Privatising SOEs

Published December 8, 2023

WHY does the government want to demolish the historic Roosevelt Hotel in New York — one of the eight properties our bankrupt national airline owns outside Pakistan — to build a new one through a joint venture, as disclosed recently by an aviation official during a Senate hearing?

What kind of massive losses will PIA suffer further if the agreement does not materialise? Does the plan make any business sense? Apparently, the official did not elaborate, perhaps because the disclosure was meant to prepare the ground for the implementation of the plan and build a favourable, supportive public opinion.

Since the details of the plan remain sketchy, it is hard to evaluate it objectively. But given the fact that the hotel, located in the heart of Manhattan, has bled money for years, contributing little or nothing to the moribund airline’s annual cash flow, it makes no business sense to undertake the new venture.

Currently rented to the New York City government for three years for $220m to house immigrants, the century-old hotel suffered large financial losses after the Covid-19 pandemic, and had to be shut down.

Back in 2020, the government held serious discussions to sell the hotel to boost PIA’s finances and to avoid the privatisation of the airline. But the plan was dropped after the hospitality industry suffered a massive hit owing to the pandemic.

Whenever a government tries to sell state-owned enterprises, vested interests become active, seeking ways to get around the reforms agenda the country must implement for longer-term economic stability.

We have been seeing this since the early 1990s when Pakistan decided to privatise public businesses, which had already started to sink fast and become a major liability for taxpayers.

Thus, it has been known for the last three decades that the government needs to sell SOEs quickly. In certain areas, such as banking and telecom, it succeeded. But in the case of PIA and the Pakistan Steel Mills it has not.

PSM keeps losing money more than seven years after it was shut down. It was, therefore, widely expected that certain interests would try to stall the privatisation of PIA that has accumulated losses to the tune of Rs717bn.

The plan to demolish Roosevelt Hotel may not be part of the devious strategy to stall the national carrier’s sale the authorities have been trying to pull off as early as possible, but it should not be given the green signal unless the financial advisers currently conducting due diligence of PIA submit their opinion on the plan, even if PIA properties do not have any link with the airline’s disinvestment.

With the losses of SOEs mounting every year and becoming a major drag on the budget, it is time to speed up the privatisation process.

Published in Dawn, December 8th, 2023

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