KARACHI- On Monday, the government granted approval to incorporate Pakistan International Airlines (PIA), the leading entity facing substantial losses, into the ongoing active privatization initiative.
This move also involved overturning a political decision from seven years ago, which had played a role in the significant financial setbacks experienced by the airline.
Pakistan International Airlines Privatization
In an additional development, the Cabinet Committee on Privatisation (CCOP) has granted approval for the engagement of a financial advisor concerning the Roosevelt Hotel, a renowned landmark situated in New York and owned by PIA.
The CCOP’s decision follows the rejection of a proposition from the Aviation Ministry, which aimed to bring the Roosevelt Hotel under its purview through a restructuring initiative guided by the Public-Private Partnership Act. The meeting of CCOP, presided over by Finance Minister Ishaq Dar, led to this determination.
The CCOP deliberated on the recommendation put forth by the Privatisation Commission, encompassing the inclusion of Pakistan International Airlines Co. Ltd (PIACL) within the framework of the privatization program, in accordance with the details shared by the finance ministry.
“After careful consideration, the Cabinet Committee on Privatisation (CCoP) resolved to incorporate PIACL into the roster of active projects within the ongoing privatization program. This decision comes subsequent to a legal amendment enacted by Parliament.”
Ministry Stated
Huge Losses
PIA, the foremost deficit-ridden entity in Pakistan, has witnessed a significant escalation in its cumulative losses, reaching a staggering sum of Pakistani Rs 742 billion.
As reported by The Express Tribune, the airline encountered a loss of Rs110 billion within the span of one and a half years under the current government’s tenure. The preceding year marked a total loss of Rs80 billion for PIA, with projections indicating a further increase to Rs112 billion.
In the year 2016, during the governance of the PML-N administration, a substantial amendment to the PIA law was introduced, effectively halting any possibilities of privatization. This action led to the enactment of the PIAC (Conversion) Act, 2016 within Parliament, ushering in a pivotal change.
Within Sub-section 4 of Section 4, a stipulation was established, wherein the Parliament forbade the federal government from relinquishing management control over PIACL’s airline business while simultaneously holding no less than 51% shares in the entity.
This specific provision disrupted the privatization progression and inhibited the private sector’s involvement in PIACL, according to an official affiliated with the Privatisation Commission. Notably, PIA’s inclusion in the active privatization program is not a novel occurrence.
Pakistan International Airlines is on Sale
The CCOP received information that the government has chosen to modify the PIACL conversion law, thus eliminating the stipulation that prohibited the transfer of management control and restricted ownership stakes to 51% for a new purchaser. Following this alteration, the government gains the flexibility to vend 100% ownership shares of PIAC to a private entity.
Former Prime Minister Nawaz Sharif initially initiated the directive to curb the transfer of management control to private buyers. However, this restriction was lifted by his younger brother, PM Shehbaz Sharif, during a meeting held the previous month.
Furthermore, the CCOP endorsed the engagement of a financial advisor to oversee the restructuring of the Roosevelt Hotel.
“After extensive discussions, the CCoP has granted consent to the Privatisation Commission for the recruitment of a financial advisor responsible for orchestrating and structuring the transaction pertaining to the Roosevelt Hotel, an asset belonging to PIA Investment Limited (PIA-IL),” the statement elaborated.
In the past the prior government had instructed the Privatisation Commission three years ago to appoint a financial advisor to lease the hotel site for a joint venture project aimed at potential mixed-use development, employing the most fitting method of privatization.
With the endorsement from the CCOP, the Privatisation Commission will now move forward to advertise in international publications to attract a suitable advisor for the task.
Hotel Roosevelt Sold to New York City Govt
Pakistan has effectively leased the Roosevelt Hotel to the New York City government for a period of three years, with a symbolic rental fee. The ownership of Roosevelt Hotel Corporation (RHC), based in New York, is vested in PIA-IL, a subsidiary under the umbrella of PIA.
The closure of the Roosevelt Hotel took place in December 2020, as endorsed by the then-federal cabinet. Post-closure, the entity was obliged to settle with the employee union concerning severance payments and pension disbursements for 469 staff members in accordance with local regulations.
Under the agreement, the city administration compensates $202 per room per day for the initial year, escalating to $205 per room in the second year and reaching $210 per room in the third year.
These rates stand notably below the prevailing market rates around Fifth Avenue, a prime destination for tourists exploring New York.
The CCOP received insight that Pakistan can regain possession of the hotel from the New York City administration after a span of one and a half years. This timeline provides an opportune window for the completion of the privatization process.
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