SUMMARY of the article “Privatising PIA as going concern?”, Shahid Kardar, Published on October 28th, 2023
The article highlights the issue of privatising State-Owned Enterprises (SOEs) in Pakistan, with a focus on the example of Pakistan International Airlines (PIA). Over the years, SOEs in Pakistan have incurred substantial losses, with the top 10 loss-making SOEs accumulating over Rs2.1 trillion in losses between 2013-2014 and 2018-2019. PIA, in particular, has faced significant challenges, with a current loss of Rs713 billion and diminishing operational capabilities. The government’s proposed solution is to privatize PIA partially by hiving off non-core functions and assets and transferring debt liabilities to another corporate entity. Core assets identified for sale include routes, landing rights, core engineering services, and air service agreements. However, the article emphasizes the need for clarity regarding the value of these assets and the prospective buyer’s perception of the remaining liabilities. It also raises questions about the worth of PIA’s aircraft, leased aircraft, and properties. Moreover, considerations regarding flights to less-served destinations, workforce reduction, and foreign investor interest are discussed, along with potential tax and foreign exchange impact. The article concludes by emphasizing the importance of conducting the privatisation transparently and using the proceeds for productive purposes rather than financing unproductive government activities.
Easy/Short SUMMARY for 8th Graders:
This article talks about how the government in Pakistan is thinking about selling some of the national airlines, like PIA, because they are losing a lot of money. But selling it is not that simple. The author explains that the government needs to decide what parts of the airlines they can sell and what parts they need to keep. They also have to think about the old airplanes, the properties, and the people working there. The article says that selling the airlines can be a good idea if it’s done the right way. It should make the airlines better, create more competition, and be in the public’s interest. However, the money earned from the sale should be used wisely and not for unnecessary government spending.
SOLUTIONS of The Problem:
1. Cautious Approach to Privatization: The government should approach SOE privatization carefully, evaluating each entity’s suitability for privatization. Liquidation may be necessary for those not marketable as going concerns, while partial privatization may be an option for others.
2. Transparency and Clarity: To facilitate privatization, the government should provide clarity on the assets being sold, their actual market value, and the liabilities transferred to the buyer. Openness in the process is essential.
3. Valuation of Assets: The government should conduct a thorough valuation of the most prized assets such as routes, landing rights, and aircraft to ensure a fair deal for both parties.
4. Optimization of Workforce: The buyer and the government should agree on optimizing the workforce by retaining employees based on operational requirements and negotiating fair settlements for those laid off.
5. Foreign Investment Promotion: The government should actively seek foreign investors for the transaction, offering competitive terms and ensuring a conducive business environment. Tax and other incentives could attract foreign interest.
IMPORTANT Facts and Figures Given in the article:
- Over 215 State-Owned Enterprises (SOEs) exist in Pakistan, with approximately 170 being commercial entities.
- The top 10 loss-making SOEs incurred over Rs2.1 trillion in losses between 2013-2014 and 2018-2019.
- PIA has an accumulated loss of Rs713 billion and has lost $7.1 billion since 2012.
- PIA has only 19 operational aircraft, with 15 being leased.
- PIA’s core assets identified for sale include routes, landing rights, core engineering services, and air service agreements.
- Kenyan Airways sold its Heathrow slot in 2016 for roughly $75 million.
- The government has provided Rs2.5 trillion to SOEs between 2018 and 2021, including a subsidy of Rs1 trillion.
IMPORTANT Facts and Figures out of the article:
- None provided in the article.
MCQs from the Article:
- What is the accumulated loss of PIA as mentioned in the article?
A. Rs2.1 trillion
B. Rs713 billion
C. $7.1 billion
D. Rs2.5 trillion -
What is the main asset proposed for sale in the privatization of PIA?
A. Aircraft
B. Properties
C. Routes and landing rights
D. Workforce -
What is the recommended approach for privatizing most SOEs according to the author?
A. Privatize them entirely
B. Liquidate them
C. Retain them in government control
D. Lease them to private entities -
What was the primary concern expressed regarding the valuation of PIA’s aircraft?
A. Their age and flight worthiness
B. Their manufacturer and model
C. The buyer’s perception and liabilities
D. Their original purchase price -
Which factor is mentioned as crucial for attracting foreign investors to the privatization of PIA?
A. Favorable tax treatment in the buyer’s home country
B. An attractive and stable business environment
C. Significant discounts on the aircraft purchase
D. PIA’s brand image
VOCABULARY:
- Privatisation (noun) (ملکی سرکاری منصوبہ کا نجمان): The transfer of ownership and control of a government entity to the private sector.
- Liquidated (verb) (اختتام دینا): To wind up or dissolve a company or organization, typically by selling off its assets.
- Assets (noun) (مال): Items of value owned by a company or individual, which can be converted into cash.
- Liabilities (noun) (ذمے داریاں): Financial obligations or debts that a company or individual owes to others.
- Subsidy (noun) (مالی اعانت): Financial aid or support provided by the government to reduce the cost of certain goods or services.
- Deregulated (adjective) (غیر رسمی): Having restrictions or regulations removed, often in the context of an industry.
- Operational capabilities (noun) (عاملین کی صلاحیتیں): The ability of an organization to perform its functions effectively.
- Valuation (noun) (قدر کی تشخیص): The process of determining the worth or value of something, such as assets.
- Incentives (noun) (محرکات): Encouragements or rewards offered to stimulate specific actions or behaviors.
- Conducive (adjective) (مدد گار): Creating conditions that make something likely or possible.
- Optimizing (verb) (اچھا بنانا): Maximizing the efficiency or performance of a system or process.
The facts and figures provided in the article demonstrate the significant financial challenges faced by State-Owned Enterprises (SOEs) in Pakistan. The article also discusses the proposed partial privatization of PIA, highlighting the accumulated losses and operational issues faced by the airline. It emphasizes the need for a clear understanding of asset valuation, liabilities, and considerations for potential buyers. The article also raises questions about the future of less-served destinations, the workforce, and foreign investor interest. The author emphasizes the importance of transparent privatization and responsible use of proceeds.
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