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Pakistan, which is facing financial crisis, is preparing to sell its national airlines. Shahbaz government will sell 75% stake of Pakistan International Airlines (PIA). According to Dawn report, December 23 is the last day for bid submission.
Just 2 days before the deadline, Fauji Fertilizer Private Limited (FFPL), an army-linked fertilizer company, has withdrawn its name from the bidding, after which only 3 contenders are in the race.
Why did the government have to sell the airlines?
- IMF Policy: The biggest reason behind selling airlines is the policy of IMF. Pakistan needs a loan of 7 billion dollars from IMF. Instead, IMF wants privatization of loss-making government companies in Pakistan. According to this condition, Pakistan is privatizing its 24 government companies. PIA is also a part of this.
- Financial scarcity: Another reason for selling PIA is to revive the airlines, because due to financial constraints the government is not able to invest in PIA. Passengers are also troubled by the poor management of PIA.
- bad image: In 2020, a PIA plane crashed in Karachi, in which 96 people lost their lives. During investigation, licenses of more than 250 pilots of PIA were found suspicious or fake. PIA’s image was tarnished by the accident and many countries banned PIA flights. Due to the ban, PIA’s losses increased and the company incurred a debt of about Rs 25 thousand crores.
- Expectation of better growth: Currently, Pakistan’s aviation sector contributes only 1.3% to its GDP. The contribution of aviation sector to GDP in Pakistan is only 1.3%. While in UAE it is 18 percent and in Saudi Arabia it is 8.5 percent, whereas in Pakistan it is only 1.3 percent. It can grow through privatization.
Pakistan Prime Minister Shehbaz Sharif held a meeting with IMF officials on May 22, after which it was decided to privatize 24 government companies including PIA.
Government has already sold airports and ports
Pakistan has taken loan from IMF a total of 20 times since 1958. He has taken many difficult decisions under pressure from the IMF. In this context, Pakistan has already sold its ports and airports. Last year, Pakistan had decided to put Islamabad Airport on contract.
How will the auction process be?
Privatization Commission Chairman Mohammad Ali said that ‘closed bidding’ or sealed bidding process will be used in the PIA auction. On December 23, from 10:45 am to 11:15 am, the three contenders will write the amount of their bid in a sealed envelope and put it in a transparent box. The claimants will not know how much the other has bid.
After this, the board of Privatization Commission will meet and decide the ‘reference price’. After this, there will be a meeting of the Cabinet Committee on Privatization (CCoP), which will approve this reference price. This price will be made public at the time of opening the bid.
This process will not be live like the IPL auction. There will be nothing like live bidding or price increase. Only the process of opening the envelopes will be shown live.
If the amount of any bid exceeds the price fixed by the government, then only a limited open auction can be held, but if the bids are less than the reference price, then the highest bidder will be given priority.
Of this 75 percent bid amount, 92.5% of the money will go directly to PIA, while only 7.5% will go to the national exchequer.
Who is in line to buy PIA?
There are only 3 contenders in the queue to buy PIA-
- Lucky Cement and Companies: Four companies are bidding together in this group – Lucky Cement Limited, Hub Power Holdings, Kohat Cement Company and Metro Ventures.
- Arif Habib and Companies: This group also includes four companies – Arif Habib Corporation Limited, Fatima Fertilizer, City Schools and Lake City Holdings.
- Airblue Private Limited: This company is bidding alone.
Why did the army related company withdraw its name?
Fauji Fertilizer, a Pakistani fertilizer manufacturing company formed in 1978, was also a part of this bidding. This company is a part of Fauji Foundation, which is associated with Pakistan Army. It withdrew its name from the bidding process on December 21. Three reasons are being given for this –
Official reason: Officials associated with the bidding committee say that Fauji Fertilizer withdrew its name so that flexibility remains in the deal. That means, if the company wishes, it has a chance to join the alliance that wins the bidding later. If the company had bid, this option would have been closed.
Strategic reasons: Army Chief Asim Munir appoints the quartermaster general of Fauji Fertilizer, who is part of the company’s board. Accordingly, the army has indirect control over this foundation.
If a company with military interference wins the bidding, a wrong message may be sent to the IMF and it may be a violation of bidding rules. Under the rules, only a private company can buy PIA.
Fear of losing bidding: Asim Munir wants control over PIA, but he will not know how much other contenders will bid in the closed bidding. In such a situation, if Fauji Fertilizer loses the bid, Asim Munir will lose the opportunity to control PIA. This is the reason why the company withdrew its name. Now Fauji Fertilizer will have a chance to join the winning company.
Who has the highest chances of winning?
According to Pakistani media reports, the alliance of Lucky Cement and Arif Habib are the strongest contenders to win the bidding. Both are big business groups and are ready to integrate Fauji Fertilizer later. Airblue’s chances seem slim because it is a single company and its financial strength is not as strong as other contenders.
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Also read this news related to PIA auction…
Pakistan is selling its government airlines, will its army buy it? IMF has set conditions for giving loan
100% stake of Pakistan International Airlines i.e. PIA is being sold. Three companies will bid to buy this government airline on December 23. Pakistani Army is also trying to get its control. IMF will release the next installment of loan to Pakistan only after PIA is sold. Read the full news…
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