Minister of Law and Justice, Farooq H Naek and Secretary Water and Water Power, Nargis Sethi were reportedly against the Economic Co-ordinator Committee (ECC) approving a government guarantee for a fresh loan of Rs 9.36 billion for Pakistan International Airlines (PIA), sources said.
Finance Minister Dr Abdul Hafeez Sheikh who chaired the ECC meeting, gave approval at the conclusion of a heated debate on the issuance of guarantee on fresh borrowing of Rs 9.36 billion by PIA from National Bank of Pakistan between 25-06-2012 to 29-06 2012. Sources said that Minister for Law and Justice and Secretary Water and Power came down hard on the management of PIA during the ECC meeting after a summary was moved by the Ministry of Defence for extension of loan (Sukuk Certificate) and government guarantee on fresh borrowing by the PIA.
An official on condition of anonymity quoted Law Minister raising a question why PIA should be given guarantee for taking a loan when its flights are not taking off in time. He was also quoted as saying that the management of PIA should first explain how it spent the previous loan before requesting a fresh loan. Naek also wanted the ECC to first have a discussion on PIA's business plan and subsequently take a decision on issuance of a guarantee for fresh loan.
The presentation, which was given by PIA to the Prime Minister, should also be given to the ECC so that it could have information as to what the national flag carrier intended to do. Nargis Sethi reportedly said that she was familiar with management issues of PIA because she had served as defence secretary. She wanted a solution to management problem in the PIA so that repeated requests to the government for issuance of guarantees for loans could end.
The Ministry of Defence cited high fuel prices, eroding dollar to rupee parity and the ageing fleet as major factors behind liquidity crunch. The members of ECC, however, argued that airlines management problems also contributed to the current liquidity condition. A summary was submitted to the ECC by Ministry of Defence stating that the cash flows from operations were insufficient to pay the fleet debt and PIA had to raise fresh loans to repay the same.
On the other hand, rupee devaluation against dollar was adding to the financial burden of PIA. The Ministry proposed extension of loan (Sukuk Certificates) and fresh borrowing by the airline as short-term measures. The Ministry of Defence requested extension of repayment period for two years w.e.f. February 2012 because the government guaranteed PIA Sukuk certificates amounting to Rs 6.8 billion were due for redemption in six equal instalments starting from February 2012.
However, due to liquidity constraints, PIA is unable to repay this debt. The Defence Ministry also requested the ECC to allow Ministry of Finance to issue guarantee for fresh loan of Rs 9.36 billion taken by the PIA for a period of one year from National Bank of Pakistan in five instalments between May 25, 2012 to June 29, 06. 2012.