The difference between the reserve price and the bid at the PIA auction was not something that could be ignored. There was only one bidder, with the other parties prequalified by the government spooked enough to bail on the auction. That should itself have raised a red flag, because the sole bidder then tries to pay the proverbial rupee. As it was, the bid of Rs 10 billion was not just lower than the reserve price, but a mere fraction. The bidder was approached to improve his offer, but refused. The matter will now go to the Cabinet, which will have to decide whether to accept an apparently risible offer, or go through the whole process all over again, with no guarantee of a better result.
This has happened despite the auction having been postponed twice, because the potential bidders were carrying out due diligence. The process of privatization faced two major obstacles. The first was the huge debt PIA had, and the second was the overstaffing, which would have meant large layoffs, which would in turn have led to large pension bills well into the foreseeable future. The problem of privatizing PIA is compounded by the recent revisiting of IPP agreements, which has led to doubts about whether the government will honour its promises. Related to this is the question of political stability: even if this government does keep its promises, will those promises be considered binding on it by the next government? Another problem for the government is that the IMF wants this privatization badly, because not only is PIA a drain on the budget but it is among the last of the assets the government has. Previous privatizations have not lifted the country out of the debt trap, but have merely helped keep it afloat.
Fate seems to have given the government another chance with PIA. It is perhaps ironic that the auction flopped on the same day the State Bank of Pakistan’s Rs2.5 trillion profit transferred to the government meant surplus for the quarter of Rs1.69 trillion. PIA was initially profitable, but slid downhill when governments discovered that it could provide jobs for the boys. The government may not be able to restore to its glory days, not with the whole airline industry in a tailspin, but it needs to think hard about what to do before it has to sell it off for the proverbial token rupee.
