ISLAMABAD: The government is set to issue an Expression of Interest (EoI) this month in a fresh attempt to privatize Pakistan International Airlines (PIA). The move includes clearing the airline’s balance sheet and exempting the buyer from an 18% General Sales Tax (GST) on aircraft purchases, following approval from the International Monetary Fund (IMF).
Notably, after PIA’s privatization, the aviation sector across Pakistan will also be eligible for the same 18% GST exemption. This will support private operators in expanding their businesses and services.
Previously, investors backed out from bidding due to two major concerns: PIA’s negative equity of Rs45 billion and the imposition of GST on aircraft purchases. They had demanded that these issues be resolved before considering the acquisition.
Now, the government has started the process of absorbing the Rs45 billion negative equity, which includes Rs26 billion in Federal Board of Revenue (FBR) taxes, Rs10 billion in Civil Aviation charges, and the remaining amount in pension liabilities. These steps are being taken after negotiations with the IMF and subsequent approval.
Senior officials of the Privatisation Commission informed a parliamentary panel that clearing the airline’s balance sheet would be a prerequisite for the privatization process.
The financial advisory for the transaction has been re-assigned to the British multinational consultancy firm Ernst & Young (E&Y). The firm was previously paid $4 million out of a total $6.269 million milestone-based fee, with an additional $0.251 million in out-of-pocket expenses. Further payments will be made only upon successful completion of the transaction.
To facilitate potential buyers, the government has separated non-core assets from the PIA bidding process. Secretary Privatisation Commission Usman Bajwa, while briefing the National Assembly Standing Committee on Privatisation, stated that a mechanism is being developed to address outstanding liabilities, ensuring they do not become a burden on investors.
Committee Chairman Farooq Sattar emphasized the need to secure job protections for PIA employees for at least five years. The commission assured that employee protection remains a priority and will be finalized before the bidding process begins.
The government has already assumed responsibility for Rs650 billion of PIA’s liabilities, with an additional Rs45 billion to be cleared before privatization. PIA’s assets are currently valued at Rs155 billion, while its liabilities stand at Rs200 billion. The new buyer will be required to add 15 to 20 new aircraft to the fleet initially.
Power Sector Privatization
In the power sector, the government has finalized the selection of a consortium led by Alvarez & Marsal Middle East Ltd (A&M) for the privatization of Faisalabad, Gujranwala, and Islamabad electric supply companies. The deal is subject to successful contract negotiations.
A negotiation committee has been formed to oversee contract discussions and the Financial Advisory Services Agreement (FASA). This committee includes members of the Privatisation Commission Board, government officials, and Power Division representatives. Once the negotiations are concluded, the FASA will be signed within the next few days.
Meeting the necessary prerequisites and conditions is crucial for initiating the privatization process and completing the sell-side due diligence.
