Lone bidder offers Rs10bn for stake in PIA

Karachi (Reuters): The final bidding process for the privatisation of Pakistan International Airlines opened on Thursday, with just one participant for a stake in the national carrier.

Saad Nazir, chairman of real-estate development company Blue World City confirmed to Reuters that his group placed a bid at a ceremony at a hotel in Islamabad.

The real estate group has placed a bid of Rs10 billion, way below the Privatisation Commission’s expectation of Rs85.03bn. The bid has apparently put the privatization of the national carrier in jeopardy.  

The lone bidder has refused to increase the bid, stating that government may continue to run the entity on its own if it did not want to sell it.

As per the procession, the Commission would inform the federal cabinet about details of the bidding. If it is rejected, the bidding process will be initiated anew.

Cash-strapped Pakistan is looking to offload a 51-100% stake in debt-ridden PIA (PIAHa.PSX), opens new tab to raise funds and reform bleeding state-owned enterprises as envisaged under a $7 billion International Monetary Fund programme.

Read also: Bidding date for PIA's sell-off extended to October 31

The government had pre-qualified six groups in June, but only Blue World City met a Tuesday deadline to submit final documents to participate in the process.

Officials from three groups that chose not to bid told Reuters on condition of anonymity that there were concerns about the government's ability to stand by agreements made for the flag carrier in the long term.

One executive voiced concern about policy continuity once a new government came in. The government of Prime Minister Shehbaz Sharif has relied on a coalition of disparate political parties.

The disposal of PIA is a step former governments have steered away from as it has been highly unpopular given the number of layoffs that would likely result from it.

Read also: Process for PIA privatisation officially begins

Underpinning these concerns over policy continuity and honouring contracts was the government's termination of power purchase contracts with five private companies earlier this month, as well as the process of re-negotiating other sovereign guaranteed pacts.

Changes in Pakistan's decade-old agreements with private IPP projects, largely financed by foreign lenders, to address chronic power shortages, "raises the risk of investing as well as doing business in Pakistan, even in the presence of sovereign contracts as well as guarantees," said Sakib Sherani, an economist who heads private firm Macro Economic Insights.

Other concerns raised by potential bidders included inconsistent government communication, unattractive terms and taxes on the sector, in addition to PIA's legacy issues and reputation.