ISLAMABAD, Oct 9: Pakistan International Airlines could be losing millions in foreign exchange annually in cargo transportation revenues following the handing over of its entire cargo transportation in Europe to a firm at a higher commission , allegedly in violation of rules and despite serious objections by the internal auditors, documents available with Dawnreveal.

In March 2003, PIA renewed its agreement with Golden Star Aviation, a one-man firm owned by one of PIA ex-employees, as its cargo sales agent (CSA) for booking the entire cargo transportation in eight European countries - France, Italy, Netherlands, Belgium, Denmark, Norway, Sweden and Finland.

Previously, the company was handling only France.

The airline reportedly allows the firm 10 per cent commission as against five per cent which it gives to its various cargo agents in these countries. Even the general sales agent (CSA), which is the sole agent appointed by the international airlines in any particular area, is given 7.5 per cent commission.

The firm did not have any office or establishment anywhere in Europe except in France. A source at the PIA Headquarters told Dawn on the telephone that the Golden Star Aviation has entered into a so-called partnership with a firm, Kales Group of Netherlands, and was using the latter's facilities or outlets throughout Europe.

Even the bank guarantee has been provided to PIA by the Kales Group and not Golden Star Aviation with which PIA entered into an agreement.

On Oct 1, 2004, a detailed official comment was sought from PIA on these points. It sent a written reply, saying: "Golden Star Aviation was appointed in 1998 which resulted in yielding positive results. The sphere of operation of the CSA was increased in different phases to other countries of Europe. The accuracy of this section is corroborated by the substantial growth in loads and revenue from our European Stations."

It further said: "Golden Star (CSA) has affiliations with M/s Kales Group which is one of the largest freight forwarders in Europe working on modern lines and exercising effective control and coverage on the European market. M/s Kalas (Kales) Group due to their business agreement with Golden Star has submitted bank guarantees to PIA for M/s Golden Star which was accordingly accepted."

A recent internal audit report of the PIA was said to have raised serious objections to the fact that neither a bank guarantee was provided by Golden Star Aviation nor was it a global bank guarantee as required under the agreement.

"In our view, the bank guarantee should have been issued by a bank in France and should have been a global bank guarantee as set out in the agreement," according to an internal audit memo dated April 13, 2004. "Further it can also be argued that the CSA has not furnished its own bank guarantee issued by the bankers of the CSA based in France."

The audit memo also raised the objection that Golden Star in fact entered into a joint venture with Kales Group B.V. Netherlands in April 17, 2003 - a month after it was appointed the CSA by PIA.

Besides, it said, the guarantee, "even if considered to be valid", was applicable to France only and does not cover its cargo sales relating to other countries like Netherlands, Belgium, Italy, Norway, Sweden, Finland and Denmark.

Another big favour given to Golden Star under the agreement is that the firm is allowed commission on charges collect shipments also known as CC shipments. These shipments are mostly made by the government, including the defence ministry. Since the government or the defence ministry has to bring in goods through PIA and no other airline, no marketing effort is required by the CSA as this is mostly done by PIA itself.

Golden Star was also allowed to claim commission on CC shipments at the time of delivery in Pakistan, although, previously, it was a well-established practice that the commission, if ever given to a cargo agent, was given only when government dues were received by the national airline.

The firm, according to audit documents, also did not apply IATA freight rates to CC shipments, resulting in a short collection of almost 0.5 million euros. The audit memo recommended the recovery of the short-collection from the firm.

According to the agreement, the CSA was to be given a 7.5 per cent commission plus 2.5 per cent on achieving the target. But the audit memo objected to this rate of commission, asking the airline for a 'downward revision' of the percentage allowed to the CSA. "It is felt that 7.5 per cent commission is even too high."

The audit report also found that the firm failed to report airway bills amounting to Rs16.2 million. "During audit, we have noted instances of lift of unreported airway bills pertaining for the period January 2002 to January 2003 amounting to Rs16,193,850. The sale of above-mentioned airway bills not yet received from the CSA," the April 2004 audit memo said, suggesting that the money be recovered from the CSA.

It is alleged that when the irregularities were pointed out by the audit reports, a meeting was called of all country / cargo managers from European stations in the first week of May 2004 at Cargo Division, Karachi, and they were asked to "regularize the irregulars". Despite audit objection on the higher rate of commission allowed to Golden Star for Europe, a PIA minute, also called M-1, issued after the meeting said that "the CSA will be paid commission of 7.5 per cent either on net rates or on published rates", whichever is applied.

"Another 2.5 per cent over and above will be paid if the CSA meets the assigned target for the territory," the M-1 said.

Under the rules, the CSA or any cargo agent of the airline can seek special freight rates by applying to the country / cargo managers, who in return send their request with their recommendations to the head office for approval. But these special freight rates are allowed in rare cases and only on the recommendation of the country / cargo managers, who are well aware of the prevailing market conditions. But, the source said, Golden Star used to sending its requests for special concessional freight rates to the country / cargo managers in the respective European countries, and also send a copy of the same to the head office.

The special rates were approved by the head office without consulting the country manager concerned.