Economy

Privatisation of SOEs: a focus on PIA

Published

7 months ago

May 23, 2024

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Pakistan’s economy is grappling with multiple challenges, including fiscal deficits, low savings, limited investment, low foreign exchange reserves, economic uncertainty, and rising external debt, which is projected to reach approximately $131.159 billion by the end of the first half of the fiscal year 2024 (July-Dec).

State-owned enterprises (SOEs) add a significant burden to the struggling economy. These entities are often loss-making and have required repeated government bailouts, leading to substantial losses for the national exchequer. As of December 2023, the total outstanding debt and liabilities of these enterprises stood at PKR 2.35 trillion. In a bid to achieve fiscal discipline and stabilize the economy, the government has decided to privatize unprofitable SOEs, with Pakistan International Airlines (PIA) being a top priority.

The Rise and Fall of Pakistan International Airlines (PIA)

PIA was established on January 10, 1955, through a merger with Orient Airways, which was founded in 1946. Under visionary leaders like Air Marshal Nur Khan and Air Marshal Muhammad Asghar Khan, the national flag carrier gained global prominence by expanding its fleet and developing extensive air routes.

However, PIA began facing financial challenges in 2008. By June 2022, the airline’s balance sheet showed a negative equity of PKR 490 billion, including significant bank loans and other payables. As of the same date, total outstanding bank loans and government guarantees amounted to PKR 109 billion and PKR 268 billion, respectively.

Several factors contributed to PIA’s decline, including political interference, a politicized and poorly trained workforce, an outdated fleet, and high operational expenses. The airline also faced competition due to the ‘Open Sky Policy,’ leading to a decline in market share. Frequent management changes, union influence, political interventions, wasteful spending, unchecked borrowing, and a lack of internal accountability mechanisms further exacerbated PIA’s woes.

Additional challenges included a fake pilot license scandal, poor airport infrastructure, operational inefficiencies, flight delays, and corruption in the Cargo department. Union protests, rising fuel prices, and an EU-imposed safety ban on PIA’s flights to Europe in 2007 worsened the situation, resulting in total financial losses of up to PKR 724 billion by the end of 2023.

Privatization as a Solution

To address these financial and governance issues, the Government of Pakistan (GOP) plans to partially privatize PIA by selling 51% of its shares and management rights. This restructuring aims to separate aviation-related components from non-core elements, thus relieving some debt burden.

A PIA holding company has been established to manage airline debt, including PKR 243 billion owed to domestic commercial banks and a foreign loan of $88 million. This company will facilitate privatization by assisting with asset transfers.

On March 27, 2024, a board consisting of seven members, headed by former central bank Governor Tariq Bajwa, endorsed a scheme of arrangement approved by both stakeholders and creditors. The sell-off is expected to generate $250-300 million for the government, although the actual value could differ. The Federal Minister for Privatization and Investment Board, Abdul Aleem Khan, announced that the Privatization Commission has received expressions of interest from eight major business groups, indicating strong interest in PIA’s future.

Expected Outcomes and Challenges

The privatization initiative is anticipated to lead to a positive transformation, enhancing efficiency and productivity, attracting private investment, and improving competitiveness and service quality while safeguarding public interests. However, it is crucial to regulate the process to prevent potential negative outcomes such as increased unemployment, limited access to flight routes in marginalized regions, and monopolistic practices.

To fully capitalize on privatization, Pakistan can draw lessons from successful experiences in other countries. For example, Sri Lanka, the United Kingdom, Latin America, France, and Germany have turned their loss-making SOEs into profitable entities. The privatization of Sri Lanka Telecom in 1997 and Sri Lankan Airlines in 1998 transformed them into efficient and profitable businesses.

Similarly, the privatization of British Airways, Lufthansa, and Air France illustrates the success of airline privatization in Europe. British Airways was privatized in 1987 and has since become one of the leading airlines. Lufthansa, privatized in 1994, now ranks as the fourth-largest airline in terms of revenue.

These countries followed a similar privatization process, including intra-firm planning, streamlining procedures, and broader changes such as alliances and mergers. The 3Cs framework—Competition, Cooperation, and Consolidation—summarizes the reasons behind the successful privatization of these entities.

Conclusion

The successful privatization of these organizations offers valuable guidance for Pakistan’s privatization of PIA and other SOEs. Establishing a stable macroeconomic framework and developing institutional capacity with strong regulatory bodies is essential to oversee the restructuring phase post-privatization. A clear, comprehensive, and coordinated approach that considers all parties’ interests and prioritizes transparency, inclusivity, and affordability for consumers can help achieve favorable privatization outcomes. This includes reducing the fiscal burden and paving the way for sustainable development while safeguarding public interests.

Business

PSX Posts Most noteworthy At any point Single-Day Gain of Just about 4,700 Places, Approaches 100,000 Achievement

Published

4 weeks ago

November 27, 2024

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Pak vs World, Pakistan stock Exchange, PSX

A day subsequent to seeing the greatest at any point single-day decline, the benchmark KSE-100 File of the Pakistan Stock Exchange (PSX) rose by 4,695.09 focuses or 4.73 percent on Wednesday to close at 99,269.25 focuses when contrasted with 94,574.16 focuses on the last exchanging day.

Business House Topline Protections said the market’s positive feeling was generally determined by the Pakistan Tehreek-e-Insaf’s (PTI) choice to end its dissent in Islamabad.

