PIA privatisation faces hurdles as ministries lock horns on debt transfer

Transferring Rs 1.7 trillion losses of PIACL will create a huge financial burden for government, argues Finance Ministry 

The privatisation plan of Pakistan International Airlines Corporation Limited (PIACL) faces hurdles as the Finance Ministry and the Privatisation Ministry lock horns over the transfer of the national carrier’s liabilities to the government

Business Recorder, quoting sources, reported that in a recent cabinet meeting, the Finance Ministry argued that transferring over Rs 1.7 trillion losses of PIACL would create a huge financial burden for the government, which already spends 75% of its revenue on debt servicing. 

The ministry also expressed doubts about the timely recovery of the proceeds from the sale of PIACL assets and suggested further discussion on the segregation transaction plan and the debt settlement structure.

The Privatisation Ministry, however, countered that the actual debt to be shifted to the government was Rs 623 billion, not Rs 1.7 trillion and that it was a common practice for governments to assume the liabilities of loss-making state-owned enterprises to facilitate their privatisation. The ministry cited regional examples to show that not taking over the debt would result in low bids from potential investors.

Some cabinet members also raised questions about the performance of PIACL and its outstanding liabilities. One of them proposed that two of PIACL’s assets, including the Roosevelt Hotel in New York, could be sold to pay off the debts. Another member suggested that instead of amending the FBR law to exempt PIACL from income tax, alternative options should be explored. The Privatisation Ministry clarified that the proposal was for an exemption, not an amendment, in section 57(2) of the Income Tax Ordinance.

Earlier, the Privatisation Commission Board had approved two options for the legal segregation and transaction plan of PIACL, which were presented to the cabinet after incorporating some amendments. 

The first option was to create a holding company (Hold Co) that would own PIACL and its subsidiaries and transfer the liabilities to the government. 

The second option was to divest 51% to 100% shares of PIACL to a strategic investor. The plan also included retaining PIACL employees for three years after privatisation and closing the ancillary services if they were not retained by the investor.

 

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