EDITORIAL: The government’s much-delayed plans of privatising PIA hit a huge obstacle on October 31 as the final bidding for the airline attracted just one bid of Rs10 billion for a 60 percent stake in the entity, well short of the government-set minimum price of Rs85 billion.
The sole bidder, Blue World Consortium, a real estate management company, refused to reconsider the bidding amount it submitted despite being urged to do so by the Privatisation Commission, with its chief executive insisting that the bid price was in accordance with the company’s assessments of the national carrier’s worth.
It should be recalled that the government had pre-qualified six groups for the final bidding back in June. However, last month these entities had raised numerous misgivings regarding the terms the government had set in the proposed sale-purchase agreement, including certain performance targets, like increasing the number of aircraft, flying on pre-determined routes, making a guaranteed investment in the airline, as well with regard to the number of employees they were expected to retain on the payrolls.
The government’s refusal to reassess its targets led to all but one of the interested parties to back out of the process. As we have argued in this space before as well, the government would have been wise to modify at least some of the terms to ensure that the bidders remained engaged with the process.
Given the existing dilapidated state of the airline, it was entirely unrealistic of the government to ignore the harsh reality that no reasonable buyer would consider acquiring PIA unless it was offered on significantly more favourable terms than those initially recommended.
What proved to be even more bizarre was the government deciding to go ahead with the final bidding even when it could see that the sole bidder had no experience or expertise to run a business as specialised and complex as that of an airline.
In fact, the entire process undertaken by the Privatisation Commission reeked of incompetence, resembling a bad joke played at the nation’s expense, and the government must haul up the consultants it had hired at great cost to provide guidance regarding PIA’s sell-off.
It goes without saying that a successful privatisation process would have entailed the new owner being a business entity with at least some expertise and background in the aviation sector, as well as the seriousness to undertake the requisite structural changes in its governance and operations by making meaningful investments in the national carrier, which over the long term, could have helped to turn its fortunes around. On current evidence, there remain question marks on Blue World’s ability to achieve these outcomes.
We must also consider what this chain of events says about the trust, or lack thereof, that potential investors have in the word of the government of the day. As has been reported by news agency Reuters, the bidders that had backed out had expressed concerns regarding the government’s capacity to uphold long-term commitments made for the national carrier, no doubt being influenced by the way the recent negotiations with IPPs had gone down, where sovereign contracts with these entities were effectively cancelled. This isn’t a good portent at all for the future of private investment in the country, as investors clearly harbour doubts about the reliability of the investment environment in Pakistan.
The federal cabinet now faces a crucial choice: to either accept the bid on the table or cancel the process and begin anew. Despite pressure from the IMF to privatise PIA quickly and the ongoing burden of sustaining an entity that has drained national resources, the wiser course may still be to opt for a fresh start — a new privatisation process that is more carefully planned, thoroughly thought out, and demonstrates clear evidence of due diligence, care, expertise, and vision.
Copyright Business Recorder, 2024