Pakistan’s ‘national airline’ or national burden? Now even the army has withdrawn its hands.

New Delhi. Pakistan’s deteriorating economy and the privatization process of the national airline Pakistan International Airlines (PIA), burdened by it, have once again landed in deep trouble. Pakistan’s army itself is not ready to buy the airline which the government wants to sell as soon as possible to meet the conditions of the International Monetary Fund (IMF). Fauji Fertilizer Company Limited, a company backed by Army Chief General Asim Munir, pulled itself out of the race. Fauji Fertilizer is actually a part of ‘Fauji Foundation’, which is directly commanded and monitored by the Pakistani Army. Last year also the government had tried to sell it, but only one company had bid, which was much less than the ‘minimum reserve price’ of $300 million set by the government.

According to a report in Pakistani newspaper Dawn, Privatization Commission Chairman Mohammad Ali has confirmed that Fauji Fertilizer will no longer be a part of the bidding process. Strategically, this is being considered a major defeat for the government, because the involvement of military-backed companies provides a sense of security and stability to foreign and domestic investors. After the exit of the military-backed company, now only three major bidders are left in the fray. Many companies will bid for the consortium PIA.

Auction to be held tomorrow

The government has fixed the auction date as December 23. This auction is also important for Pakistan because it is mandatory to disinvest loss-making government enterprises (SOEs) to meet the conditions of the $7 billion bailout package received from the IMF. As per the terms of privatization, whichever company makes the successful bid will be given a total of 75% stake in PIA.

92.5% of the total shares to be sold will be directly held by the investing company or consortium. The remaining 7.5% share will currently remain with the government. The government will retain mainly 25% stake. However, the investor will have the option to buy this 25% share held by the government in future or let it remain with the government.

The plight of the aviation sector and the helplessness of the government

Pakistan’s aviation sector is currently going through its worst phase. According to official data, the contribution of aviation sector in Pakistan’s GDP is among the lowest in the world, which is only 1.3%. Due to huge debt, old aircraft and international sanctions, PIA is proving to be a white elephant.

Bidders’ conditions and government’s stance

There is also a tussle going on between investors and the government regarding terms and conditions. According to Chairman Mohammad Ali, investors were demanding 75% to 100% stake for freedom of decision making. Some bidders had proposed that they would like to pay the 75% stake in installments of one year, which was immediately rejected by the government as Pakistan is in dire need of cash dollars at this time.