Govt set to issue EoI for PIA sale this month

ISLAMABAD: In a renewed push to privatise Pakistan International Airlines (PIA), the government is set to issue an Expression of Interest (EoI) this month, offering with a clean balance sheet and shielding the buyer from an 18 percent GST on aircraft purchases after the approval of the International Monetary Fund (IMF).

Interestingly, this 18 percent GST exemption will also be available to the country’s entire aviation industry after the privatisation of the national flag carrier. This will also help the private operators to expand their businesses and services.

Notably, in earlier attempt to sell this asset, the interested parties had backtracked and even did not participate in the bidding process due to two major hurdles they thought were not feasible for them to operate the airliner. Now they are ready to participate. Their earlier demands were the removal of the GST on the aircraft purchase and clearing of Rs45 billion negative equity on the airliner’s balance sheet.

Now, after negotiating with the Fund and consequent approval, the government has started work on absorbing the Rs45 billion negative equity which includes Rs26 billion FBR taxes, Rs10 billion Civil Aviation charges and remaining as pension liabilities. Interestingly, this clearing of balance sheet will also be made conditional to privatisation of the airliner, top officials of the Privatization Commission informed a parliamentary panel.

The government has re-assigned financial advisory for the transaction to British multinational Ernst & Young (E&Y). A portion of the previous payment has already been made, but no additional funds will be paid unless the transaction is completed. During a previous attempt, $4 million of a $6.269 million milestone-based payment was made to Ernst & Young, along with $0.251 million of an out-of-pocket payment of $0.609 million

A mechanism would be devised to address outstanding liabilities, ensuring that financial burdens do not become a hindrance for potential investors. The government has already separated the non-core assets from the PIA bidding process, Secretary Privatization Commission Usman Bajwa said while briefing the National Assembly Standing Committee on Privatization.

Committee Chairman Farooq Sattar stressed the need to ensure job security for PIA employees for at least five years. The commission assured that employees’ protection remains a priority and will be finalised before the bidding process begins.

The government has already taken over PIA’s liabilities of Rs650 billion, with an additional Rs45 billion in dues to be settled before privatisation. PIA’s assets are currently valued at Rs155 billion, while its liabilities stand at Rs200 billion. The new buyer will be required to initially add 15 to 20 new aircraft to the fleet.

In Power sector, for the privatisation of Faisalabad, Gujranwala, and Islamabad Electric Supply Companies, the commission has finalised the consortium led by Alvarez & Marsal Middle East Ltd (A&M consortium), pending successful contract negotiations.

A negotiation committee has been formed for the contract and financial Advisory Services Agreement (FASA) negotiations, comprising PC Board members, PC officials, and representatives from the Power Division. Upon completion, the FASA will be signed in next couple of days. The completion of prior actions and conditions precedents is crucial for initiating the privatisation process and completing the sell-side due diligence.