Government Sets Aside Rs73 Billion for Privatisation-Related Costs
Pakistan’s taxpayers are expected to bear around Rs30 billion in interest costs on legacy Pakistan International Airlines debt during the current fiscal year, even after the national carrier’s majority stake was sold to private investors.
The federal government has allocated Rs73 billion as a privatisation contingency. Part of this amount is expected to cover interest payments on PIA’s old commercial debt, while the allocation may also support liabilities linked to other state-owned entities undergoing privatisation or closure.
Government records cited in the latest report show that around Rs268.5 billion of PIA’s commercial debt remains with PIA Holding Company Limited.
The liabilities were separated from the airline before privatisation to make the core aviation business more attractive to investors.
Around Rs30 billion is expected to be required for interest payments on that debt during the current fiscal year.
A Finance Ministry official said the Rs73 billion contingency would also provide funding for unforeseen requirements arising from the planned privatisation of power distribution companies.
The Finance Ministry separately explained that the allocation can be used for legacy liabilities linked to entities being privatised or wound up.
This could include PIA Holding Company as well as other organisations such as the Pakistan Agricultural Storage and Services Corporation.
Officials said the government is treating the money provided for PIA Holding Company’s interest obligations as a loan.
However, the holding company does not have a major independent operating revenue stream.
Officials expect proceeds from the disposal or development of assets held by the company to eventually help meet its financial obligations.
Banks Could Receive Rs573 Billion Over 10 Years on PIA Legacy Debt
PIA’s commercial debt was restructured in 2024 as part of preparations for privatisation.
Banks agreed to extend approximately Rs268 billion in debt for 10 years, with the financing cost capped at around 12 percent. The restructuring transferred responsibility for the liabilities away from the operational airline and effectively placed them with the government-backed holding company.
Under the arrangement, interest payments over the decade could exceed Rs300 billion.
The total amount paid to banks, including principal and interest, has been estimated at approximately Rs573 billion over 10 years.
This means the interest burden alone could exceed the original outstanding principal over the full restructuring period.
Annual budgetary allocations may therefore remain necessary unless the holding company generates sufficient funds from asset sales or other sources.
The fiscal burden has attracted attention because the government directly received only a relatively small portion of the proceeds from the initial PIA transaction.
The Privatisation Commission officially confirmed that the Arif Habib-led consortium submitted a Rs135 billion bid for a 75 percent stake in PIA, against a reference price of Rs100 billion.
According to the latest government-linked figures, around Rs10 billion of the Rs135 billion was received by the government in cash, while most of the remaining amount was earmarked for investment back into PIA.
The consortium also has the route to acquire the government’s remaining 25 percent stake.
The reported price for that remaining shareholding is Rs45 billion, which would take the value associated with a full 100 percent acquisition to Rs180 billion if the transaction is completed as planned.
That distinction is important because the original successful privatisation bid covered 75 percent of PIA, not the entire airline.
Sales Tax Relief to Be Extended to All Airlines as DISCO Privatisation Advances
The government has also decided to broaden airline tax relief after concerns were raised about preferential treatment originally provided to PIA.
Privatisation Commission Secretary Usman Bajwa told the National Assembly Standing Committee on Privatisation that sales tax exemptions would be extended to other locally operating airlines from the next fiscal year.
PIA had already received an 18 percent sales tax exemption on the procurement and lease of aircraft from July 2026.
The special treatment was designed to improve the airline’s investment prospects during privatisation.
However, lawmakers questioned why the benefit was restricted to PIA.
The government has now decided that other eligible airlines will receive comparable treatment from fiscal year 2027-28, with the exemption expected to run for 15 years.
Privatisation Commission officials also said the International Monetary Fund had been informed about the planned extension of the exemption to other airlines.
The same parliamentary meeting reviewed the government’s programme to privatise electricity distribution companies.
Faisalabad Electric Supply Company, Islamabad Electric Supply Company and Gujranwala Electric Power Company have been placed in the first privatisation batch.
The government plans to offer between 51 percent and 100 percent stakes in the companies.
Officials said historical losses and balance-sheet problems must be reviewed before final asset valuations can be determined.
Bidding for the first three companies is currently targeted for December 2026.
Committee Chairman Farooq Sattar also called for protections for employees after privatisation.
Prospective investors, however, have sought greater flexibility to reduce workforces, particularly as advanced metering and other technologies could reduce staffing requirements.
The committee also recommended performance audits of the distribution companies as the government moves ahead with the transactions.
PIA’s privatization may have removed much of the airline’s operational debt burden, but billions of rupees in legacy liabilities remain with the public sector.
The Rs30 billion interest requirement for the current year highlights how those old obligations can continue affecting taxpayers long after control of the airline moves into private hands.
