Pakistan extends PIA privatisation due diligence to Oct 1

ISLAMABAD: In a bid to steer Pakistan International Airlines (PIA) away from a financial nosedive, the Pakistani government has granted a two-month extension to the due diligence period for the airline’s privatisation process, now set to conclude by October 1, 2024.

This decision, prompted by requests from bidding parties, includes a proposal by Privatization Commission for the winning bidder to retain existing employees for up to three years—a nod to the sensitivity of labor issues in the nation’s public sector sell-offs.

Since February 2015, PIA has accumulated staggering losses of Rs599 billion (US$3.34 billion), with last year alone accounting for Rs75-80 billion in red ink, according to Jawad Paul, Secretary of the Privatization Division.

Speaking before the National Assembly’s Standing Committee on Privatization on Monday, Jawad Paul noted that four out of the six interested bidders had requested extensions ranging from 60 days to six months, leading the government to settle on a two-month extension.

Pre-qualified bidders have conducted site visits to PIA’s facilities in Karachi in late June, followed by a series of pre-bid meetings in July and August. These steps are part of a meticulous process leading up to the final bidding, which will include live streaming to ensure transparency. Once the due diligence is complete, the government plans to finalize bidding documents and seek approvals from the Cabinet Committee on Privatization (CCoP) and the federal cabinet before contract signing and awarding.

The privatization of PIA, Paul emphasized, is a “loss minimisation effort,” intended to redirect funds to other economic and social sectors.

MNA Sehar Kamran questioned the Secretary, asking whether any performance audit of PIA had been conducted, suggesting that the decision to privatize was made simply because the airline was deemed inefficient. “Had there been a performance audit, we wouldn’t be in this position now,” she argued. “We shouldn’t just sweep this issue under the carpet.” In response, Paul stated, “I’m unfamiliar with that matter. I cannot comment, as it falls under the jurisdiction of the Aviation Ministry.”

Chairman of the committee, Farooq Sattar, echoed the call for greater scrutiny. “At one time, PIA was a national pride,” he lamented, promising to raise the issue of an audit in parliament. Yet, he acknowledged the urgent need to proceed with privatization to stem further losses. He added, “We cannot hold it back [its privatisation], as more delay leads to more losses.”

Concerns about international interest in the privatisation process were also addressed. Paul revealed that while some foreign investors are participating, they are doing so in consortiums with local players. On the contentious issue of employee retention, Sattar suggested extending the retention period beyond three years, but Paul cautioned that such demands could lower the sale price.

The meeting also touched upon other privatisation initiatives, including the Roosevelt Hotel in New York. He added that the government has appointed Jones Lang Lasalle Americas Inc. (JLL), a Chicago-based real estate management firm, as the financial adviser to explore transaction options, ranging from a long-term lease to an outright sale or joint venture. JLL’s findings will be reviewed by the CCoP on August 28, 2024, before the government proceeds with calling for expressions of interest (EoIs) from investors.

Additionally, the committee discussed the sale of House Building Finance Company Limited (HBFCL) to Pakistan Mortgage Refinance Company (PMRC), a deal approved by the CCoP and the federal cabinet in July 2023. The transaction is nearing completion, though some members expressed reservations about privatizing a profitable entity.

A member inquired why the Bangladeshi company, which had initially expressed interest in the entity, later withdrew. The Managing Director of HBFC Imran Ahad explained to the panel that there was no specific issue but suggested that the decision was likely influenced by the prevailing macroeconomic situation in the country.

For the past 20 years, loan recovery has been a significant challenge for the company, leading to financial losses. However, over the last eight years, the company has successfully reduced its non-performing loans (NPLs) or bad loans to the lowest level, now accounting for just 17 percent of the total loan portfolio.

Farooq Sattar, after hearing from the MD of the company said that HBFCL is a profitable entity not reliant on government funds, called for a review of the privatization plan. “We do not say to stop its privatization,” Sattar clarified, advocating for further discussions with the CCoP to ensure the government’s objectives align with broader economic interests.