The PIA challenge

Daniyal Aziz, the new Privatisation Minister, in an interview to a foreign news agency reportedly stated that the government will try to privatise Pakistan International Airlines (PIA) before the general elections scheduled latest for early July this year. Providing details, Aziz stated that plans have already been drawn up for the sale of the national airline that include splitting its core business from peripheral operations and selling its core business - a plan that was formulated a couple of years ago and abandoned as interest in purchase of the airline plummeted given the rising scale of its losses (the Minister revealed cumulative losses of 345 billion rupees).
However, in a hastily called press briefing with the local media the next day, Daniyal Aziz clarified that he had actually stated that the process of sale of PIA's core business relating to management and flight operations will be completed in accordance with the PIA Act passed by parliament on 15th April 2016 - which specified the Act's validity date from 15th April 2016 to 15th April 2018. He reaffirmed that a new company would be set up to deal with peripheral operations like catering, hotels and maintenance.
In this context, it is relevant to recall that in February last year the Sharif administration decided to first turn PIA around prior to offering it for sale and was actively considering: (i) sale of Roosevelt hotel in New York; and (ii) shutting down loss-making routes with the decision to close down New York office which cost more than 150,000 dollars a year but did not have the traffic to justify that expense.
However, PIA's powerful union's resistance to any attempt to sell the airline led to violent protests compelling the government to postpone the decision to privatise the entity. Concurrently, PML-N government's selection of Chief Executive Officers (CEO) did not lead to an improvement in management - a contention reflected by mounting losses. On the contrary, many a CEO was accused of corruption and one foreign national was even placed on the Exit Control List.
Privatisation was a manifesto promise of the PML-N prior to the 2013 elections and soon after it took over the reins of government the party announced its decision to privatise as many as 68 state-owned entities (SOEs), including enterprises requiring heavy annual injections accounting for a steady drain of the public exchequer notably PIA, Pakistan Steel and Pakistan Railways - a drain of 600 billion rupee per annum, according to Daniyal Aziz. Today all three remain SOEs. At the present moment in time with general elections scheduled in less than six months and the PML-N senior leadership grappling with a number of legal as well as political issues it seems unlikely that it would succeed in privatising PIA's core business by April this year when it failed to do so when the administration was stronger.
Be that as it may, Shahid Khaqan Abbasi with his association with Air Blue has been much maligned in recent months for the financial success of the private airline while failing to turn the fortunes of PIA around. In this context, it is possible that he is behind the move to hasten the process of PIA's privatisation though the government would have to provide massive incentives to generate and shore up buyer interest, incentives that it may find difficult to justify during election time.
It is critical to bring to the notice of the PML-N that all privatisation is not good and there is a need for the party to revisit its unconditional support based on recent research. Joseph Stiglitz the Nobel laureate wrote that "the World Bank and the International Monetary Fund (IMF) pushed countries to privatise as much as they could and as fast as they could. Privatisation became not only one of the pillars of the 'Washington Consensus' but also a condition imposed on countries seeking assistance. The experiences of the last 15 years have cast a pallor over this unbridled enthusiasm for privatisation... a new, more pragmatic consensus is developing-more consistent with economists' normal two-handed stance, 'it depends.' Privatisation has had some successes, but it has also been marked by dramatic failures and disappointments. The questions being posed today are: When will privatisation be successful? And how can the privatisation process be managed to maximize the likelihood of success? The privatisation process has been marked by enormous abuses: in many countries, a few individuals managed to grab hold of previously state-owned resources for a pittance and become millionaires or billionaires. In a few years, Russia became a country marked by great inequality, with a Gini coefficient as bad as many in Latin America. By some estimates, $1.5 trillion in assets were stolen. In a country like Pakistan where corruption is a fact of life much more care needs to be taken before privatising any SOE.