PIA bidding: Financial advisers to get Rs456.8 million in fee

Dubai Islamic Bank-led consortium makes the lowest offer among all bidders.

Shahbaz Rana July 31, 2014


A consortium led by Dubai Islamic Bank will receive a fee of Rs456.8 million in addition to 1.5% of the sale proceeds for conducting successful privatisation of Pakistan International Airlines (PIA) – a price which is the lowest among all bidders.

In an effort to justify the selection of the DIB consortium, the Privatisation Commission (PC) released technical and financial details of the three pre-qualified consortiums. The details showed that the DIB consortium got the maximum score in technical evaluation and quoted the lowest price.

The consortium that emerged victorious comprises DIB, IATA Consulting – which has expertise in aviation business, audit firm Deloitte, local legal firm Haidermota BNR, international legal firm Freshfields Bruckhaus Deringer, human resource expert Abacus Consulting, local communication strategy firm APCO and Prestige – an international communication strategy firm.

An official of the Ministry of Finance and Privatisation, who is directly dealing with the transaction, said the PC had nothing to hide and every step of the process could be scrutinised by anyone.

There has been criticism in the media that the PC board picked a consortium that was not technically sound to handle one of the most complex privatisation transactions.

The deadline to sell a minimum 26% government stake in the national flag carrier is June next year. The original deadline, as agreed with the International Monetary Fund (IMF), was June this year.

Under the $6.7 billion IMF loan programme, Pakistan has agreed to sell 26% shares in PIA to strategic investors. Two hotels, Roosevelt New York and Scribe in Paris owned by PIA, will be sold separately.

According to the PC, it had invited expressions of interest (EOI) only from the interested parties having demonstrable track record of successfully managing similar transactions in the past. It gave advertisements to hire a financial adviser that would help the government restructure the bleeding entity and sell its core operations to a private sector party.

In response to the advertisements, five consortiums applied, of which three were declared successful by a seven-member evaluation committee. The consortiums led by Mckinsey and Rothschild could not be eligible to bid for becoming the adviser.

According to the PC, DIB-led consortium got a score of 87 at the technical evaluation stage – the highest among the three. Ernst & Young-led consortium got 83 marks followed by Jefferies that obtained 70 marks.

Financial bids of these parties were opened on July 18. According to the PC, the DIB consortium quoted the lowest bid price at Rs456.77 million. The government will pay this amount on account of retainer fee and out-of-pocket expenses. In addition, the consortium sought 1.5% of sale proceeds as success fee.

The Ernst & Young-led consortium sought Rs547.69 million as retainer fee and out-of-pocket expenses. Besides, it quoted 3.5% of sale proceeds as success fee, said the PC.

The third party, Jefferies, sought Rs1.373 billion as retainer fee besides 1.5% of sale proceeds as success fee.

On the basis of the technical and financial evaluation, the PC board gave 100 marks to the DIB consortium, 90 to Ernst & Young and 73 to Jefferies, declaring DIB as the successful bidder.

The Pakistan Peoples Party has accused the government of planning to sack half of the PIA workforce before its privatisation. “The government will not lay off a single employee before privatisation,” remarked PC Chairman Mohammad Zubair.

There was criticism that Deloitte – a legal firm in the DIB consortium – remained an auditor of PIA, thus there was a conflict of interest. But the PC was of the view that Deloitte was the external auditor until December 2013 and was eligible to become a member of the consortium. Current external auditors of PIA are KPMG and PWC.

Published in The Express Tribune, August 1st, 2014.

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Oily | 9 years ago | Reply

This is a treacherous scandal whatever privatization says, its all ntrue. A close examination of comparing "apples with apples" will reveal the fact that DIB and BNR Haidrmota stand disqualified, in violation of PPRA and Privatisation own rules. Please read clauses of PPRA to know the truth.

A scandal in the making. Documentary evidence will hit the courts shortly.

Ahmed Yar | 9 years ago | Reply

Do you know that DIB as the winning consortium partner of Etisalat still owes GOP USD 800M of the remaining USD 2.6 Billion sale for the acquisition 26% stake of PTCL to Etisalat.

Shouldn't the legal counsel at the PC be fired for overlooking this critical issue? DIB should have been black-balled.

This is double jeopardy for GOP? It doesn't get paid for PTCL but is prepared to fork out millions in advisory fee and success fee. PC's evaluation process is flawed and it lacks the ability to process quality from laminated pitches.

I wonder who takes the cut!

Kind regards, Ahmed Yar

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