Govt tightens PIA bidding terms

The government on Thursday tightened conditions for prospective buyers of Pakistan International Airlines (PIA) to attract only financially sound parties for the second privatisation bid and also barred provincial governments from participating in the bidding.

The prospective bidders can show their interest in acquiring majority shares in PIA till June 3, said Muhammad Ali, Adviser to Prime Minister on Privatisation, while talking to journalists.

He said that the government tightened the conditions by learning lessons from the last failed privatisation attempt. It also facilitated investors by allowing them to change the lead consortium member two weeks before the bidding date.

The adviser shared details of the revised Expression of Interest (EOI) for selling 51% to 100% PIA shares along with management control. It hopes to strike a deal by the last quarter of this calendar year.

The government has set the June 3 deadline for submitting documents by prospective buyers excluding the federal and provincial governments and their entities.

However, the affiliates of federal and provincial governments that do not fall in the category of state-owned enterprises like the Fauji Foundation are eligible to participate in the bidding, said Privatisation Commission Secretary Usman Bajwa while responding to a question. Fauji Foundation's name is in circulation as one of the potential consortiums to bid for acquiring PIA.

Muhammad Ali said that the government had allowed the replacement of lead consortium members at least 15 days prior to bidding, subject to compliance with the pre-qualification criteria and the Request for Statement of Qualification instructions.

Usman Bajwa said that the minimum worth of the lead consortium member should be Rs8 billion and it would have to go through all the checks before being declared eligible to participate in the bid. The privatisation adviser said that the change in the lead consortium member would not affect the price as all those changes had to be approved and vetted much before the bidding date.

The government attempted to privatise PIA last year but ended up with the sole bidder that too a real estate developer, which offered Rs10 billion against the minimum price of Rs85.03 billion. This raised questions about the qualification criteria. The government has exempted 18% GST on the purchase or lease of aircraft for PIA and the negative equity can also be adjusted in light of the feedback to be received from the parties, said Ali.

The reference price would be better than the last price of Rs85.03 billion due to the improvement in balance sheet of the airline, opening of European routes and settlement of 18% GST, said the privatisation adviser.

To a question, the Privatisation Commission secretary said that according to the approved accounts, the assets and liabilities' position of PIA was more or less the same. He said that the overall balance sheet of the airline had improved because of booking the deferred tax credit of Rs30 billion this year, which was also a reason for showing profits. "One of the factors of PIA profitability is the adjustment of past tax credits at the current value of Rs30 billion," said the privatisation secretary. PIA has started breathing but it still needs money to grow and expand the 15 operational aircraft fleet, said Usman Bajwa.

The adviser clarified that no foreign government was interested in buying PIA at this stage and the government would conduct the international competitive bidding.

Ali said that financial soundness conditions had been made stringent to make sure that only financially credible companies come forward. The prospective buyer could be a scheduled airline.

In case of non-airline business bids for PIA, such enterprise must have a minimum annual revenue of Rs200 billion, or $715 million, as per the audited financials of December 2023 or later. The minimum annual revenue of Rs100 billion, or $360 million, for each year during the last three years is also required, said the adviser.

Ali said that there was a new insertion in the financial criteria for qualification related to liquidity and cash in hand. The party must have Rs28 billion, or $100 million, in cash or liquid assets, said the adviser.

According to another improved condition, the prospective buyer must be audited by an international renowned firm of chartered accountants or category 'A' or 'B' list of auditors as per SBP's panel of auditors.