The Privatisation Commission (PC) board has granted approval for updated rules facilitating the sale of state entities, particularly focusing on expediting the privatisation process of Pakistan International Airlines (PIA).
The new regulations, titled “Privatisation Commission (Government to Government Agreement Mode – Manner and Procedure) Rules, 2023,” allow for direct negotiations with foreign nations, setting minimum prices through a competitive process.
Under the current competitive route, the average time required to privatise an asset is approximately 462 days. This extended timeline is considered impractical for entities like PIA, which is experiencing annual losses estimated at Rs153 billion.
The newly approved rules aim to streamline procedural requirements for selling state entities, creating a bridge between the Privatisation Ordinance 2000 and the Intergovernmental Commercial Transactions Act of 2022. While the Privatisation Ordinance mandates a competitive and open bidding process, the 2023 rules enable the sale of assets through negotiated deals with foreign nations.
Pending endorsement by the Cabinet Committee on Legislative Cases (CCLC), the new arrangement will provide an avenue to transition an entity earmarked for privatisation to a cabinet committee authorized for negotiations, bypassing the open bidding process.
The government has already engaged a financial adviser for the PIA privatisation, expected to submit a merger report next month. Expressions of Interest (EOIs) are anticipated to be issued next month to invite investors for participation.
The financial adviser, contracted at a cost below $7 million, will receive 30 percent of the fee after the privatisation process. To expedite the PIA privatisation, sources within the Ministry of Privatisation suggest that the case may be sent to the Intergovernmental Transactions Committee.
This development follows the Privatisation Ministry’s strategic move to curtail the role of high courts in privatisation transactions, as per the Privatisation Ordinance.
The approved rules outline the process of hiring a financial adviser for legal, technical, and financial due diligence. The adviser will identify obstacles to privatisation, propose solutions, conduct independent valuations, and establish a reference price through a price discovery mechanism.
Empowered financial advisers can utilize various valuation methods, including the Discounted Cash Flow (DCF) method, Discounted Dividend Model, balance sheet method, transaction multiple methodologies, asset valuation methodologies, and others aligned with international best practices.
Upon approval from the PC board and the Cabinet Committee on Privatisation (CCOP), the federal government will decide whether to proceed with the open bidding process or refer the matter for a negotiated deal, depending on the approved reference price and price discovery mechanism.
The new rules will take precedence over the Privatisation Modes and Procedures Rules of 2001 and the Privatisation Commission Valuation of Property Rules, 2007.
