In a significant development, the government and representatives of commercial banks have initiated discussions to prepare a plan for the debt restructuring of Pakistan International Airlines (PIA) with the aim of keeping the struggling airline operational for another six months with a limited number of flights.
The 12-member committee consists of an equal number of representatives from the federal government and commercial banks, according to sources within the Ministry of Privatisation. They reported that the committee held two meetings on consecutive days and has been tasked with finalising the debt restructuring plan within two weeks.
Officials from the Ministry of Privatisation disclosed that the committee has also been assigned the responsibility of formulating a plan for an immediate borrowing of Rs15 billion by PIA to address its urgent needs, including fuel costs. The monthly cost of fuel to keep existing routes operational is estimated at Rs8.5 billion.
Usman Bajwa, the newly appointed Secretary of the Privatisation Commission, has been designated as the committee’s convener. The committee includes representatives from the Ministry of Finance, PIA, and six commercial banks. As of the end of August, these six banks have collectively provided Rs230 billion in loans to PIA, including Rs193 billion in domestic debt.
Bajwa did not respond to requests for comments.
Last month, PIA requested a moratorium on its Rs260 billion domestic debt repayments to address an annual deficit of Rs153 billion, which is the shortfall between its sales and essential expenditures. PIA requires Rs3.1 billion per month to service its external debt of Rs109 billion and Rs7.5 billion for servicing its domestic debt of Rs260 billion as of the end of August. The airline, Pakistan’s single highest loss-making entity, obtained an additional loan of Rs13 billion last month.
The Bank of Punjab has the largest exposure, with over Rs56 billion in loans to PIA, followed by Askari Bank Limited with Rs43 billion, JS Bank with Rs34 billion, NBP with Rs33 billion, Faysal Bank with Rs32 billion, Habib Bank Limited with Rs29 billion, and Bank Islami with Rs22 billion. Albaraka Bank has provided a Rs9 billion loan, and Soneri Bank’s exposure to PIA is Rs5 billion, according to sources.
PIA’s accumulated losses have reached Rs713 billion, with Rs285 billion worth of loans directly guaranteed by the federal government, not including loans obtained by PIA’s subsidiaries.
In a baseline scenario, PIA’s debt and liabilities would soar to Rs2 trillion, and its annual losses would increase to Rs259 billion per annum by 2030, according to PIA management.
The committee includes members from the corporate and investment banking divisions of several banks, including HBL, NBP, Bank of Punjab, Meezan Bank, Askari Bank, and Faysal Bank, according to Ministry of Privatisation officials.
The Technical Committee will assess PIA’s exact financing requirements from October 2023 to March 2024 for optimal operations. There are no plans to run all of PIA’s operations, with only essential routes being kept operational, according to Ministry of Privatisation officials.
Over the weekend, PIA grounded more than 80 domestic and international flights due to fuel shortages.
Sources stated that PIA immediately needs Rs15 billion to remain operational, but commercial banks are reportedly reluctant to provide the loan in the midst of discussions about debt restructuring. Discussions to secure the necessary funds are ongoing.
The government has initiated the process of privatising PIA through international competitive bidding. In the first phase, it is in the process of hiring a financial advisor to prepare a transaction structure. The government aims to sell a debt-free PIA, preferably to domestic buyers.
PIA currently has 34 aircraft, but only 19 are operational. Of the 15 grounded aircraft, six are leased by PIA and incur a monthly charge of $2 million.
PIA has also separately requested a Rs7.5 billion budget support grant from the federal government, but the Ministry of Finance is reluctant to provide it in the absence of a viable plan.
The request for the grant is to settle a deal of $26 million with Asia Aviation Capital Limited (AACL), which, in 2015, leased two A-320 aircraft to PIA for six years. Last month, PIA received a court notice for immediate payment of $31.3 million for outstanding rent, re-delivery rent, maintenance reserves, and interest charges for the two aircraft.
PIA is attempting to reach an out-of-court settlement with AACL for $26 million, with approval reportedly granted by Prime Minister Anwaarul Haq Kakar, according to sources.
The finance ministry is no longer inclined to cover the costs and has requested that PIA handle its commercial dealings on its own.
