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PIA’s privatisation: sole bidder falls short of reserve price in aution


PIA's privatisation

ISLAMABAD: As the government started the auction of Pakistan International Airline (PIA), the Blue World City Consortium, the sole bidder, offered Rs10 billion for a 60 per cent stake in the national flag carrier.

The government has set a minimum sale price of Rs85.3 billion, giving the bidder a 30-minute window to meet the official reserve price.

Only single bidder participated in the auction, with the proceedings broadcast live on state television.

According to sources from the Privatisation Commission, an agreement has been largely reached with Blue World City Consortium on key aspects of the deal.

Earlier, Blue World City Chairman Saad Nazir, Blue World Aviation CEO Maisam Raza, Blue Hills CEO Chaudhry Naeem Ijaz, Blue World City CEO Chaudhry Nadeem Ijaz and consortium representative Wali Muhammad submitted the bid.

Once the Privatization Commission’s board approves the reserve price, it will be submitted to the Cabinet Privatization Committee led by Deputy Prime Minister Ishaq Dar.

The government had pre-qualified six groups in June, but only real-estate development company Blue World City participated in the bidding process, placing a bid that is below the government-set minimum price of Rs85 billion.

Cash-strapped Pakistan was looking to offload a 51-100 per cent stake in debt-ridden PIA. PSX to raise funds and reform state-owned enterprises as envisaged under a $7 billion International Monetary Fund programme.

The Privatisation Commission said it had asked the bidder to match the minimum bid.

Blue World City Chairman Saad Nazir however stood by its bid. “We wish the government all the best if they don’t want to accept our bid,” he said.

Officials from three groups that chose not to bid told Reuters on condition of anonymity that there were concerns about the government’s ability to stand by agreements made for the flag carrier in the long term.

One executive voiced concern about policy continuity once a new government came in. The government of Prime Minister Shehbaz Sharif is reliant on a coalition of disparate political parties.

The government did not immediately respond to a request for comment on the concerns.

The disposal of PIA is a step former governments have steered away from, as it has been highly unpopular given the number of layoffs that would likely result from it.

Underpinning concerns over policy continuity and honouring contracts was the government’s termination of power purchase contracts with five private companies earlier this month, and the process of re-negotiating other sovereign guaranteed pacts.

Changes in Pakistan’s decade-old agreements with private power projects to address chronic electricity shortages “raises the risk of investing and doing business in Pakistan, even in the presence of sovereign contracts as well as guarantees,” said Sakib Sherani, an economist at Macro Economic Insights.

Commenting on the power contract renegotiations last month, the head of Pakistan’s power ministry said the government had always maintained contractual obligations to investors, both foreign and local, and that contract revisions would be by “mutual consent”.

Other concerns raised by potential bidders for the PIA stake included inconsistent government communication, unattractive terms and taxes on the sector, and the flag carrier’s legacy issues and reputation.

PIA currently holds assets worth Rs152 billion, including aircraft, slots and routes, with total royalties amounting to Rs202 billion, involving entities like the Civil Aviation Authority (CAA) and Pakistan State Oil (PSO).

Outstanding dues for PIA amount to roughly Rs16-17 billion. PIA employs around 7,100 staff with over 2,400 daily wagers.

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