Govt Rejects Bank’s Terms As PIA Privatization Faces Hurdles

ISLAMABAD: The federal government has declined the stringent conditions laid out by commercial banks to extend a new loan of Rs15 billion to the financially struggling Pakistan International Airlines (PIA).

Additionally, a joint committee has been unsuccessful in finding a viable solution to sustain the airline’s operations until its privatization.

A consortium of six commercial banks proposed a Rs15 billion loan to PIA, with requests for sovereign guarantees, a letter of comfort, two aircraft as collateral, and a waiver from the State Bank of Pakistan (SBP), as per government sources.

The banks, which include Habib Bank Limited, National Bank of Pakistan, Meezan Bank Limited, Faysal Bank Limited, Bank of Punjab, and Askari Bank Limited, sought protection under the laws of the United Arab Emirates and England. The finance ministry, however, rejected these terms, asserting that they favored the banks’ interests more than expected in exchange for a loan backed by sovereign guarantees.

Qamar Abbasi, the spokesperson for the finance ministry, did not provide responses to queries about the Ministry of Finance’s stance on the terms proposed by the commercial banks.

The proposed loan was intended to acquire two confiscated PIA aircraft and meet other financial requirements, with a maximum repayment period of two years. Privatisation Minister Fawad Hasan Fawad is actively pursuing the sale of Pakistan’s largest loss-making entity.

Also Read: Government Introduces New Rules To Expedite PIA Privatization

The banks suggested that half of the Rs15 billion lending be secured against sovereign guarantees, an aspect acceptable to the finance ministry. However, the ministry did not agree to extend the letter of comfort, citing conflicts with the International Monetary Fund (IMF) agreement and potential repercussions for other loss-making enterprises.

The banks offered the loan at Karachi Interbank Offered rates plus 1.5%, equivalent to approximately 24% interest. The Ministry of Finance deemed these borrowing rates slightly higher and urged the privatisation ministry to reconsider.

Efforts by a joint technical committee of banks and the government to find a solution have proven futile. The committee’s deadline expired without achieving recommendations on restructuring the old debt of Rs260 billion and securing a new Rs15 billion loan for PIA.

The committee, chaired by Usman Bajwa, Secretary Privatisation Commission, failed to submit recommendations by the stipulated date of December 15th. Bajwa did not respond to inquiries about whether any recommendations were submitted to the finance minister.