Connect with us

News

Ahead of election, Pakistan seals plan to sell national airline

Published

on

Ahead of elections next week, Pakistan’s caretaker administration is making binding plans for a new government to sell loss-making Pakistan International Airlines (PIAa.PSX), opens new tab, according to the minister in charge of the process and other officials.

In the past, elected governments have shied away from undertaking unpopular reforms, including the sale of the flag carrier. But Pakistan, in deep economic crisis, agreed in June to overhaul loss-making state-owned enterprises under a deal with the International Monetary Fund (IMF) for a $3 billion bailout.

The government decided to privatise PIA just weeks after signing the IMF agreement.

The caretaker administration, which took office in August to oversee the Feb. 8 election, was empowered by the outgoing parliament to take any steps needed to meet the budgetary targets agreed with the IMF.

“Our job is 98% done,” Privatisation Minister Fawad Hasan Fawad told Reuters when asked about the plan to sell the airline. “The remaining 2% is just to bring it on an excel sheet after the cabinet approves it.”

Fawad said the plan, drawn up by transaction adviser Ernst & Young, will be presented to the cabinet for approval before the tenure of the administration ends following the election. The cabinet will also decide whether to sell the stake by tender or through a government-to-government deal, Fawad said.

“What we have done in just four months is what past governments have been trying to do for over a decade,” Fawad said. “There is no looking back.”

Details of the privatisation process have not been previously reported.

PIA had liabilities of 785 billion Pakistani rupees ($2.81 billion) and accumulated losses of 713 billion rupees as of June last year. Its CEO has said losses in 2023 were likely to be 112 billion rupees.

Progress on the privatisation will be a key issue if the incoming government goes back to the IMF once the current bailout programme expires in March. Caretaker Finance Minister Shamshad Akhtar told reporters last year that Pakistan would have to remain in IMF programmes after the expiry.

Two sources close to the process told Reuters that a 51% stake with full management control would be offered to buyers after parking the airline’s debts in a separate entity, under the 1,100 page report from Ernst & Young.

Reuters could not independently confirm the contents of the report. Fawad did not give specific details of the size of the stake to be sold, but confirmed the plan involved the carrier’s debts being spun off into a separate entity.

Ernst & Young did not respond to requests for comment.

PIA spokesman Abdullah Hafeez Khan said the airline was assisting the privatisation process, extending “full cooperation” to the transaction adviser.

Fast-tracked
Besides operational and technical measures for PIA’s divestment, the caretaker government has also amended a 2016 law that had blocked selling off its majority shares, according to a draft posted on the Pakistan parliament’s website.

The Pakistan Muslim League-Nawaz party of former Prime Minister Nawaz Sharif is tipped by analysts to win the election with support from the powerful military. Its main political rival has been decimated by the arrest of its leader Imran Khan and a crackdown on its members.

Sharif’s close aide Ishaq Dar, who has been his finance minister previously and has been named by the party to retain the portfolio if it forms the next government, told Reuters that the sale of PIA will be fast-tracked.

“It will, God willing, move ahead with fast speed,” he said.

In a report in mid-January, the IMF expressed satisfaction over the measures initiated by the caretaker government to accelerate reforms of state-owned enterprises, specifically mentioning the amendment of the PIA privatisation law.

Under the privatisation plan submitted by Ernst & Young to the government on Dec. 27, government-guaranteed legacy debt and payables – which are held by a consortium of seven domestic banks – will be parked in a holding company, Fawad and two sources involved in the process said.

Fawad said the government and the consortium had an agreement in place regarding the settlement of the legacy debt, which includes negative equity of 825 billions rupees in loans, creditors’ money and the losses. He provided no further details.

The sources had earlier said the banks wanted a five-year bond issued against the debt with a 16.5% coupon on the paper, while the finance ministry was offering only 10%.

The banks have not commented on the deal.

Besides its losses and debt, PIA’s governance and safety standards have been questioned by global aviation authorities for some years.

In early 2020, Czech and Hungarian air force jets were scrambled to intercept a PIA flight with 300 people on board as it went astray due to an “avoidable human error” by its pilot, according to a previously unreported confidential report by a PIA inquiry board, which was reviewed by Reuters.

In May that year, the crash of a PIA plane in Karachi killed nearly 100 people and a fake pilot licence scandal erupted later in 2020.

The scandal led to the European Union Aviation Safety Agency (EASA) banning the airline from flying to its most lucrative routes in Europe and the UK.

The 2020 ban is still in place and has cost the airline nearly 40 billion rupees in revenue annually, according to government records presented in parliament.

The airline has been pleading with EASA to lift the ban even provisionally, but to no avail, according to correspondence between it and PIA reviewed by Reuters.

Pakistan’s financial crisis has also led to seizure of PIA aircraft by creditors in recent months, according to the airline. One aircraft was taken at Kuala Lumpur airport for non-payment of lease fees, and another in Toronto for non-payment of ground handling, PIA said.

While the airline awaits the government’s decision on a sale, it continues to need financial support: 23.7 billion rupees are required to keep it afloat for another five to six months before control is given to a new buyer, three government and PIA sources said.

Challenging sale
Not everyone agrees with pressing ahead speedily with the sale.

Three senior airline officials who spoke to Reuters on condition of anonymity said a fast sale could devalue the airline’s worth, and that it would not be a transparent transaction without due diligence.

“We are not against its privatisation, and all we want is that you don’t just throw it away,” said one of the officials.

But Singapore-based aviation analyst Brendan Sobie said PIA is in dire straits: the plan submitted to the government was “essentially the only option to save the airline”.

