Finance ministry blamed for failed PIA bid

Privatisation minister highlights lack of cooperation in selling airline

ISLAMABAD:

Privatisation Minister Abdul Aleem Khan said on Monday that the lack of cooperation by the Ministry of Finance was the reason behind the failed attempt to sell Pakistan International Airlines (PIA), which did not accept the bidders' rightful demands.

He also blamed the caretaker government for finalising a faulty privatisation transaction structure, where it left behind a Rs45 billion negative equity on the PIA balance sheet despite taking off liabilities of Rs623 billion.

In a statement before the Senate Standing Committee on Privatisation, Aleem Khan said that even the Gulf countries would not buy the "dirt" of PIA as its balance sheet had to be cleaned from the negative equity before selling to either a foreign country or to a private party.

The bidders had demanded exemption from 18% sales tax on the lease of aircraft and writing off additional liabilities of Rs45 billion but the departments did not cooperate and the government did not listen, he said.

PML-N Senator Tallal Badar Chaudhry chaired the committee meeting. The Federal Board of Revenue (FBR) was inflexible and "we could not write off Rs45 billion worth of liabilities without the consent of the finance ministry," said Aleem Khan.

"I recommended the government to accept the bidders' requests but it did not listen," said the privatisation minister.

The government had attempted to sell PIA to a single bidder – a real estate developer – who offered Rs10 billion against the minimum reserve price of Rs85.03 billion, but it failed.

The bidders wanted the government to write off Rs26 billion worth of tax liabilities, Rs10 billion worth of bridge financing by the Civil Aviation Authority to PIA and Rs9 billion in other liabilities, Privatisation Secretary Usman Bajwa told the committee.

As one of the options, the bidders asked that PIA's commercial plot valued at over Rs10 billion should be given to the airline instead of keeping it in a holding company, he added.

The FBR refused to waive 18% sales tax on the lease of aircraft and write off Rs26 billion in tax liabilities due to its adverse implications for the International Monetary Fund (IMF) programme, said Usman Bajwa.

"It was not difficult for the government to accept these two requests and I also tried to convince them at the top-most level," said Aleem Khan.

On Thursday, "we briefed the IMF that because of these two conditions, the privatisation failed" and now the government has requested the IMF to allow it to exempt sales tax and write off Rs45 billion in liabilities, said Bajwa.

"The IMF has listened to our demands and said that it would give a reply after internal consultations," he said.

During the past few days, Prime Minister Shehbaz Sharif talked to the heads of various governments and proposed to buy PIA, said the privatisation minister. "Until the balance sheet numbers are positive, no private company or a foreign government will invest in it," he said.

The privatisation secretary said that after the prime minister talked to the Gulf countries, Abu Dhabi Ports showed preliminary interest and "we are engaging with it".

He said that the Privatisation Commission was looking for both the options of selling stakes through a competitive process or opting for a government-to-government deal.

"We have learnt our lesson and PIA cannot be sold without completely cleaning the balance sheet from all liabilities," said the privatisation minister.

There was no justification for leaving behind Rs45 billion worth of liabilities on the PIA balance sheet when the government had carved out Rs623 billion from the balance sheet and parked it in a holding company, said Tallal Chaudhry.

The federal minister disapproved of the work of PIA financial adviser, Ernst & Young, saying its cooperation and feedback were below expectations.

The government had hired the consultant at a cost of nearly Rs2 billion and only 27% of the price was to be paid after bidding, said the privatisation secretary.