Economic Co-ordination Committee (ECC) of the Cabinet, which is scheduled to meet on Tuesday (today), is likely to approve a massive bailout package to help financially strapped Pakistan International Airlines (PIA) its acute financial woes.
An official document prepared by the Defence Ministry and available with Business Recorder recognises that the national flag carrier is facing liquidity crisis for the last several years. The Ministry, however, ignored management's mismanagement and maintained that the driving force behind this crisis is soaring fuel prices in the international market and a deteriorating rupee to dollar parity.
According to Defence Secretary, Nargis Sethi, the cash flow generated from operations is insufficient to pay the fleet's loan instalments resulting in a shift of borrowing from fleet to non-fleet loans. PIA had submitted a five-year business plan proposing different measures to make the airline self-sustaining, which is under consideration with the special committee constituted by the prime minister to study the viability of the plan.
ECC, in its meeting on March 2011, approved extension of following GoP guaranteed loans until period mentioned against each: (i) HBL- Rs 1 billion taken on August 8, 2008, maturity of which was August 26, 2011, (ii) Askari Bank Limited Rs 1.5 billion, taken on August 29, 2008 with maturity date August 26, 2011, (iii) NBP, Rs 2 billion, taken on August 19, 2008, maturity date August 26, 2011, (iv) HBL Rs 2 billion taken on October 30, 2007, maturity date December 31, 2011, (v) KASB, Rs 0.50 billion, taken on October 21, 2008, maturity date September 30, 2012 and (vi) NBP Rs 5 billion ( Rs 1.5 billion+ 1.5 billion + 2 billion), taken on June 12, September 30 and October 29, 2012 and June 14, June 13, and June 29, 2012.
Defence Ministry maintains that since PIA is not in a position to repay these, therefore, PIA has suggested rollever/extension of GoP guarantee on Rs 11.5 billion loans may be approved till December 31, 2012 as an interim measure. Defence Ministry further argued that during this interim period PIAC would be in the process of extending the GoP guarantee for 5 to 7-year period for which approval of the ECC is required.
The details of the debt to be extended is as follows: (i) HBL- GoP guaranteed short term loan Rs 6.60 billion; (ii) NBP-GoP guaranteed for Rs 10.1 billion short term loan ;(iii) Askari - GoP guarantee for Rs 1.5 billion;(iv) KASB-GoP guaranteed for short term loan of Rs 0.50 billion; and (v) NBP short tem loan of Rs 2 billion against PIA assets. The new package will also include TFC of Rs 12.8 billion GoP guaranteed giving a total of Rs 33.50 billion.
Defence Ministry has suggested that the loan of Rs 33.50 billion should be allowed to be converted into a long term debt for a period of 5-7 years on the term and conditions to be approved by Ministry of Finance. Besides this, Finance Ministry has approved following fresh borrowings for PIA: (i) NBP -Rs 3.60 billion, taken on December 28, 2011, NBP, Rs 2 billion taken on March 16, 2012 and KASB, Rs 1 billion taken on February 1, 2012.
Defence has requested the ECC that Finance Ministry should be allowed to issue fresh guarantee against the guarantee vacated due to the repayments by PIA on terms and conditions to be approved by the Finance Ministry.
According to Finance Ministry, PIA has proposed to extend guarantee of Rs 12.8 billion TFCs from 5 to 7 years provided that interest payment of the said TFC by the FD would be curtailed at the end of five years, as agreed to in the financial restructuring plan of 2007, unless the guarantee extended in Business Plan, 2012 has been submitted to the government.
MoD has proposed that MoF may be allowed to issue fresh guarantees against the guarantees vacated due to repayment of loans by PIA, on terms and conditions to be approved by MoF. In this regard, it is submitted that ECC authorises MoF to issue GoP guarantee on case to case basis. A guarantee vacated due to repayment of a loan cannot be automatically extended by Finance Division unless authorized by the ECC. Therefore, seeking blanket approval from ECC for allowing Finance Division to issue GoP guarantee on vacation of guarantees may not be appropriate therefore the proposal is not supported.