The privatisation of Pakistan International Airlines (PIA) is nearing a critical juncture, with the process expected to conclude by October 1, 2024. The Senate Standing Committee on Privatisation was informed that the government is determined not to extend this deadline, as six companies have been finalised to bid for the struggling national carrier. The privatisation process is part of a broader effort by Islamabad to address the severe financial losses sustained by state-owned enterprises (SOEs), including PIA, which has been a significant drain on the country’s resources.
PIA, once a symbol of national pride, has been a financial burden on Pakistan for several years. Since 2015, the airline has accumulated staggering losses amounting to Rs599 billion (approximately $3.34 billion). In just the past year, PIA’s losses reached between Rs75 billion to Rs80 billion, exacerbating the airline’s already precarious financial position. The airline’s continued operation has only been possible due to substantial financial injections from the government, which has pumped billions of dollars into various loss-making SOEs to keep them afloat.
The privatisation of PIA is not just a financial necessity but also a condition set by the International Monetary Fund (IMF) as part of a $3 billion bailout package agreed upon in June 2023. As part of the agreement, Pakistan committed to overhauling its loss-making state enterprises, with PIA being one of the primary targets for privatisation.
During a recent meeting of the Senate Standing Committee on Privatisation, Usman Bajwa, Secretary of the Privatisation Commission, outlined the current status of the PIA privatisation. He emphasized that the government is working hard to avoid any delays beyond the October 1 deadline. The bidding process has attracted interest from six companies, which have been finalised as potential buyers. However, Bajwa cautioned that the timeline might need to be extended if the due diligence process is not completed on time.
A significant challenge for any prospective buyer is the immediate need for investment in PIA. Secretary Bajwa highlighted that whoever acquires the airline will need to inject Rs425 billion to ensure its smooth operation. This substantial sum underscores the scale of the financial difficulties facing PIA and the significant risks involved in its acquisition.
The federal government had earlier granted a two-month extension to the due diligence period for the privatisation process, responding to requests from several interested bidders. Four out of the six pre-qualified bidders requested extensions ranging from 60 days to six months. To accommodate these requests, the government decided on a two-month extension, aiming to maintain momentum while allowing bidders sufficient time to complete their evaluations.
As part of the privatisation process, pre-qualified bidders conducted site visits to PIA’s facilities in Karachi in late June, followed by pre-bid meetings in July and August. These steps are critical in ensuring that the final bidding process, expected to be live-streamed for transparency, is conducted fairly and openly.
The privatisation process has not been without controversy. During the Senate committee meeting, concerns were raised about the costs associated with hiring a financial adviser to guide the privatisation. It was revealed that the adviser was paid substantial sums, including Rs330 million for the privatisation of National Power Park Company and Rs130 million for Pakistan Steel Mills, despite the suspension of these processes. Additionally, Rs7 million was paid to the adviser in connection with the Jinnah Convention Centre’s privatisation, which was also halted.
These revelations have led to criticism of the government’s management of the privatisation process, with some questioning the rationale behind such high payments for halted projects. The payments have added to the scrutiny of the privatisation process, with concerns that public funds are being misused.
The privatisation of PIA is a crucial step in Pakistan’s broader strategy to address the financial losses of its state-owned enterprises. With the process expected to conclude by October 1, the government is under pressure to ensure a transparent and efficient sale of the airline. However, the challenges are significant, with the need for substantial immediate investment by the buyer and concerns about the costs associated with the privatisation process itself. As the deadline approaches, the outcome of PIA’s privatisation will be closely watched, both within Pakistan and by international stakeholders, particularly the IMF.
