Govt embarks on restructuring PIA, PSM, railways

ISLAMABAD: The government has undertaken restructuring of Pakistan International Airlines Corporation Limited (PIACL), Pakistan Railways (PR) and Pakistan Steel Mills (PSM), experiencing cumulative monthly financial losses of Rs 106.87 billion in addition to the budgetary support package of Rs 43.469 billion for financial year 2023-24.

Since June 17, 2019, four and a half years after being on the list of SOEs to be privatised, PSM was delisted from the active privatisation list and handed over to the Ministry of Industries and Production (MoI&P) for revival. PSM registered total losses of Rs 206 billion till June 30, 2022 with three out of four Chinese companies vying for PSM withdrawing their interest.

Federal government has periodically been releasing unbudgeted support to pay the salaries of PSM employees since 2013 while production operations of PSM remain suspended since June 2015.

PIA divestment: PC inks ‘FASA’ with FA

PIACL, with total losses of Rs713 billion till June 2023 (rising by Rs153 billion per annum since 2012), is being prioritised for privatization during the caretaker set-up, (whose mandate is 90 days though on average it takes about 460 days to complete one privatisation transaction under privatisation law), which on August 7, 2023 placed PIA on the active privatisation list but so far has met with little success.

This Tuesday pasta Financial Advisory Service Agreement (FASA) was signed with Ernest and Young-led consortium necessitating cabinet to use its emergency powers to grant approval for hiring the firm’s services.

The government recognises, from previous detailed feasibility studies, that PIA as structured today cannot be privatised as one entity, and that its non-core functions and assets will have to be separated and its debt liabilities of close to Rs300 billion will need to be taken over by the government. The core assets identified for sale are routes, landing rights, core engineering services and air service agreements.

Pakistan Railways’ total financial losses at present amount to Rs48 billion including Rs 40 billion pension payments. PR liabilities at present stand at Rs24 billion which include Rs 20 billion in pensions, Prime Minister’s (PM) assistance package and benevolent fund.

One of the major challenges faced by Pakistan Railways is its expenditure on salaries and pensions, which has exceeded its total generated revenue.

Despite achieving record revenue of Rs62billion during the financial year 2022-23, PR fell short of meeting its expenditure by Rs7.42 billion. PR has set a target of Rs80 billion for 2023-24, with a revenue target higher than the previous year by over Rs10 billion.

An official of PR told Business Recorder that in fiscal year 2022-23 it generated Rs62.5billion revenue from its operations, Rs3.2 billion from rent on land and over Rs 2 billion from selling scrap. Of this amount, Rs40.607billion was spent on pensions, and Rs35.7 billion on salaries.

According to 2020 data, out of ten loss-making SOEs, PSM, PIA and PR contributed 25 percent (Rs 106.87 billion) of total losses estimated at Rs 418.97 billion per month. The budget 2023-24 does not indicate any receipt from privatisation proceeds.

The privatisation of SOEs remained a top agenda item during the latest review of the $3 billion IMF standby arrangement. The IMF supports speedy privatisation of PIA, PSM, re-gasified liquefied natural gas (RLNG) power plants, and state-owned electricity distribution companies during the current financial year.

Copyright Business Recorder, 2023