July 20, 2006	Thursday	Jumadi-ul-Sani 23, 1427

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ISLAMABAD, July 19: The Public Accounts Committee was told on Wednesday that the Ministry of Defence had ordered a probe into the administrative affairs of Pakistan International Airlines, which was incurring huge losses.

Parliamentary Secretary for Defence Maj (retd) Tanvir Hussain said that a notification in this regard had been issued and a board comprising defence ministry officials had been constituted. However, despite insistence of the committee members, the terms of reference of the inquiry were not disclosed. It was decided that ToRs would be provided to the members at some subsequent meeting of the committee.

He said the defence ministry had taken a serious notice of PIA affairs and the scope of inquiry would be broadened. Joint Secretary (Aviation) Ministry of Defence Shahidullah Baig said that the inquiry followed a presentation given to Prime Minister Shaukat Aziz on PIA, where it was felt that there were certain grey areas.

Earlier, the committee refused to accept the contention of PIA officials that the losses incurred by the airline were merely because of increase in fuel prices.

Chairman PAC Malik Allahyar observed: “It looks PIA management is incompetent and incapable.” The airline, he said, because of incompetence of the management lost its focus on the core business of running airline and ventured into non-core businesses like managing poultry farms and hotels.

The committee was deliberating on the Rs5.1 billion loss incurred by the airline during the year 2000. The airline’s accumulated losses as on December 31, 2005 were Rs11.7 billion.

The audit officials maintained that PIA’s plea that the losses were merely because of increase in oil prices was unsubstantiated. They said the impact of increase in oil prices was Rs5.4 billion, which was off-set by an increase in revenue to the tune of Rs4 billion. Therefore, they said, the losses of Rs5.1 billion were due to reasons other than increase in fuel prices.

The audit officials cited the example of 136 per cent increase in health expenses of PIA employees during the year under review as one of the reasons for such a huge loss. The PAC members noted that the process of booking and issuance of boarding cards was not transparent.

The PIA representative replied that following Rs5.1 billion loss in 2000, corrective measures including a change in management and flight renewal were taken, which made the airline profitable till 2005 when it started going into losses once again.

The chairman said the committee was not satisfied with the reply given by the airline and a lot of improvement was needed. He cautioned that if PIA continued to go into losses then it will have to be privatised.

The PAC members were surprised to know that the asset to liability ratio was unsatisfactory. In 2000, it was 0.37:1, which improved to 1.06:1 in 2004 but fell back to 0.6:1 in 2005. Auditor General Yunus Khan told the PAC that ideally the ratio should have been 2:1.

But, what stunned the PAC members was the disclosure that a B-747-200 grounded in 1999 was flown again in 2001. The PIA representative’s plea that the plane was not grounded but parked in hanger for phasing out failed to convince the members, who opined that the documents suggested otherwise and flying a grounded aircraft was a crime.

On the issue of loss of $0.176 million incurred by PIA because of lease of 2 MI-8 helicopters, Auditor General Yunus Khan opined that the choppers should have been leased with lesser guaranteed hours.

Joint Secretary Defence Ministry Mr Baig clarified that the decision was taken by the federal government at the request of the NWFP government to promote tourism. The NWFP government, he said, had agreed to give subsidy, but when the venture went into losses it did not share the burden and the service had to be discontinued.

The committee was told that PIA had given an inflated insurance claim to the National Insurance Company for compensation of damage to the PIAC auditorium. The audit para was settled subject to verification by auditors that the genuine amount of compensation was paid to PIA.

The committee directed the PIA management to “take an appropriate disciplinary action” against its employees, who fraudulently withdrew U$14,890 by misusing the facility of reimbursement of children education expenses.

The committee settled several paras pertaining to default by agents at foreign stations. The PIA officials pleaded that risks had to be taken for broadening market share.

However, Auditor General Yunus Khan observed that most of PIA’s overseas agents were unknown agencies and the airline was not listed with renowned agents.

Roosevelt Hotel issue: The defence ministry on Wednesday told the Public Accounts Committee (PAC) that it had advised against Prime Minister Shaukat Aziz’s plans to sell off profit-earning PIA-owned Roosevelt Hotel in New York.

Joint Secretary (Aviation) Shahidullah Baig said Roosevelt Hotel, New York, was a valuable asset and was earning huge profit.

He could not provide exact figures of the profit but said it was about $20 million.

He said the defence ministry had asked prime minister to use the hotel as a collateral for getting funds for the financially ailing airline from the banks.

The prime minister instead referred Roosevelt Hotel to the Privatisation Commission.

PIA’s investment in the hotel is $71 million, while it has made advances of $65 million. The total investment of the national flag carrier comes to $136 million. It has been learnt that the hotel has a book value of about $300 million.

Mr Baig speaking against the sale of hotel said the airline industry was running into losses because of a global recession in the aviation industry. “Therefore, businesses would have to be diversified.”

He rejected the impression that the hotel was affecting the working of the airline, saying that it had a separate board and management which was administratively placed under the federal defence secretary.

PAC Chairman Malik Allahyar, referring to the comments that hotel’s management works under defence secretary, remarked that it was not the job of the armed forces to run businesses and institutions.