As is often the case, PIA has warned that if legal matters with AACL are not resolved and an adverse court decision is reached, its aircraft and foreign hotels could be confiscated.
PIA has been managed in an unprofessional manner and has largely been sustained by state bailouts. However, the Finance Ministry has now exhausted its resources due to an overarching macroeconomic crisis.
Published in The Express Tribune, October 25th, 2023.
IHC halts Rs35b tax on banks
The Islamabad High Court (IHC) on Wednesday suspended the government’s decision to impose a windfall income tax on commercial banks for the recovery of Rs35 billion, after lawyers questioned the powers of the interim setup and the constitutionality of the move.
The court’s decision came a day before the last date for the payment of an estimated Rs35 billion tax by those commercial banks that had manipulated the value of foreign currency to make extra profits.
The Federal Board of Revenue (FBR) was betting on the Rs35 billion in revenues to achieve its monthly target of nearly Rs711 billion. It is now left with the goal of collecting over Rs100 billion more today (Thursday) to meet the monthly target, although it may achieve the five-month tax collection target of Rs3.45 trillion.
design: Ibrahim Yahya
design: Ibrahim Yahya
“The submissions (by petitioners) demonstrate not only a prima facie case but also that the ingredients of balance of convenience and irreparable loss operate in favour of the petitioner. Resultantly, the operation of the impugned statutory regulatory order shall remain suspended till the next date of hearing,” reads the short order of the court.
Eight days ago, the FBR, through SRO 1588, had imposed a 40% windfall income tax on income from foreign exchange of banking companies for the preceding two years ended on December 31, 2021, and 2022.
Advocate Supreme Court, Salman Akram Raja, pleaded before the court on behalf of his banking clients.
While the government had anticipated banks to challenge the levy, the financial institutions were finding it difficult to hire lawyers to plead their case.
The government had issued the SRO under section 99D, which the Parliament had inserted into the law in June this year. While the FBR imposed taxes on the banks to get an additional Rs35 billion out of an estimated Rs90 billion windfall income, it conveniently ignored a windfall profit of approximately Rs1.5 trillion made by exporters. The Ministry of Finance has estimated that the exporters made a windfall gain of Rs1.5 trillion due to steep currency devaluation these past few years.
The banks’ lawyers argued that section 99D (through which the federal government could determine a tax rate between 0% and 40%) was tantamount to excessive delegation of power by Parliament and in breach of Article 77 of the Constitution.
The legal team also questioned the power of the caretaker government in imposing the tax, arguing that the function of the caretaker government was only to “attend to day-to-day affairs and (it) cannot extend its authority to a fresh taxation measure.”
The legal team also argued that the SRO was also defective in that the determination of the preconditions under section 99D, namely, the economic factors that led to the windfall income as well as the quantum of the windfall income, are conspicuous by their absence in the impugned SRO.
The team further argued that by reading the SRO, there was only an underlying (but invalidated) assumption that external economic factors have actually operated and led to a windfall income but without these being spelt out in the notification, which would be expected given the letter and spirit of section 99D.
The petitioners also claimed that the charge of additional tax conflicted with entry number 47 in the Legislative List for imposing an additional tax which was not warranted.
The law requires that the notification of the windfall tax has to be placed before the National Assembly within three months –a clause that the banks have now invoked as there is no assembly in Pakistan and the next elections are scheduled for February 8th.
The lawyer argued before the court that the government assumes that the next assembly will validate its action but it is quite possible that the National Assembly does not agree to bless the notification.
If the next assembly rejects the additional tax, banks would be at a disadvantageous position, according to the petitioners.
The court did not accept the arguments of the FBR legal counsel who submitted that the legislation has to remain operative until it is declared ultra vires. The court accepted the banks’ argument that the interim relief is sought in respect of the SRO, which is an executive act and not legislation and, therefore, prima facie not covered by the judgments on the point referred to by the counsel for the FBR.
Published in The Express Tribune, November 30th, 2023.
Growers sound alarm on fertiliser crisis
Growers in Sindh have appealed to the federal and provincial governments, as well as Chief of Army Staff (COAS) General Asim Munir, to take notice and prompt action to curb hoarding, smuggling, counterfeiting, and the black market of Urea and diammonium phosphate (DAP) fertilisers in Sindh immediately; otherwise, food insecurity could ensue.
