ISLAMABAD: The federal government has refused to accept the harsh conditions set by commercial banks for providing a new loan of Rs15 billion to the struggling Pakistan International Airlines (PIA). A joint committee has also failed to find a workable solution to keep the airline flying until its privatisation.

The consortium of six commercial banks offered Rs15 billion in new loans to PIA, requesting sovereign guarantees, a letter of comfort, two aircraft as collateral, and a waiver from the State Bank of Pakistan (SBP), according to government sources. The banks also linked the loan disbursement to an agreement on a settlement plan for Rs263 billion in old debts and sought protection under the laws of the United Arab Emirates and England. The finance ministry did not agree to these terms, stating that they protected the interests of the banks more than expected in return for giving a loan against sovereign guarantees, according to finance ministry sources.

The spokesperson for the finance ministry, Qamar Abbasi did not respond to questions regarding whether the Ministry of Finance rejected the terms proposed by the commercial banks.

The sources said, Habib Bank Limited, National Bank of Pakistan, and Meezan Bank Limited each offered Rs3 billion to PIA, totalling Rs9 billion. The remaining Rs6 billion was offered by Faysal Bank Limited, Bank of Punjab, and Askari Bank Limited, each contributing Rs2 billion. The loans were sought to take possession of two confiscated aircraft of PIA and meet other financing needs, with a maximum repayment period of two years.

Privatisation Minister Fawad Hasan Fawad is making efforts to sell Pakistan’s largest loss-making entity. So far, he has managed a Presidential Ordinance to end high courts’ constitutional powers related to privatisation matters and has also approved new rules to exclude an entity from the pro-competition privatisation law, allowing for negotiated settlements under another Act of Parliament.

The banks proposed that half of the Rs15 billion lending would be against sovereign guarantees, which is acceptable to the finance ministry due to available fiscal space. For the remaining half of the Rs7.5 billion and covering its interest cost, the banks asked for a letter of comfort from the Ministry of Finance and two aircraft as collateral, according to sources.

Sources said that the Ministry of Finance did not accept the condition of extending the letter of comfort, stating it is against the International Monetary Fund (IMF) agreement and could open a new gate for other loss-making enterprises.

The banks also demanded exclusive rights on the PIA revenues from flights operated on UAE routes. They sought guarantees that PIA and the government would ensure regular operation of these flights without disruptions to fuel supplies. Revenues from UAE flights would go straight to a new account for principal and interest payments, according to another condition set by the banks. The banks also demanded that the lending be governed by the laws of Pakistan, UAE, and England and Wales.

Published in The Daily National Courier, December, 23 2023

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