Regarding market capitalization, the previous decay of Rs. 480 billion was trailed by an uncommon increment of Rs. 526 billion today, denoting the second-most noteworthy single-day flood ever, it said.

The exchanging floor saw hearty purchasing action, with the file weighty financial area driving the charge. Other critical patrons included auto constructing agents, oil and gas investigation organizations, oil advertising organizations (OMCs), and power age firms, Topline said.

Top supporters of the file’s vertical direction were FFC, HBL, SYS, BAHL, and PPL, altogether adding 1,546 focuses, it added.

A sum of 1,057,104,968 offers were exchanged during the day when contrasted with 1,113,617,710 offers the past exchanging day, though the cost of offers remained at Rs. 39.556 billion against Rs. 43.165 billion on the last exchanging day.

Upwards of 450 organizations executed their portions in the securities exchange, 354 of them recorded gains and 51 supported misfortunes, while the offer cost of 45 organizations stayed unaltered.

Economy

Pakistan Received Foreign Loans of $715 Million in Two Months of FY25

Published

3 months ago

September 26, 2024

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Pakistan Secures $715M in Foreign Loans FY25 | Pak Vs World

Pakistan borrowed $714.74 million from multiple financing sources during the first two months (July-August) of the current fiscal year 2024-25 (FY25) compared to $3.206 billion borrowed during the same period of 2023-24, revealed the Economic Affairs Division (EAD) data.

The information uncovered that administration has planned evaluations of time stores of $9 billion including $5 billion KSA time store and $4 billion China Safe store for the ongoing financial year, in any case, no cash was gotten in July-August under this head. There is likewise no notice of help from UAE.

The public authority had planned $19.393 billion from numerous funding hotspots for FY25 including $19.216 billion advances and $176.29 million awards. Nonetheless, this incorporates no sum from the Worldwide Money related Asset (IMF).

The information further showed that the public authority planned assessments of $3.779 billion from the unfamiliar business banks for FY24; in any case, no cash was gotten under this head during the initial two months. The public authority has likewise planned evaluations of $1 billion from the issuance of bonds; in any case, as the nation didn’t give the bonds, no sum was gotten during the period.

The nation got $270.53 million in August 2024 from various sources. The nation got $259.04 million under the top of the “Naya Pakistan Authentication” during the initial two months of FY25 remembering $131.35 million for August.

The nation got $292.99 million from multilaterals and $162.70 million from reciprocal during July-August 2024. The non-project help was $273.12 million including $14.07 million for monetary help and venture help was $441.62 million during the period under survey.

The Asian Development Bank (ADB) dispensed $96.20 million during the period under survey contrasted with the planned $1.651 billion for FY25..

The IDA dispensed $147.86 million in July-August against the planned $1.525 billion for FY25 and IBRD $28.88 million against the planned $550.22 million. The IsDB (Present moment) dispensed no sum in July-August, be that as it may, the public authority has planned evaluations of $500 million for FY25 and AIIB dispensed $8.73 million, while IFAD dispensed $9.59 million against the planned $40.45 million for the financial year 2024-25.

China dispensed $96.76 million in July, but no cash was gotten in August from China. The public authority has planned $134.18 million from China for the monetary year 2024-25.

Saudi Arabia dispensed $2.69 million in the primary month of financial year 2024-25 against the planned evaluations of $146.54 million for the whole monetary year, but no sum was gotten in August.

The US dispensed $30.94 million in the initial two months against the planned $20.87 million for the financial year 2024-25.

Economy

PSX Records Highest-Ever Closing After Gaining 615 Points

Published

3 months ago

September 21, 2024

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PSX Records Highest-Ever Closing After Gaining 615 Points

The 100-Record of the Pakistan Stock Exchange (PSX) proceeded with its bullish pattern on Friday, acquiring 615.16 focuses, and completing the meeting at its most noteworthy truly shutting of 82,074.45 places.

In a note, business house Topline Protections featured that the KSE-100 Record proceeded with its energy and to a great extent exchanged a positive zone during the exchanging meeting, as the file acquired to make an intraday high of 913 places lastly settled at 82,372 level.

The business house ascribed the energy to lower-than-anticipated selling because of the FTSE rebalance today (FTSE Russell in its audit declared the renaming of Pakistan from Auxiliary Arising to Outskirts Market status).

A sum of 482,373,803 offers were exchanged during the day when contrasted with 459,037,985 offers the earlier day, though the cost of offers remained at Rs. 30.188 billion against Rs. 18.610 billion on the last exchanging day.

Upwards of 453 organizations executed their portions in the securities exchange, 195 of them recorded gains, and 196 supported misfortunes, while the offer cost of 62 organizations stayed unaltered.

The three top exchanging organizations were First Capital Protections with 31,588,613 offers at Rs. 2.76 per offer, Oil and Gas Improvement with 29,408,063 offers at Rs. 141.29 per share and Fauji Compost Canister Qasim with 28,625,529 offers at Rs. 44.36 per share.

Unilever Pakistan Food varieties Restricted saw a greatest increment of Rs. 107.92 per share cost, shutting at Rs. 17,616.25, though the next in line was Administration Ventures Restricted with Rs. 67.09 ascent in its per share cost to Rs. 1,149.79.

Ismail Businesses Restricted saw a most extreme lessening of Rs. 31.79 per share shutting at Rs. 1,625.94 followed by ZIL Restricted with Rs. 23.53 downfall to close at Rs. 215.70.