The government on Monday approved the inclusion of the top loss-making entity, Pakistan International Airlines (PIA), in the active privatisation programme, while also reversing a seven-year-old political decision that contributed to the massive losses incurred by the airline.
In yet another decision, the Cabinet Committee on Privatisation (CCOP) also gave the green light for hiring a financial advisor for the Roosevelt Hotel, a prestigious landmark in New York owned by PIA. The CCOP made this decision after rejecting a proposal by the Aviation Ministry to bring the Roosevelt Hotel under its umbrella by initiating a restructuring plan through the Public Private Partnership Act. The CCOP meeting was chaired by Finance Minister Ishaq Dar.
The CCoP considered the proposal from the Privatisation Commission to include Pakistan International Airlines Co. Ltd (PIACL) in the privatisation programme, according to the finance ministry.
“The CCoP, after deliberation, decided to include PIACL in the list of active privatisation projects of the ongoing privatisation programme, following an amendment in the law by Parliament,” the ministry stated.
PIA, Pakistan’s leading loss-making entity, has seen its total cumulative losses surge to Rs742 billion. According to The Express Tribune, the airline incurred a loss of Rs110 billion in the one and a half years of the current government’s tenure. The total loss for PIA last year was Rs80 billion, and this figure is expected to rise to Rs112 billion.
In 2016, the then PML-N government introduced a major amendment in the PIA law that effectively ended its privatisation prospects. The government passed the PIAC (Conversion) Act, 2016, in Parliament and incorporated a change.
According to an explanation in Sub-section 4 of Section 4, the Parliament prohibited the federal government from transferring management control in the airline business of PIACL while maintaining at least 51% shares in the entity.
This provision disrupted the flow of the privatisation process and prevented private sector participation in PIACL, according to an official from the Privatisation Commission. It is not the first time that PIA has been included in the active privatisation programme.
The CCOP was informed that the government has decided to amend the PIACL conversion law to abolish the condition of not transferring management control and the 51% stakes to the new buyer. After this amendment, the government can sell 100% stakes in PIAC to a private party.
The decision to restrict the transfer of management control to private buyers was made by former Prime Minister Nawaz Sharif. His younger brother, PM Shehbaz Sharif, decided to lift this restriction during a meeting held last month.
The CCOP also gave the go-ahead to hire a financial advisor for the restructuring of the Roosevelt Hotel.
“After discussions, the CCoP granted approval to the Privatisation Commission to hire a financial adviser to process and structure the transaction of Roosevelt Hotel, an asset of PIA Investment Limited (PIA-IL),” it added.
The previous government had directed the Privatisation Commission three years ago to initiate the process of appointing a financial adviser to undertake leasing the hotel site as a joint venture project for prospective mixed-use development, through the most suitable mode of privatisation.
Following the CCOP’s approval, the Privatisation Commission will now advertise in the international press to hire the advisor.
Pakistan has already leased the Roosevelt Hotel to the New York City government for three years at a nominal rent. Roosevelt Hotel Corporation (RHC), New York, is owned by PIA-IL, a subsidiary of PIA.
Roosevelt Hotel was closed in December 2020 with the approval of the then federal cabinet. After closure, the entity was required to reach a settlement with the union regarding the payment of severance and pensions to 469 employees, as per local laws.
The city government is paying $202 per room per day for the first year, $205 per room for the second year, and $210 per room for the third year – a price far below the prevailing market rates at Fifth Avenue, which is the prime location for tourists visiting New York.
The CCOP was informed that Pakistan can regain possession of the hotel from the New York City administration after one and a half years, and by that time, its privatisation process can be completed.
Published in The Express Tribune, August 8th, 2023.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
Read the full story at the express tribune website.
