Privatisation snags
Latest legal hindrance conveys how laidback authorities really are about the entire privatisation process
PHOTO: REUTERS
After months of swinging back and forth as it attempts to privatise Pakistan International Airlines (PIA), a legal hindrance has proven to be the unlikely roadblock for the government. One of the conditions that the IMF had set was restructuring and/or privatisation of state-owned entities and the list included loss-making enterprises like PIA and the Pakistan Steel Mills. After revising the deadline for PIA’s privatisation, which went hand-in-hand with attempts to restructure it and reduce its losses, it is ironic that the airline’s Act of 1956 — which states that the government cannot transfer its shares to any other party — proved to be the obstacle. What the government can do now is split the corporation into two, which would be a time-consuming process and is likely to involve several other complications. We all know how governments feel about dealing with complications, especially when there are doubts over whether they even intend to go ahead with a certain proposal.
The whole process of PIA’s privatisation has been perceived as nothing but a charade to appease the IMF and ensure timely payments of the Extended Fund Facility, a loan Pakistan was granted in September 2013. Under heavy debt, financial statements of the national carrier convey interest payments have eroded, whatever profit was being made during the January- March 2015 quarter. This comes despite lower fuel costs. There is no doubt that the corporation has endured heavy losses and will continue to do so for the foreseeable future, and a high employee-to-aircraft ratio is not the only reason for this. Declining market share, poor management of old aircraft and less-than-stellar service are some of the many reasons for PIA being in the red. It was hence, always going to be difficult to find a strategic investor, who would want to take management control of the airline. However, the latest legal hindrance – unearthed during the due diligence process — conveys how laidback authorities really are about the entire privatisation process that they could not foresee this legal hindrance. Amending the act through parliament will need the PPP’s support and it has not kept its reservations about privatisation to itself. It remains to be seen how the government will get itself out of this hole since the March deadline set by the IMF is now likely to be missed.
Published in The Express Tribune, September 1st, 2015.
The whole process of PIA’s privatisation has been perceived as nothing but a charade to appease the IMF and ensure timely payments of the Extended Fund Facility, a loan Pakistan was granted in September 2013. Under heavy debt, financial statements of the national carrier convey interest payments have eroded, whatever profit was being made during the January- March 2015 quarter. This comes despite lower fuel costs. There is no doubt that the corporation has endured heavy losses and will continue to do so for the foreseeable future, and a high employee-to-aircraft ratio is not the only reason for this. Declining market share, poor management of old aircraft and less-than-stellar service are some of the many reasons for PIA being in the red. It was hence, always going to be difficult to find a strategic investor, who would want to take management control of the airline. However, the latest legal hindrance – unearthed during the due diligence process — conveys how laidback authorities really are about the entire privatisation process that they could not foresee this legal hindrance. Amending the act through parliament will need the PPP’s support and it has not kept its reservations about privatisation to itself. It remains to be seen how the government will get itself out of this hole since the March deadline set by the IMF is now likely to be missed.
Published in The Express Tribune, September 1st, 2015.