PIA privatization hits snag over debt issue
The privatization endeavor concerning the Pakistan International
Airlines Corporation Limited (PIACL) encounters hurdles as the Finance Ministry
and the Privatization Ministry engage in a dispute regarding the transfer of
the national carrier’s liabilities to the government.
During a recent cabinet meeting, the Finance Ministry raised
concerns about the significant financial burden the transfer of over Rs 1.7
trillion in losses from PIACL would impose on the government. The ministry
highlighted that such a move would exacerbate the existing strain on government
finances, with 75% of revenue already allocated to debt servicing.
Committee
established to expedite privatization of Pakistan International Airlines (PIA)
Moreover, the Finance Ministry expressed skepticism about the
timely recovery of proceeds from the sale of PIACL assets and proposed further
deliberation on the segregation transaction plan and the debt settlement
framework.
In response, the Privatization Ministry contested these claims,
asserting that the actual debt to be assumed by the government amounted to Rs
623 billion, not Rs 1.7 trillion. They argued that it is a customary practice
for governments to absorb the liabilities of struggling state-owned enterprises
to facilitate their privatization. Citing examples from the region, the
ministry warned that failure to assume the debt could result in lower bids from
potential investors.
Legal
procedures completed for PIA privatization: Privatization Minister
The discussion in the cabinet also saw members raising queries
regarding PIACL's performance and outstanding liabilities. Suggestions were put
forth regarding the potential sale of PIACL assets, such as the Roosevelt Hotel
in New York, to alleviate the debts. Additionally, alternatives to amending the
FBR law for income tax exemption for PIACL were proposed and clarified by the
Privatization Ministry as exemptions under section 57(2) of the Income Tax
Ordinance.
Previously, the Privatization Commission Board had endorsed two
options for the legal segregation and transaction plan of PIACL, which were
presented to the cabinet following amendments. The first option involved
establishing a holding company (Hold Co) to oversee PIACL and its subsidiaries,
with liabilities transferred to the government. The second option entailed
selling 51% to 100% of PIACL shares to a strategic investor, with provisions
for retaining PIACL employees for three years post-privatization and closing
ancillary services if not retained by the investor.
Source: Profit Pakistan