Amid divisions within its ranks on the issue of privatisation of Pakistan International Airlines (PIA), the government has given a fresh commitment to the International Monetary Fund (IMF), promising it will sell the national carrier to a strategic investor by March next year.
“The timelines to sell a minimum 26% of PIA shares were discussed during the on-going eighth review of the $6.6-billion Pak-IMF programme,” said Privatisation Commission Chairman Mohammad Zubair while talking to The Express Tribune.
He said the government stands committed to completing the privatisation transaction by March next year. “PIA’s transaction structure will be formalised within a month and shared with the Ministry of Law for vetting.”
He hoped that the transaction structure would be taken to the Cabinet Committee of Privatisation for approval next month.
“The government had faced certain legal obstacles in finalising the transaction structure, which have now been resolved,” added the Chairman. He did not comment on whether the government would offer 26% stakes to a strategic investor or sell majority shares.
Under the IMF programme, the government is bound to sell at least 26% shares of PIA to a strategic investor. But it is facing resistance from opposition parties, particularly the Pakistan Peoples Party (PPP), which is opposed to the privatisation of PIA and Pakistan Steel Mills (PSM).
The Commission has already hired a consortium comprising Dubai Islamic Bank, IATA Consulting, Deloitte, HaidermotaBNR, Freshfields Bruckaus Deringer, Abacus Consulting, APCO and Prestige as Financial Adviser (FA) for the transaction.
The IMF programme document states that the government has to complete the transaction by December this year. But Zubair said the December deadline was for soliciting bids from prospective bidders.
He said there was a misunderstanding on IMF’s part that took the deadline of soliciting bids as the time limit to privatise the entity.
The original deadline to privatise the PIA was December last year, which has thrice been revised.
While the government claims that it would be able to complete the transaction by March next year, circumstances suggest that it would be very difficult to do so. The chairman admitted that any unusual event may push the deadline ahead.
PIA and PSM are the two main public sector enterprises that are causing huge losses to the exchequer. The service delivery by the PIA also remains poor, providing a reason to the government to hand over its control to strategic investors.
According to the audited financial statement for January-March period this year, the accumulative losses of the airline increased to Rs228.7 billion – a net addition of Rs2.1 billion in three months. The total liabilities grew to Rs329.7 billion as of March this year while its assets were recorded at Rs186.7 billion.
Despite giving a commitment to the IMF to privatise the entity by March next year, the government has not yet resolved inter-ministerial differences, according to the sources.
Adviser to Prime Minister on Aviation Captain (retired) Shujat Azeem is said to be in opposition to the privatisation.
He is in favour of restructuring and revival of the entity and under the same strategy, PIA is in the process of acquiring ten narrow-body aircraft, five ATRs and two wide body aircraft on lease. Few of these planes have already joined the fleet.
Under the privatisation law, if an entity is to be privatised it has to be placed under the administrative control of the Privatisation Commission. However, PIA is still under control of the Aviation Division, said PC officials, indicating that the Commission was facing resistance. Unlike the PIA, the PSM is under the administrative control of the commission.
The sources said the issue of Aviation Division’s opposition to PIA privatisation has been taken up with Minister of Finance Ishaq Dar. They added that the matter would now be discussed to find a solution, and if left unresolved could derail the privatisation process.
Published in The Express Tribune, August 5th, 2015.