- Govt to offer a clean balance sheet to buyers.
- 18% GST on plane purchases will not be applied.
- Govt reassigns financial advisory to E&Y.
ISLAMABAD: The government plans to issue an Expression of Interest (EoI) this month in a renewed attempt to privatise the Pakistan International Airlines (PIA), with offering a clean balance sheet and protecting the buyer from an 18% GST on aircraft purchases, following the International Monetary Fund’s (IMF) approval.
Notably, following the national flag carrier’s privatisation, the aviation sector across the nation will likewise be eligible for this 18% GST exemption. Additionally, this will assist private operators in growing their companies and services, The News reported.
In a previous attempt to sell this asset, the interested parties had backed down from their plans and even abstained from the bidding process because they believed that the two significant obstacles would make it impossible for them to run the airline. They are now ready to take part in the process. They had previously demanded that the airliner’s balance sheet’s negative equity of Rs45 billion should be cleared and that the GST be removed from the purchase of planes.
The government has now begun the process of absorbing the Rs45 billion negative equity, which consists of Rs26 billion in FBR taxes, Rs10 billion in Civil Aviation charges, and the rest amount as pension liabilities, following negotiations with the Fund and the consequent approval.
Remarkably, the airline’s privatesation will also be a prerequisite for this balance sheet clearance, senior officials of the Privatisation Commission apprised a parliamentary panel.
The government has re-assigned financial advisory for the transaction to British multinational Ernst & Young (E&Y). A portion of the previous payment has already been made, but no additional funds will be paid unless the transaction is completed. During a previous attempt, $4 million of a $6.269 million milestone-based payment was made to Ernst & Young, along with $0.251 million of an out-of-pocket payment of $0.609 million
A mechanism would be devised to address outstanding liabilities, ensuring that financial burdens do not become a hindrance for potential investors. The government has already separated the non-core assets from the PIA bidding process, Secretary Privatisation Commission Usman Bajwa said while briefing the National Assembly Standing Committee on Privatisation.
The committee chairman, Farooq Sattar stressed the need to ensure job security for PIA employees for at least five years. The commission assured that employees’ protection remains a priority and will be finalised before the bidding process begins.
The government has already taken over PIA’s liabilities of Rs650 billion, with an additional Rs45 billion in dues to be settled before privatisation. PIA’s assets are currently valued at Rs155 billion, while its liabilities stand at Rs200 billion. The new buyer will be required to initially add 15 to 20 new aircraft to the fleet.
In power sector, for the privatisation of Faisalabad, Gujranwala, and Islamabad electric supply companies, the commission has finalised the consortium led by Alvarez & Marsal Middle East Ltd (A&M consortium), pending successful contract negotiations.
A negotiation committee has been formed for the contract and Financial Advisory Services Agreement (FASA) negotiations, comprising PC Board members, PC officials, and representatives from the Power Division. Upon completion, the FASA will be signed in next couple of days. The completion of prior actions and conditions precedents is crucial for initiating the privatisation process and completing the sell-side due diligence.
