Legal Roadblock In Privatization of Pakistan International Airlines (PIA)

Legal Roadblock In Privatization of Pakistan International Airlines (PIA)

The privatization of Pakistan International Airlines (PIA) seems quite doubtful since the government would be unable to transfer management control of the airline to a strategic investor without amending the PIA Act of 1956.

The government and other parties had put PIA on the active list of privatization and the IMF had originally set December 2014 as the deadline that would see at least 26% stakes along with management control being sold to a strategic investor. That deadline was revised to June 2015, then December 2015 before the latest cut-off date of March next year. However, it seems as though even that deadline will be missed, according to sources in the Ministry of Finance.

The ruling PML-N government does not have majority presence in the upper house of the parliament and cannot get a bill passed without seeking support of the Pakistan Peoples Party, which has 27 senators and is opposed to the privatization policy altogether. The ruling party has only 26 senators and will need support of other parties to get the bill passed from the Senate.

The Privatization Commission became aware of this legal setback during the due diligence process of PIA, which was carried out by the financial adviser. It shed light on the mismanagement on part of the government to handle one of the most complex transactions to date.

The government administers the national carrier under the PIA Act of 1956, which states that it cannot transfer its shares to any other party. The officials claim that the government discussed the option of converting PIA Corporation into a public limited company by amending the law.

Only when the law is amended, can the sale of shares to a strategic investors and transfer of management control  take place. There was also an option to retain the PIA’s corporation status and introduce amendments to the extent of transferring the management control. The other option is that PIA could be split into two entities – either through a de-merger or through sale of assets and transfer of liabilities to a new incorporated subsidiary.

Even though the legislation route is difficult, it is still doable, but the government still has to make a decision. The government might promote a Presidential Ordinance to address the legal hindrance. However, the IMF would be skeptical to any such arrangement, since the ordinance would lapse within four months of its promulgation and the government will have to introduce a Bill to amend the 1956 Act.