The story of PIA’s privatisation is quite disconcerting. In 2008, an idea was proposed to the then finance minister, Ishaq Dar, that PIA should be split into two companies, new and old, with the aim to restructure it fundamentally.
The new company would have all the operating assets (flying rights, planes, offices, engineering shops) related to the core business of the airline with an employees’ strength of 5,000. A strategic investor may be inducted by being offered 26 percent shares of this company, which would fetch a good value. For the other company, a handsome separation scheme with sizeable financial benefits may be offered to the remaining 13,000 employees. These benefits would be good enough to generate a steady income if invested in a saving instrument such as national savings or mutual funds, while the employees could also look for another job.
The funds for separation would have been provided by the government, as it was a one-off expenditure to be offset against future savings as well as proceeds of privatisation and disposal of non-core assets. Dar was excited and, in his characteristic style, did a back-of-the-envelope calculation after examining the latest PIA balance sheet. Needless to say, the occasion was one of the PIA senior management’s regular visits to seek a lifeline from the Ministry of Finance.
As we discussed in Part-XII of this series, the word ‘privatisation’ was out of fashion during the third PPP government. However, during this period, PIA’s financial problems multiplied, rendering it a hopeless proposition for a meaningful privatisation. To understand the extent of difficulties, consider the following facts. On December 12 2007, PIA’s accumulated losses stood at Rs33 billion against equity of Rs21 billion, making for a negative net worth of Rs12 billion. After a decade, on December 12 2016, the company’s accumulated losses stood at Rs308 billion against equity of Rs100 billion (half of this was revaluation surplus), making for a negative net worth of Rs208 billion. Much of these losses are financed by borrowing against government guarantees.
When the new IMF programme was signed in July 2013, the finance minister happily agreed to restructure and privatise PIA. Financial advisers were appointed and mandated to suggest restructuring plans and prepare the transaction for the strategic sale. To implement the programme, the corporatisation of PIA was required, which meant a legislative action. With a view to roll-out the process and to meet the commitments under the programme, the advisers drafted an ordinance to succeed the existing law. A series of meetings were held to iron out inter-ministerial differences, particularly to protect the rights of minority shareholders and to ensure the transfer of all assets, rights, liabilities and obligations of the existing corporation to the succeeding corporation, to be registered under company law.
Finally, an agreed draft was prepared and required the approval of the prime minister before being sent to the president. The documentation for registering a new company was also lined up, with the SECP officers on standby to issue the certificate of registration. It was the first week of December 2015, and an IMF board was due in a few days for the completion of the 9th review under the programme.
Alongside this work, the opposition to PIA’s privatisation was gaining traction and now had strong parliamentary support. Yet, the government was equally resolved to push forward the proposal as they had the necessary majority to pass the legislation even if it required a joint sitting of parliament.
The prime minister was out of town and returning late in the evening. The finance minister was waiting anxiously and had alerted the PM’s secretary regarding the urgency of getting the approval. When the prime minster arrived, he was not immediately available to speak to the finance minister, who would normally get immediate access to the former. For a moment, he thought that perhaps the PM had changed his mind after getting reports of the growing unrest among the employees. The FM had never been so worried and dejected. However, all these apprehensions were unfounded when the PM called back and cleared the summary for the president’s approval. The ordinance was out late at night and the necessary transmission was conveyed to the Fund as well. The PM had also asked for the immediate formation of the company, which would host core assets of PIA. This was done without any loss of time.
The ordinance was a clear signal of the government’s resolve to go ahead with the privatisation plan. But the battle lines were drawn as the opposition vowed to foil the plan by moving a resolution in the Senate – where the PML-N government lacked majority – to cancel the ordinance. On December 31, 2016, the Senate passed the resolution, paving way for the repeal of the ordinance. Such a swift reaction from the opposition was shocking. The finance minister told his Senate colleagues that the government had the option to get the ordinance approved in the joint sitting.
Meanwhile, PIA employees went on an eight-day strike and held several protests during which a person was also killed. But the prime minister remained unruffled and refused to meet the union’s leaders. The PML-N government was determined to go ahead with the joint sitting to acquire the approval of the PIA Conversion Bill.
Surprisingly, as the date of the joint sitting neared, it became evident that the government was not keen on using its majority in parliament to pass the bill. Instead, it was seeking a consensus with the opposition. The key assurances secured by the opposition were that the government would only divest 49 percent of PIA’s shares and that it would always retain its management. With this, the plan for PIA’s privatisation, the way it was designed, was finished.
Since the unravelling of PIA’s privatisation plan and during 2016, the corporation has added Rs46 billion more to its accumulated losses. And a much larger loss must have been added in 2017. The government-guaranteed loans and occasional monetary support continue to extend PIA a lifeline so that it continues to operate. But the substratum of the corporation no longer exists.
To be continued
The writer is a former finance secretary. Email: waqarmkngmail.com