Govt rejects absorbing PIA’s Rs263b debt
PHOTO: FILE
The federal government has declined to absorb Pakistan International Airlines’ (PIA) Rs263 billion debt, instead proposing to settle dues with nearly a dozen domestic commercial banks using the privatisation proceeds of the airline.
Sources told The Express Tribune that the finance ministry, supported by Prime Minister Anwarul Haq Kakar, rejected the proposal to merge PIA’s Rs263 billion debt into the public debt. The PM office did not respond to a request for comments despite repeated attempts.
This decision follows the national airline defaulting on over Rs17 billion in debt repayments to seven commercial banks by early December, according to the government sources. Of the Rs17 billion, an amount of Rs5.8 billion has been overdue for more than three months, they added.
Finance Minister Dr Shamshad Akhtar and Privatisation Minister Fawad Hasan Fawad conducted a series of meetings to address PIA’s ongoing financial troubles. Despite the privatisation minister briefing the prime minister on progress with PIA debt restructuring, the finance minister rejected three key proposals to include PIA’s debt in the public debt. The finance minister argued against leaving a negative legacy by incorporating a corporation’s debt into public debt.
Sources reveal that the privatisation ministry revisited three options proposed by banks for debt restructuring, including issuing zero-coupon instruments, providing a three-year Pakistan Investment Bond (PIB), or establishing a holding company to manage the debts. There’s a prevailing view that the caretaker government cannot assume additional financial obligations, and such matters should be deferred to the next elected government.
The finance ministry countered with a proposal linking PIA debt settlement to the privatisation proceeds, supporting PIA privatisation without incurring additional liabilities. In September, PIA indicated its inability to repay debts to around 12 commercial banks, which has now escalated to Rs263 billion as of early December. The privatisation ministry stressed that resolving PIA debt restructuring is linked with securing a new Rs15 billion loan for PIA, and a solution has to be found.
PIA has failed to make over Rs17 billion in debt repayments to seven commercial banks, comprising Rs5.7 billion in principal repayment and Rs11.6 billion in interest costs. As of early December, PIA defaulted on payments to NBP, JS Bank, Bank Albaraka, HBL, Bank of Punjab, and a consortium of HBL and NBP.
The Bank of Punjab holds the largest exposure, with over Rs56 billion in loans to PIA, followed by Askari Bank Limited with over Rs35 billion, JS Bank with Rs17.6 billion, NBP with Rs43 billion, Faysal Bank with Rs23 billion, Habib Bank Limited with Rs27.7 billion, and Bank Islami with over Rs10 billion. Albaraka Bank provided a Rs6.6 billion loan, and Soneri Bank’s exposure to PIA is Rs2 billion.
Read Govt rejects harsh conditions for PIA loan
A consortium of NBP and HBL has given a Rs25.2 billion loan to PIA, followed by a Rs12 billion loan from the Standard Chartered bank and Masheraq Bank consortium. Sources said the finance ministry proposed settling domestic banks’ debt against privatisation proceeds, suggesting that over three-fourths of the privatisation funds should go to these banks.
Execution of this proposal would require relaxation of the statutory liquidity requirement (SLR) by the State Bank of Pakistan. The SLR is the proportion of a commercial bank’s liabilities they are required to invest in approved securities and/or hold in the form of cash.
Settlement against privatisation dues would also necessitate no objection certificates from these commercial banks, said sources. If banks agree to the new proposal, their no objection certificates should become part of the privatisation transaction.
Finance ministry spokesperson Qamar Abbasi did not respond to questions regarding whether the finance ministry rejected the proposal to include PIA debt in the public debt.
The interim government is actively pursuing the privatisation of Pakistan’s largest loss-making entity, amending the Privatisation Ordinance to prevent high courts from intervening in privatisation disputes and issuing new rules for fast-track privatisation.
Lahore High Court is currently hearing a petition against the potential privatisation of PIA, with the judge deferring the matter until January 17th. Reportedly, Justice Raheel Kamran Sheikh expressed concerns over limiting the courts’ powers in privatisation matters. The petitioner argued that the caretaker government had no jurisdiction over PIA due to its limited scope and authority.
This week, the federal cabinet approved new Privatisation Appellate Tribunals for hearing privatisation cases. Under the law, ongoing privatisation cases being heard by high courts would be transferred to the tribunals. However, the provincial court has not yet dropped the case.
Published in The Express Tribune, December 23rd , 2023.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.