A debt-free PIA to go under the hammer

Fawad says PSM is a dead asset; DISCOs’ one-step privatisation no longer possible because of various factors

ISLAMABAD:

The caretaker government announced its decision on Tuesday to privatise the Pakistan International Airline (PIA) after making it debt-free, but put brakes on the strategic sale of the Pakistan Steel Mills (PSM) and the power distribution companies (DISCOs) due to severe complications in these transactions.

Talking to the media persons here, Caretaker Privatisation Minister Fawad Hasan Fawad gave an in-depth review of the privatisation status of the highest lossmaking entities and the reasons for not immediately offering DISCOs for sale.

“It has been decided that the PIA would be privatised as a clean entity by making it free from legacy loans,” Fawad said. “The Pakistan International Airline Company (PIAC) as a clean entity with only current core assets and current liabilities would be offered for privatisation,” he added.

Fawad, who was flanked by Information Minister Murtaza Solangi and Privatisation Secretary Mujtaba Memon, told reporters that no bank was ready to give any new loan to the PIA even on the federal government’s guarantees despite the airline’s minimum monthly loss is Rs12.8 billion.

Read PIA sell-off a foremost priority, WB told

The minister said that PIA’s legacy liabilities would be parked in a holding company. He added that the core assets that would be sold included PIA aircraft, its routes, landing rights, core engineering and air service agreements.

The national-flag carrier has 34 aircraft, but the minister said that out of those only 19 were flying. Fawad lamented that out of the 15 aircraft currently grounded, six of them were leased by the PIA and incurring a monthly charge of $2 million.

To a question, Fawad said that the privatisation was not the mandate of the Special Investment Facilitation Council (SIFC) and that he only briefed the council about the PIA being a critical transaction.

However, he said, there was no deadline for PIA privatisation but it would be done as early as possible.

The minister also shared details of the losses that the PIA caused due to years of mismanagement. He added that the cost of running the PIA in losses since 2012 was $7.1 billion – enough to build a Diamer Bhasha dam, or 10 public sector universities as big as International Islamic University Islamabad.

“We have a choice either to privatise the loss-making entities or not to run them due to lack of fiscal space,” the privatisation minister told the reporters. However, he expressed that he would try his best to keep the national-flag carrier flying.

The PIA’s accumulated losses have increased to Rs713 billion and Rs285 billion worth of loans have been guaranteed by the federal government directly, excluding the loans taken by the PIA’s subsidiaries.

Read more Cabinet invokes emergency for PIA

The minister maintained that the government was not going to bypass any legal and procedural steps in haste and any haste would only be due to the overall economic situation of Pakistan.

As of 2020, the loss caused by the public sector amounted to 7% of the GDP, which by now might have increased further. The debt of the top 145 state-owned enterprises (SOEs) amounted to Rs2.06 trillion as of 2021.

From 2018 to 2021, Rs2.542 trillion had been spent on these entities and 40% of it was through budget subsidies, said the minister while making the case for PIA privatisation. He added that minimum per-month losses of the PIA were projected at Rs12.8 billion and annual losses were projected at Rs156 billion for this year.

The privatisation ministry has also extended the deadline by one month for receiving bids for hiring a financial adviser for the Roosevelt Hotel in New York.

‘A dead asset’

The minister maintained that the PSM was a dead asset in its present form, while the power distribution companies could neither be given to provinces nor were ripe for privatisation due to incomplete accounts and lack of clear titles of the properties.

“The only solution remaining is giving these companies on long-term management contracts and a summary will soon be presented to the federal cabinet,” he added.

While further sharing his plans for PIA, the minister said that it had been decided to hire one adviser for PIA restructuring and privatisation and a formal approval of the federal cabinet would be taken on Wednesday (today).

The Express Tribune reported on Saturday that the Cabinet Committee on Privatisation (CCoP) approved that an international financial adviser would be hired by directly sending requests for proposals to the top-25 global financial firms instead of inviting their bids through advertisement.

The financial adviser’s mandate would be to update the 2017 PIA report, segregate the core PIA assets and liabilities from the non-core ones and discover the price for selling the core PIA, the minister said.

Also read Plan afoot to sell off DISCOs, revive PSM

Two special invitees of the CCoP meeting tried to block the process by raising objections to exercising the emergency clause instead of taking the route determined by the Public Procurement Regulatory Authority (PPRA).

On their objections, the chairman decided that the decision to exercise the emergency clause would be vetted by the law ministry to make sure that there was no breach of any rule or regulation. Fawad said that the Law Division had supported the CCoP’s stance that the direct hiring of the Financial Advisor can be done under the privatisation commission’s regulations.

The government is considering offloading at least 51% of stakes along with giving management control of the PIA, preferably to a local investor. One Pakistani airline has already shown interest in the acquisition of the PIA and has formally written to the privatisation commission.

Fawad said that the PIA employees might not need to resort to protests as there would be a comprehensive human resource management plan to be prepared for them.

PSM off the list

Fawad said that the process of the PSM privatisation was proposed to be stopped and the matter would be decided on Wednesday (today) by the federal cabinet. The board scrapped the PSM bidding process after three out of four pre-qualified bidders became unwilling to participate in the bidding process.

The minister said that the PSM’s debt amounted to Rs230 billion while its accumulated losses stood at Rs206 billion. In order to refurbish the PSM’s current 1.1 million production capacity, “there is a need for a $585 million investment”, said Fawad.

To expand the capacity to 3.1 million tons, the PSM needs a $1.4 billion investment. “Based on these facts, we have come to the conclusion that we would not like to take the PSM transaction forward,” he added. “Neither refurbishment nor capacity enhancement is economical. This asset is now as good as a dead asset”, Fawad said, while writing off the largest industrial unit of Pakistan.

DISCOs

The privatisation minister said that DISCOs’ one-step privatisation was no longer possible because of various factors. He added that the assets and liabilities statements of those power distribution companies were not available.

Read more Govt mulls privatisation of 10 Discos

There were no clear land titles available. Despite unbundling of the Water and Power Development Authority (Wadpa) into power distribution companies, the assets still remained in the name of Wapda, which could not be transferred to the federal government and then onwards to the distribution companies, he added.

“At present, we cannot get a share price of a distribution company at par with our investment”. However, the minister added that the concession agreements would have a clause for a long-term divestment of the power distribution companies’ shares.