The Economic Coordination Committee (ECC) of the Cabinet approved the cash subsidy, which will be given by issuing a supplementary budget, as the current fiscal year 2015-16’s federal budget does not have any allocation for PIA.
The ECC also approved $200 million equity share of Pakistan in the Turkmenistan, Afghanistan, Pakistan, India (TAPI) Gas Pipeline Project Company. The ECC also approved the proposal by the Privatization Division for payment of two-month salaries – Rs64 million – to employees of the Pakistan Machine Tool Factory (PMTF) Karachi.
The government continued its policy of raising revenues through indirect taxes, while dishing out money to loss-making entities. It has already approved Rs6.5 billion subsidy for sugar barons after it imposed Rs40 billion mini-budget.
“On a proposal submitted by the Aviation Division, the ECC granted approval for cash support of Rs4.4 billion for PIA enabling the airline to improve its products and services,” according to an official handout of the Ministry of Finance.
It added that the ECC also endorsed an agreement between the Finance and Aviation Divisions, enhancing the present federal government sovereign guarantees limit from Rs141 billion to Rs146 billion. PIA will use the Rs5 billion to create additional space for borrowing from the commercial banks.
The Rs4.4 billion cash will be used to add premium services in long-haul flights, according to an official.
The government approved the Rs9.4 billion package amid preparations to privatise the airlines under a condition of $6.2 billion International Monetary Fund (IMF) programme. The government is bound to invite Expression of Interests from prospective investors by December 31 and sell the airline by June next year.
Privatisation Commission Chairman Mohammad Zubair said on Thursday that the financial adviser has finalised the transaction structure of PIA, which will now be taken to the PC Board for approval.
Earlier this month, the federal government refused to service Rs248 billion debt of PIA from the budget. The PIA Board of Directors had demanded Rs3.5 billion per month to avoid default until the airline was privatised.
To remove a legal hindrance in the privatisation, the country’s president has already promulgated an Ordinance to repeal the 1956 Act of PIA, triggering protests by employees and inviting criticism from opposition parties for bypassing parliament.
After issuing the Ordinance, the government converted its Rs23.6 billion loan into equity, increasing its share to over 94% from 88%.
TAPI
The ECC also accorded approval to invest $200 million as equity share of Pakistan in the TAPI Gas Pipeline Project Company. It also allowed release of $12 million out of this share for the Pre-FID activities in four equal tranches starting from January 2016 as per the disbursement plan.
It also gave approval of the draft shareholders agreement, investment agreements and authorised the Inter State Gas Systems (Private) Limited ISGS to sign these agreements.
The total cost of TAPI project is $10 billion and Turkmenistan, being the consortium leader for the project, has agreed to contribute 85%. The remaining equity would be equally shared by Afghanistan, Pakistan and India.
The four state gas companies of Turkmenistan, Afghanistan, Pakistan, and India have established the company that will build, own and operate the planned 1,800-kilometre TAPI natural gas pipeline.
Once completed, the TAPI pipeline is expected to export up to 33 billion cubic meters of natural gas a year from Turkmenistan to the three partner countries over three decades.
Pakistan and India will get over 1.3 billion cubic feet per day of gas.