“The privatisation will be challenging and a sale is likely not possible unless it first undergoes a deep restructuring and the debts are cleared,” he said.

PIA’s assets include key slots at the world’s busiest airports and air routes to top European destinations, the Middle East and North America.

PIA has air service agreements with more than 150 countries and generates about 280 billion rupees annually in revenues despite the EU ban, airline records show.

It has 10 slots at Heathrow, which, according to two PIA officials, are currently worth 70 billion rupees annually. It has a further nine slots at Manchester and four at Birmingham.

Turkish and Kuwaiti airlines have been operating 70% of the slots under a business arrangement with PIA that also allows the airline to retain them, the PIA officials said.

Separately, PIA’s physical assets, which include aircraft, hotels in Paris and New York and other properties, are worth 105.6 billion rupees ($375 million) as per book value, according to the airline’s annual report for 2023.

PIA officials, however, said the market value of the assets could be above $1 billion. In any case, the hotels and other properties would not be up for sale, they said.

(Reuters)

News

Draft constitution for Sri Lanka cricket board presented to president

Published

on

By

The draft constitution for the Sri Lanka Cricket Board, prepared by the Judge Chitrasiri Committee, was presented to President Ranil Wickremesinghe at the Presidential Secretariat today (15). 

The draft was handed over by Committee Chairman, retired Supreme Court Judge K.T. Chitrasiri, alongside other committee members.

The initiative to address challenges faced by Sri Lanka Cricket and provide suitable recommendations led to the appointment of a Cabinet Sub-Committee on November 6, 2023. 

Chaired by Minister of Foreign Affairs and President’s Counsel Ali Sabry, the sub-committee included Minister of Power and Energy Kanchana Wijesekara, Minister of Labour and Foreign Employment Manusha Nanayakkara, and Minister of Public Security Tiran Alles.

After extensive discussions with stakeholders involved in cricket, the sub-committee presented its report to the Cabinet on January 8, 2024. 

Continue Reading

News

Possible extension of president’s term by one year discussed

Published

on

By

The “Maubima” newspaper has reported ongoing discussions about the possibility of extending the term of office of the President by one year through a two-thirds majority in Parliament, without the need for a referendum.

According to the report, parties loyal to the President have consulted legal experts, who believe there is a legal pathway to extend the presidential tenure from five to six years. 

This mirrors the constitutional change made by the 19th Amendment in 2015, which reduced the presidential term from six to five years without a referendum.

Pratibha Mahanama (lawyer), a former professor at the University of Technology Jamaica, has been cited in the news paper report, stating that just as the term was reduced without a referendum in the past, it can now be extended with a two-thirds majority in Parliament.

However, Article 83(b) of the Constitution stipulates that any bill extending the term of office of the President or Parliament beyond six years must be passed by a two-thirds majority in Parliament and be subjected to a referendum.

The newspaper further mentions that if the President fails to secure a two-thirds majority, the extension could still be put to a national referendum as a matter of significant national importance.

Continue Reading

News

IMF acknowledges progress in Sri Lanka’s debt restructuring

Published

on

By

The International Monetary Fund (IMF) says that there is sufficient progress for Sri Lanka’s Debt Restructuring process to move forward.

However, the IMF further said Sri Lanka’s economy is still vulnerable and the path to debt sustainability remains knife- edged hence the country need to sustain the reform momentum.

Meanwhile, joining the IMF press briefing on Sri Lanka’s second review of EFF program held virtually this morning (14), IMF Senior Mission Chief for Sri Lanka Peter Breuer stated that the IMF fully respect the democratic process for elections to take place in any country and they adapt to the relevant process.

Furthermore, he mentioned that the elections may affect the timing of IMF’s missions they conduct in order to discuss compliance with the programme and reforms going forward.

“We of course fully respect the democratic process for elections to take place in any country and we adapt to that process. So, this may affect a little bit the timing of our missions that we conduct in order to discuss compliance with the programme and reforms going forward”, he said.

“The elections have not been called yet. We will await that and discuss with the authorities how we can adapt our schedule to that of the elections”, Mr. Breuer added.

In response to a question raised by a journalist whether there is scope to adjust the programme and reduce taxes by a newly appointed government following the elections, the IMF Senior Mission Chief for Sri Lanka expressed that it is significant how the reduction in government revenues had contributed to this very severe crisis in Sri Lanka.

He further said: “I just pointed you to these two charts [in the IMF report] to tell the story how the reduction in government revenues had contributed to this very severe crisis to this very severe crisis in Sri Lanka. Re-building these revenues is an important objective of the programme in order to allow Sri Lanka to emerge from the crisis.”

“Of course here we should bring revenue closer to the expenditures that the government is facing to reduce the gap between expenditure and revenue, and that will help to make the debt sustainable again and force Sri Lanka to be able to finance itself at interest rates it can afford and the debt are sustainable.”

“More broadly speaking, we are willing to listen to different views of how the programme objectives can be reached. These need to be realistic and achievable within the time frame of the programme”, he added.

Moreover, the IMF representative also stated that the ‘Public Financial Management’ law has now been sent to Parliament, which will help to strengthen the fiscal framework and enhance fiscal responsibility.

Mr. Breuer highlighted that the law will help to ensure that the funds are being spent by the government as intended.

(adaderana.lk)
(Except for the headline, this story, originally published by adaderana.lk has not been edited by SLM staff)

Continue Reading

Trending

Copyright © 2024 Sri Lanka Mirror. All Rights Reserved