Funding PIA termed ‘challenging’ due to IMF programme

ISLAMABAD: Ministry of Privatisation has stated that arrangement of funds for Pakistan International Airlines (PIA) by the Finance Ministry is challenging due to the IMF program.

At a recent meeting of Federal Cabinet, Privatization Commission (PC) shared a draft summary with Aviation Division regarding inclusion of PIACL in the active privatisation list, subject to enactment of the amendment in the PIACL Conversion (2016) Act.

After receiving consent of the Aviation Division, the matter was placed before the PC Board on July 27, 2023, whereby the Board recommended to the CCoP for inclusion of PIACL in the privatisation program, subject to enactment of amendment in the PIAC (Conversion) Act 2016.

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Accordingly, the CCoP on August 7, 2023 approved recommendations of the PC Board, which was later ratified by the Federal Cabinet Aug 09, 2023. The PIAC (Conversion) Amendment Bill 2023 was published in Official Gazette on August 12, 2023.

The Ministry further stated that to proceed further with the transaction, the PC initially allowed PIACL to initiate the process of engagement of advisory firms/ consultants for undertaking restructuring of the PIACL, with the purpose to carve out core aviation assets for privatisation/ divestment. However, permission was later withdrawn with a view to undertaking legal segregation, leading to privatisation/ divestment by the PC itself to avoid any delays.

The Ministry highlighted that during a meeting convened under the chairmanship of the Minister for Privatisation on September 15, 2023, the PIACL informed that it was experiencing a monthly shortfall of no less than Rs 12.77 billion. This was in addition to the accumulated losses of Rs 713 billion, as reported in the Financial Statements of June 2023.

The Ministry stated that in light of the prevailing macroeconomic conditions in the country, the government of Pakistan was unable to sustain such considerable financial burdens and continued losses, and as such the matter was of ‘extreme urgency’.

The Ministry informed the forum that the government had already provided Rs 18 billion to PIA in the previous month, yet there was another request for additional funding of Rs 20 billion.

The Ministry expressed the concern that in addition to the serious economic and financial problems that the country was facing, Pakistan was currently operating under an International Monetary Fund (IMF) program, which made it even more challenging for the Ministry of Finance to arrange such substantial amounts of funding.

The Ministry concluded that privatization of the PIACL was undisputedly a matter of national emergency and that all possible avenues must be explored to expedite the privatisation process. Failure to do so could result in the financial collapse of PIA, leading to not only domestic but also international repercussions, thereby causing significant embarrassment for the country.

It was further informed that in view of the circumstances, the PC Board in its meeting held on October 6, 2023, after giving due consideration to the magnitude of the transaction and the extreme urgency, had approved PIACL as a major transaction that warranted appointment of a Financial Adviser, along with the approval to invoke Regulation 14(1) of the Privatization Commission (Hiring of Financial Advisers) Regulations 2018t to appoint a panel of interested parties prepared from the accessible league table, subject to approval of the CCoP and for issuance of request for proposals package by PC directly to the interested parties in the panel.

The Ministry explained to the forum that the PC requested the CCoP on October 6, 2023 to issue direction to PC to appoint a panel of interested parties as identified from league tables and for issuing the request for proposals package directly to the interested parties in the panel, which was approved by the CCOP, i.e., to invoke the regulation referred above in context of the “extreme urgency”, subject to advice sought from Law & Justice Division.

The Ministry added that as advised by the CCoP, the requisite opinion was sought from Law & Justice Division and in response, Law & Justice Division had, inter alia, opined that “the determination of extreme urgency is the prerogative of the Commission itself and not by any other entity.

Once the Commission is satisfied that the matter is of extreme urgency and requires expeditious action, it may place the matter before the CCoP to seek its directions and the CCoP may direct the Commission to invoke the procedure provided under Section 14(1) ibid at to proceed further for the hiring of Financial Adviser through the prescribed method.“

The Ministry stated that although the matter of hiring of Financial Adviser through league table received endorsement from the PC Board and the CCoP, the Minister for Privatisation desired that the matter may be placed before the Federal Cabinet for an open discussion and collective decision, in terms of Rule 16(1) (k) read with Rule 17(1) (a) of Rules of Business, 1973.

The Cabinet was further informed that the matter was also deliberated upon in the SIFC, where there had been a consensus that the Commission was following the correct course of action. It was further suggested to opt for the league table method in hiring a Financial Advisor, but to also consider those firms that had already expressed their interest in response to an international advertisement, but which were not in the league table.

It was suggested by a Cabinet Member that the Privatisation Commission was competent to determine the course of action for which approval of the Cabinet was not required. In response the Cabinet Secretary clarified that in terms of rule 16 (1) (k) of the Rules of Business, 1973, any “case which the Minister- in-Charge considers important enough for discussion in the Cabinet” could be brought before the Cabinet.

Minister for Privatisation explained that the matter was presented to the Cabinet as it was of urgent nature and merits to invoke collective wisdom of the Cabinet members. The Ministry proposed to the Federal Cabinet to approve invoking of Regulation 14(1) of the Privatisation Commission (Hiring of Financial Advisers) Regulations 2018 to appoint a Financial Advisory Consortium from the published league tables as well as firms who had responded to the advertisement to expedite the preparation of PIACL for divestment.

After detailed discussion, the Cabinet approved a proposal of Privatisation Ministry about hiring of Financial Adviser for privatisation of PIACL, under Regulation 14(1) of the Privatization Commission (Hiring of Financial Advisers) Regulations 2018.

Copyright Business Recorder, 2023