A Cabinet body, on Friday, approved the invocation of an emergency regulation to directly hire financial advisors for the privatisation of Pakistan International Airlines (PIA), with the aim of preparing the loss-making entity for sale within the next four months.
The Cabinet Committee on Privatisation (CCOP) decided to hire an international financial advisor by directly inviting proposals from the top 25 global financial firms, bypassing the need for open bids through advertisements. This decision is expected to expedite the process by approximately two months, allowing for the preparation of the transaction structure and other milestones to be completed by January next year. January is the target month for the start of the bidding process under the interim government.
Next week, Pakistan plans to directly send documents to the top 25 firms using the Table of League mechanism. These firms will be requested to submit proposals for creating a transaction structure for the sale of a majority stake in PIA.
To streamline the hiring of financial advisors, the CCOP decided to invoke the emergency regulation of the Appointments of Financial Advisors regulations. PIA incurred losses of Rs86 billion last year, and this year’s estimate is a staggering Rs153 billion, making privatisation or grounding the airline a necessity.
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Just hours before the CCOP meeting, the Privatisation Commission board, also chaired by Fawad Hasan Fawad, declared PIA privatisation a major transaction. This declaration met the requirement for invoking the emergency regulation, which was subsequently endorsed by the CCOP.
The decision to appoint Fawad as chairman of both the board and the CCOP has effectively minimised the cabinet body’s role as an oversight entity.
The meetings of the privatisation commission and CCOP were purely ceremonial, as the decision to proceed with the Table of League route had already been made two days prior by the military-dominated Special Investment Facilitation Council (SIFC).
Sources stated that two special invitees to the CCOP meeting attempted to block the process by raising objections to the use of the emergency clause instead of following the route determined by the Public Procurement Regulatory Authority (PPRA). In response to their objections, the chairman decided that the decision to invoke the emergency clause would be reviewed by the Law Ministry to ensure compliance with all rules and regulations.
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The government is considering selling at least 51% of the shares, along with management control, of PIA, preferably to a local investor. One Pakistani airline has already expressed interest in acquiring PIA and formally communicated with the privatisation commission.
PIA’s financial situation has deteriorated significantly, with the airline management requesting a moratorium on domestic debt repayments to bridge the Rs153 billion annual deficit between its sales and essential expenditures. Without debt restructuring, PIA requires Rs13 billion per month to meet debt payments and other expenses.
The Ministry of Finance has refused to inject additional funds into the airline, citing that PIA is run by personnel trained for war, not for running a commercial airline.
The CCOP also decided that the privatisation commission’s hired financial advisor would be responsible for both restructuring PIA and preparing the transaction structure for its privatisation. The Aviation Division was prevented from hiring a separate financial advisor for restructuring.
The PIA management has estimated its monthly sales at a little over Rs22 billion against nearly Rs35 billion in expenditures. The airline projected a monthly shortfall of about Rs13 billion, of which Rs10.5 billion is related to debt servicing.
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The interim government aims to appoint the financial advisor by mid-November and receive a preliminary report on the segregation of core PIA from non-core PIA, making it ready for bidding by the end of January. Typically, the privatisation process, from hiring a financial advisor for transaction structure preparation to holding an open bidding, takes over a year. However, the direct hiring of a financial advisor is expected to reduce this timeline by at least two months said officials from the privatisation ministry.
Pakistan Steel Mills privatisation process annulled
The privatisation board, on Friday, also decided to annul the bidding process for the privatisation of Pakistan Steel Mills (PSM). The decision to annul the process followed the withdrawal of three out of four pre-qualified bidders from the bidding process.
The annulment decision had also been made earlier by the SIFC, the board only provided its stamp of approval.
There is a possibility that instead of selling the Steel Corps, an under-approved subsidiary of PSM, the government may grant over 4,800 acres of land to a foreign investor for establishing an Export Processing Zone (EPZ), which may include the expansion of PSM.
The SIFC recently decided to halt further alienation of PSM land, despite proposals from a minister with a background in real estate and industry to sell the land to investors. The SIFC instructed that the possibility of using the entire PSM land as an EPZ and disposing of the existing Steel Mill plant and machinery be examined.
Published in The Express Tribune, October 7th, 2023.
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