“After demanding action from the federal and provincial governments on multiple occasions, I had to write a letter [available with The Express Tribune] to the COAS to address the ineptitude of all three fertiliser companies: Fauji Fertiliser Company Limited, Engro Fertilisers Limited, and Fatima Fertiliser Company Limited. Additionally, three Sindh government departments, including Sindh Agriculture Extension, Anti-Corruption Establishment (ACE), and Revenue, are being implicated in hoarding, smuggling, counterfeiting, and the black market of fertilisers due to nepotism, favouritism, and corruption. This is agonising farmers and driving up input costs of agricultural produce,” said Ali Palh, Advocate and President of the Small Growers’ Organisation Sindh Agriculture Research Council (SARC), speaking to The Express Tribune.
He highlighted that the government’s substantial subsidies to fertiliser companies have been in vain, as poor growers are not benefiting from them, leading to an acute shortage of fertilisers in the market. “We have laws, including the Sindh Fertiliser (Control) Act 1994 and Sindh Fertiliser (Control) Rules 1999; however, they are not being implemented to benefit peasants at all,” he emphasised.
Frustrated with the caretaker government, Jawaid Junejo, Chairman of the Farmer Organisations Council Sindh, expressed concern that large farmers are being compelled to purchase fertiliser sacks at almost double rates, while small growers are unable to obtain them, even at higher rates in the market. “We are running a social media trend; those who provide fertilisers at government rates to farmers will garner votes from the people in the upcoming general elections. This is the wheat sowing season, and we are being deprived of fertilisers,” he lamented.
Sindh Chamber of Agriculture (SCA), Senior Vice President, Nabi Bux Sathio highlighted that instead of a controlled Urea price at Rs3,680 per 50kg bag, it is being sold for Rs5,000-5,500 per 50kg in the market. He pointed out that a 50kg sack of DAP, which was sold at Rs9,000 until October 30, is now being sold at Rs15,000 per 50kg bag due to wheat sowing and other Rabi season crops.
“A total of 6.5 million tonnes of Urea are being produced in the country, meeting a local demand of 6.2 million tonnes. We should have a surplus, but no action is being taken. Growers need Urea and DAP fertilisers for better yield, rapid growth of standing crops. I urged the Sindh Chief Minister during a meeting today (Wednesday) in Hyderabad to make the fertiliser portal, set up by the federal government under the Ministry of Industries and Production, public. This way, every farmer can obtain updated information about actual bags of fertilisers sent to authorised dealers in every district. I also proposed forming an agriculture advisory committee to monitor agriculture issues and fix problems through monthly meetings,” he concluded.
Published in The Express Tribune, November 30th, 2023.
Saudi Arabia wins bid for 2030 world fair
The Saudi Arabian capital of Riyadh won the right to host the Expo 2030 world fair, vote results showed on Tuesday, in another diplomatic victory for a Gulf country after last year’s soccer World Cup in Qatar.
South Korea’s port city of Busan and Rome in Italy were also in the running to host the five-yearly event that attracts millions of visitors and billions of dollars in investment.
Riyadh won 119 votes, Busan 29 and Rome 17, results from 182 members of the Paris-based Bureau International des Expositions (BIE) showed. Saudi Arabia needed two-thirds of the votes to win from the first round.
The Italian contestants were scathing in their disappointment.
“This huge result for Saudi was unexpected in those proportions,” Giampiero Massolo, head of the Italian Expo bid, told reporters. “It is no longer about the merits, but about transactions. Yesterday it was a soccer championship, tomorrow it will be the Olympics,” he added.
However, South Korean President Yoon Suk Yeol congratulated Saudi Arabia for winning the bid, calling the Gulf state “a key partner,” and adding that his nation would share the resources and experience gained to help Riyadh hold a successful event.
Riyadh had enlisted soccer star Cristiano Ronaldo, who plays for the Al-Nassr Saudi club, to convince members in a video projected before the vote. Riyadh aims to host the event between October 2030 and March 2031.
The win is the icing on the cake for de-facto ruler Crown Prince Mohammed bin Salman’s ambitious Vision 2030 programme, which aims to wean the country off its oil dependency.
Published in The Express Tribune, November 30th, 2023.
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