The government has sought the International Monetary Fund’s (IMF) approval for a Rs26 billion tax exemption aimed at making Pakistan International Airlines (PIA) more appealing to potential investors.
The move is part of efforts to address challenges in the privatization process for the struggling national carrier.
Privatisation Minister Abdul Aleem Khan, briefing a parliamentary panel, highlighted that tax relief and financial adjustments are pivotal to the airline’s sale.
He attributed the failed privatisation attempt to the Ministry of Finance’s lack of cooperation, stating it did not address the legitimate demands of prospective bidders.
He also criticised the caretaker government for designing a flawed privatisation structure, which retained a negative equity of Rs45 billion on PIA’s balance sheet, even after removing liabilities amounting to Rs623 billion.
One major demand from prospective buyers is an exemption from the advance general sales tax (GST) on new aircraft, which could reduce operational costs and improve PIA’s financial health.
During the Senate Standing Committee on Privatisation meeting chaired by Senator Talal Chaudhry, it was revealed that the government must also resolve PIA’s Rs45 billion negative equity by carving out legacy liabilities to present a cleaner balance sheet for investors.
The IMF’s approval is vital, as the requested tax relief and liability restructuring align with the broader economic framework under the $7 billion Extended Fund Facility (EFF) programme. Without these measures, the privatisation process remains stalled.
The cash-strapped PIA has become a tough sell, with investors setting three non-negotiable conditions: the Rs26 billion tax waiver, the removal of Rs10 billion in bridge financing costs, and the transfer of PIA-owned property in Islamabad worth Rs12 billion.
Minister Aleem Khan expressed optimism about the airline’s potential, stating, “PIA has great promise, but the government must take bold decisions to attract local and international investors.”
Committee Chairman Talal Chaudhry praised the minister’s leadership but voiced concerns over delays in the privatisation process. Aleem Khan defended his efforts, comparing PIA’s privatisation complexities to India’s five attempts at selling Air India.
‘Rs1.95 billion to be paid to consultant’
The minister criticised consulting firm Ernst & Young (EY) for its performance, suggesting future consultants with aviation expertise. EY has already received 45% of its Rs1.95 billion contract fee.
Privatisation Commission Secretary Usman Akhtar Bajwa added that without IMF concurrence, critical tax relief measures cannot proceed. A meeting with the IMF on November 15 outlined the necessity of waiving 18% GST and resolving PIA’s negative equity.
Bajwa disclosed ongoing negotiations with entities like Abu Dhabi Ports and noted that PIA’s operations on profitable routes make it an attractive investment. The government is also exploring government-to-government (G2G) agreements, as hinted during high-level talks initiated by the Prime Minister.
