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WHEN faced with the government’s move to effectively hand over control of PIA to a competent investor, the PPP’s response was that the party would oppose the legislation in the Senate.
This exposes — yet again — the PPP’s intellectually bankrupt approach: when faced with hard policy choices, it falls back on clichés and irrelevant slogans. Granted, the PML-N’s approach to the issue has been high-handed and gauche. But this does not diminish the seriousness of the PIA problem.
Here is a national airline that has been losing money for decades. It currently has outstanding liabilities of around Rs300 billion, and needs regular cash infusions to stay airborne. Bloated, bureaucratic and mismanaged, it badly needs lots of capital and fresh ideas. Neither is available from the present management.
When faced with hard choices, PPP falls back on clichés.
So what’s the solution? According to both the PIA unions and the PPP, it’s more of the same. The government, according to them, should continue throwing good money after bad just so that those on the company’s payroll do not lose their jobs.
And yet PIA has one of the highest manpower-to-aircraft ratios in the industry, employing over 700 staff for a single plane, as against 220 for Emirates. Many of the best engineers and technicians have left, and those who remain are demoralised and fearful of their prospects. The fleet is ageing and often there is no money to even fix the reading lights.
At the end of a recent news report about PIA in the online edition of this newspaper, there were many illuminating readers’ comments. The vast majority insisted they did not want their tax rupees to subsidise this moribund, loss-making organisation. Many said that if PIA staff wanted to strike, they should simply be sacked. So clearly, there is little sympathy among Dawn readers for PIA workers.
The advantage of privatisation is that it transfers losses from the taxpayer to the shareholder. Thus far, ordinary Pakistanis, even if they don’t use the airline — and most don’t — are still forced to underwrite its losses. The PPP, in order to curry favour with the PIA unions, is opposing the sale of 26pc of the airline’s shares, even though the rest of us have to pay the bill.
Although the current PIA chairman is a respected businessman, most of his predecessors have been retired air force officers without a clue about how to run an airline. But this should not come as a surprise as the airline is under the administrative control of the defence ministry.
It’s the same story with the Pakistan Steel Mills where the obsolete plant is in desperate trouble. With accumulated liabilities of Rs350bn, and government cash handouts totalling Rs85bn, the organisation halted production six months ago.
Currently, there is a glut in steel production worldwide, and it would be cheaper to import it than manufacture it locally. And yet the notion of the plant being a ‘strategic asset’ has been deeply implanted within our military establishment. In fact, a long succession of the state corporation’s CEOs — including the present incumbent — have been retired army generals. Unsurprisingly, they have not brought a lot of business acumen to their assignment.
Having worked as the finance director at Pak Steel many years ago, I can report on why, in its present configuration, it can never be profitable. Basically, this old Soviet-era plant was installed with infrastructure for an annual output of two million tons; however, the initial capacity was limited to a million tons. Thus, unit cost was always high, and will remain so until capacity is doubled.
But repeated efforts to get the necessary investment came to nought, and Pak Steel has always struggled to remain viable. It only made a profit briefly because of tariff barriers, and now badly needs a huge investment if it is to survive. Our best chance to unload this white elephant for $362 million was thwarted by the Supreme Court in 2006 in a landmark judgement that sent a chill through the privatisation process that has lasted a decade.
Both these are prime examples of why governments should stay out of business. In developing countries where private capital shies away from projects requiring high investment and long gestation periods, it makes sense for the government to enter the field, as Pakistan did with PIA and Pak Steel. But the idea should be to disinvest as soon as the projects are up and running and making a profit.
However, the reality is that the bureaucracy becomes the most ardent opponent of privatisation as these state entities are sources of jobs, salaries and perks. Who cares if they are also the source of mounting losses?
Given this background, one would have expected the PPP to come up with either a viable alternative to transferring control, or to support the government’s plan. But predictably, all it has in its armoury are tired slogans from yesteryear.
Published in Dawn, January 30th, 2016
