep the airline in the skies for the next two months, according to Aviation Division officials.
PIA’s accumulated losses surged to Rs360 billion by the end of June, which, according to the finance ministry, speaks volumes about the persistently deteriorating performance of the air carrier.
The ministry urged that unless an integrated business plan, including a comprehensive debt retirement strategy, was implemented, such “intermittent doses of oxygen will hardly bring about any meaningful recovery to the ailing entity.”
IMF bailout package yet to be finalised: Asad Umar
Seeking more loans to pay off existing ones was not only unsustainable but may even affect PIA as a going concern, stated the ministry.
Finance Secretary Arif Ahmad Khan suggested the appointment of a duly qualified chief executive officer having relevant industry experience, reconstitution of PIA’s board of directors and development of a debt management strategy for the long run.
PM Imran has appointed Air Marshal Arshad Malik as the CEO amid apprehensions among his cabinet ministers over Malik’s experience in handling a commercial airline, revealed sources who attended the cabinet meeting a few weeks ago.
Through a letter in September 2008, the federal government, being the majority shareholder, had assured the nation of keeping PIA as a ‘going concern’ and has been injecting money, directly or indirectly.
In addition to the already provided Rs195 billion worth of sovereign guarantees, the finance ministry has also injected Rs40.8 billion in cash into the airline. After the fresh injection, the total cost of bailout will jump to Rs253 billion.
After coming to power, the PTI government struck PIA off the privatisation list without first framing a plan to revive the ailing airline.
Umar vows to take businesses on board for CPEC projects
The Aviation Division informed the ECC that the air carrier was passing through difficult times due to accumulated losses. These have choked its finances and hampered flight operations. Increase in fuel prices, depreciation of the rupee against the US currency and unavailability of airworthy fleet have badly affected the airline’s operations.
The ECC provided Rs10 billion worth of sovereign guarantees to run the airline’s operations for the next two months. PIA owed $125.84 million to foreign creditors which were backed by sovereign guarantees.
Due to depreciation of the rupee, the value of these guarantees has gone down by Rs2.9 billion, which the ECC has now provided again.
Similarly, the devaluation has also impacted an earlier support package of Rs20 billion and the ECC extended fresh guarantees of Rs4.2 billion to make up for the shortfall.
Power-sector payments
The ECC modified a May-2018 decision that had allowed the Power Division to borrow Rs50 billion from commercial banks to retire the circular debt. In response to that ECC’s decision, a consortium of commercial banks had offered Rs35.8 billion in loans. Banks also demanded upfront adjustment of Rs11 billion against the outstanding principal repayments.
The ECC approved reduction in the financing limit to Rs35.8 billion and also allowed settlement of Rs11 billion from the same facility. The remaining Rs24.8 billion will also be utilised for the settlement of payables by the Central Power Purchasing Agency Guaranteed Limited.
Gas-sector subsidies
The Petroleum Division secretary briefed the ECC about the gas supply situation on Sui Southern Gas Company’s (SSGC) network.
The ECC was informed that the supply of gas to the zero-rated industry (processing and captive) under the SSGC system, covering Sindh and Balochistan, would continue during the winter season, in accordance with the recently approved gas supply priority for the sector.
The ECC directed SSGC management to withdraw the gas load management notices issued to these industries. Likewise, there would be no gas load management for domestic consumers. The matter of provision of subsidised gas to run captive power plants by the five export-oriented sectors also remained unresolved again.
The finance ministry is against the proposal of providing subsidised gas to the captive power plants. It has offered subsidised electricity to run these plants. This will reduce the government’s subsidy obligation from Rs43 billion to just Rs8 billion.
In case, the government provides subsidised gas to the captive power plants, this could also adversely affect revenues of power distribution companies. The finance minister did not accept a proposal of the maritime ministry to allow the setting up of two more liquefied natural gas (LNG) terminals by the private sector. The minister was of the view that it would increase the government’s financial obligations.
Published in The Express Tribune, November 13th, 2018.
The government on Monday approved a Rs17-billion bailout package for Pakistan International Airlines (PIA) to keep the national flag carrier in the skies for the next two months amid a phenomenal increase in its losses that shot up to Rs360 billion.
It is the first bailout package approved by the government of Prime Minister Imran Khan, who is also the minister in charge of the Aviation Division. The Economic Coordination Committee (ECC) of the cabinet, chaired by Finance Minister Asad Umar, approved the Rs17.02-billion ‘dose of oxygen’ - the second in last six months.
