Pakistan Plans New Attempt to Privatize PIA with Tax Exemption
Pakistan’s privatization minister, Abdul Aleem Khan, has announced that the government will make another attempt to auction Pakistan International Airlines (PIA) following the failure of the October auction. This time, the government is seeking approval from the International Monetary Fund (IMF) for a PKR 26 billion (USD 94 million) tax exemption aimed at making the state-owned carrier more attractive to potential buyers.
The initial auction failed due to unresolved issues with the airline’s debts and tax liabilities. The Federal Board of Revenue (FBR) refused to remove an 18% general sales tax (GST) on new aircraft purchases, significantly raising the costs of acquiring new planes. Additionally, the burden of existing tax liabilities was a major deterrent for prospective buyers, with only one bidder placing a bid of PKR 10 billion (USD 36 million)—far below the government’s reserve price of PKR 85 billion (USD 306 million). The government rejected this bid.
In a November 18 meeting with the Senate Standing Committee on Privatisation, Khan confirmed the government’s intention to auction PIA again and emphasized Prime Minister Shehbaz Sharif’s commitment to privatizing the airline. This time, the bidding process will be shorter, Khan added, and the government will seek to resolve the issues that led to the previous auction’s failure.
The minister criticized the FBR for not agreeing to waive the GST on new aircraft, a move Khan believes could have made the airline more appealing to buyers. While the FBR’s ministry, the Ministry of Finance, could authorize the waiver, they chose not to do so before the auction. The government is now revisiting this issue, with a plan to approach the IMF for approval of the tax exemption for any potential buyers, though this must align with the broader framework of the IMF’s USD 7 billion extended fund facility.
Khan emphasized that PIA operates profitable routes and could be transformed into a profitable entity, though he did not specify which routes were considered lucrative. However, the airline faces significant financial challenges, having reported a loss exceeding PKR 75 billion (USD 270 million) in 2023, with a debt load exceeding PKR 825 billion (USD 3 billion). The majority of this debt was transferred to a separate holding company before the auction. Any buyer would have inherited around PKR 45 billion (USD 162 million) in liabilities, including the outstanding tax debts to the FBR.
Khan expressed frustration that the government did not heed bidders’ requests to clear these liabilities before the auction. He indicated that talks are ongoing with Gulf-based companies, including Abu Dhabi Ports, which have shown interest in the airline. “We have learned our lesson, and PIA cannot be sold without completely cleaning the balance sheet from all liabilities,” Khan concluded, stressing that no private company or foreign government would invest in PIA until the balance sheet reflects positive financials.
The government’s revised plan to privatize PIA will need to address these key issues to ensure a successful sale and transform the airline into a viable, profitable business.
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Sources: AirGuide Business airguide.info, bing.com, ch-aviation.com