Prospective purchasers of PIA - Pakistan International Airlines (PK, Islamabad International) are pushing back on a government requirement to invest USD500 million in the airline, increase its fleet, and maintain certain routes, according to the Express Tribune newspaper. Islamabad plans to sell a 75% stake in the majority state-owned carrier, but the six shortlisted bidders have raised objections to the proposed shareholders' agreement and sale-purchase agreements.
The newspaper reports that a majority of the shortlisted bidders were unwilling to accept government-imposed presale targets concerning increasing the number of aircraft, flying on a specified number of routes, and making a half-a-billion-dollar investment in the airline. Last week, ch-aviation reported that the government wanted the successful bidder to invest PKR80 billion rupees (USD287 million) in the first twelve months and the full USD500 million over three years.
Fly Jinnah, AirBlue, Arif Habib Corporation Limited, and three consortia led by YB Holdings (Private) Limited, Pak Ethanol, and Blue World City are the six short-listed bidders, but at least two of these entities have refused to accept the mandated targets, instead proposing "corporate goals." However, the government says the sale conditions are designed to ensure PIA has a fair chance of operationally and financially reviving.
Most of the potential buyers also want to keep the sale proceeds to reinvest in the airline instead of giving the money to the government, but one party is reportedly happy to accept the state's terms.
Some of the shortlisted bidders also want changes to legislation to give them the same protection available to foreign investors, plus tax holidays on a range of matters, including aircraft leases, ticket sales, and fuel. Specifically, some of the parties want s.2 of the Foreign Investment Promotion and Protection Act (2022) to be applied to them, which rules out the imposition of certain local taxes and gives their investment special legal status. However, none of the six bidders are foreign entities/investors.
The Pakistani government wishes to finalise the privatisation in October. However, the bidders' pushback on these issues may delay that. Last month, Privatisation Commission secretary Usman Bajwa told a Senate Standing Committee on Privatisation that only two of the six potential buyers are serious buyers.
Also proving problematic is an International Monetary Fund edict attached to a USD7 billion bailout in 2023 that expressly forbids giving any special treatment to any segment of investors. This includes tax exemptions to attract investment.