The Pakistan Tehreek-e-Insaf (PTI) government followed in the footsteps of the last Pakistan Muslim League-Nawaz (PML-N) government that had kept PIA afloat for five years by providing such bailouts.
The money will be borrowed from commercial banks on the back of sovereign guarantees of the finance ministry. In order to facilitate the borrowing, the ECC extended the guarantee limit to Rs212 billion, said officials in the Ministry of Finance.
The ECC was told that continuing liquidity crisis in PIA had now reached alarming levels, which may lead to grounding of the fleet. The fresh injection will keep the airline in the skies for the next two months, according to Aviation Division officials.
PIA’s accumulated losses surged to Rs360 billion by the end of June, which, according to the finance ministry, speaks volumes about the persistently deteriorating performance of the air carrier.
The ministry urged that unless an integrated business plan, including a comprehensive debt retirement strategy, was implemented, such “intermittent doses of oxygen will hardly bring about any meaningful recovery to the ailing entity.”
IMF bailout package yet to be finalised: Asad Umar
Seeking more loans to pay off existing ones was not only unsustainable but may even affect PIA as a going concern, stated the ministry.
Finance Secretary Arif Ahmad Khan suggested the appointment of a duly qualified chief executive officer having relevant industry experience, reconstitution of PIA’s board of directors and development of a debt management strategy for the long run.
PM Imran has appointed Air Marshal Arshad Malik as the CEO amid apprehensions among his cabinet ministers over Malik’s experience in handling a commercial airline, revealed sources who attended the cabinet meeting a few weeks ago.
Through a letter in September 2008, the federal government, being the majority shareholder, had assured the nation of keeping PIA as a ‘going concern’ and has been injecting money, directly or indirectly.
In addition to the already provided Rs195 billion worth of sovereign guarantees, the finance ministry has also injected Rs40.8 billion in cash into the airline. After the fresh injection, the total cost of bailout will jump to Rs253 billion.
After coming to power, the PTI government struck PIA off the privatisation list without first framing a plan to revive the ailing airline.
Umar vows to take businesses on board for CPEC projects
The Aviation Division informed the ECC that the air carrier was passing through difficult times due to accumulated losses. These have choked its finances and hampered flight operations. Increase in fuel prices, depreciation of the rupee against the US currency and unavailability of airworthy fleet have badly affected the airline’s operations.
The ECC provided Rs10 billion worth of sovereign guarantees to run the airline’s operations for the next two months. PIA owed $125.84 million to foreign creditors which were backed by sovereign guarantees.
Due to depreciation of the rupee, the value of these guarantees has gone down by Rs2.9 billion, which the ECC has now provided again.
Similarly, the devaluation has also impacted an earlier support package of Rs20 billion and the ECC extended fresh guarantees of Rs4.2 billion to make up for the shortfall.
Power-sector payments
The ECC modified a May-2018 decision that had allowed the Power Division to borrow Rs50 billion from commercial banks to retire the circular debt. In response to that ECC’s decision, a consortium of commercial banks had offered Rs35.8 billion in loans. Banks also demanded upfront adjustment of Rs11 billion against the outstanding principal repayments.
The ECC approved reduction in the financing limit to Rs35.8 billion and also allowed settlement of Rs11 billion from the same facility. The remaining Rs24.8 billion will also be utilised for the settlement of payables by the Central Power Purchasing Agency Guaranteed Limited.
Gas-sector subsidies
The Petroleum Division secretary briefed the ECC about the gas supply situation on Sui Southern Gas Company’s (SSGC) network.
The ECC was informed that the supply of gas to the zero-rated industry (processing and captive) under the SSGC system, covering Sindh and Balochistan, would continue during the winter season, in accordance with the recently approved gas supply priority for the sector.
The ECC directed SSGC management to withdraw the gas load management notices issued to these industries. Likewise, there would be no gas load management for domestic consumers. The matter of provision of subsidised gas to run captive power plants by the five export-oriented sectors also remained unresolved again.
The finance ministry is against the proposal of providing subsidised gas to the captive power plants. It has offered subsidised electricity to run these plants. This will reduce the government’s subsidy obligation from Rs43 billion to just Rs8 billion.
In case, the government provides subsidised gas to the captive power plants, this could also adversely affect revenues of power distribution companies. The finance minister did not accept a proposal of the maritime ministry to allow the setting up of two more liquefied natural gas (LNG) terminals by the private sector. The minister was of the view that it would increase the government’s financial obligations.
Published in The Express Tribune, November 13th, 2018.