Tag Archive: PIA

There was a post in this blog forewarning the nation about a couple of national Titanics who were waiting in the wings to sink the entire economy. Pakistan Steel has already got the bail-out package but it has yet to be bailed out unless the more hefty package is announced. The amount of money that the Government has so far doled out to bail this white elephant out was sufficient to build another Steel Mills of the same size.

The other one of these Titanics is Pakistan’s national flag-carrier which was previously great people to fly with when it was making money but later converted to come fly with us when it started making losses. It is living on the blood of common Pakistanis who may not have even seen an aircraft. It has now been reported that Pakistan International Airlines (PIA) has asked the government to approve a financial support package to ensure sustainability of the national airline. This emerged during the 326th Board of Directors meeting which was held at the carrier’s office in Lahore. Express Tribune has reported that the plan will be presented to the federal government for approval after a few adjustments desired by the board are included in the proposal.

The board also urged the government to review the aviation policy to make it more equitable for all stakeholders. A level playing field for Pakistani airlines was demanded. Directors also agreed that shareholders’ support in the form of equity injection is vital for a sustainable turnaround. The equity is hard-earned income of not the directors but common Pakistanis who have the misfortune of being owners of the airlines but who can not ask a simple question; why should we pay for your inefficiency?

In order to cater the shortage of pilots for various aircraft, it was decided that the airline would give an option to those pilots who had reached the retirement age of 60 years to rejoin on contract basis. After the air crash of Air Blue, will it be wise to let over-aged pilots to fly the planes? The Civil Aviation Authority (CAA) of Pakistan has already allowed pilots to fly up to the age of 62 years.

The meeting was chaired by Defense Minister Chaudhry Ahmed Mukhtar who has no clue to as to what an airline business is. He is the same gentleman who being the Defense Minister had given a brilliant opinion about drones: drones do not take off from Pakistani bases, these only land there.

When Titanic sank in 1912, the shipbuilding pride of Harland & Wolff Shipyard sank along with it. Its sinking was triggered by many things but the most noteworthy was the arrogance of White Star Line literally insulting the basic principles and measures of passengers’  safety which were ignored by over-confident ship operators. The ship not only sank in record time, it did not have the comfort of communication of its distress with other ships. Same is the case of some of the Titanics of our economy. Their sinking is imminent because basic principles of their governance are flouted and insulted, and everybody including the lamp-post and Charlie’s aunt can see that but no effort is being made to take steps to minimize the effects of sinking. These ships will not only sink themselves, they will sink the entire economy along with them.

Public sector corporations, which are yet to be privatized, are bleeding the economy and making us poorer by the day. The Government has to keep their lifeline by injecting billions of tax-payers hard-earned money so that these white elephants keep doling out luxuries to those who are mis-managing them.  It is feared that by the time government puts them on sale, their value would have been reduced to zero and taxpayers would have to subsidize their sale. Of these entities, PIA and Pakistan Railways enjoy tremendous patronage and protection of the Government.

The passengers have to wait for weeks to be able to book a seat in PIA, yet the airline is making huge losses. It is a fact that it is not operating in monopoly and has to compete with other national and international airlines but it has a position of advantage; (a) it does not have to spend as much in variable costs as other airlines as its food is cheap and substandard and it does not have to offer expensive alcoholic drinks to its passengers, (b) passengers of Pakistani origin, mostly semi-literate expatriate workers traveling to and from Middle East, always prefer to travel PIA due to dietary and linguistics limitations and PIA’s generosity in carrying excess baggage and (c) all travels to be financed by the Government must be undertaken through PIA if not by PIA.

With comparatively higher fares and lower variable costs, PIA enjoys virtual competitive advantage but this advantage is offset by very exorbitant fixed costs. PIA is probably the only airline which has the maximum number of employees per aircraft. At one time, it was the best airline but it suffered at the hands of those who tried to stuff it with incompetent political workers in order to get political benefits at the cost of this vibrant organization. Its story was published in detail in this or a sister blog. It has no hopes of any recovery unless some remedial measures are taken on war footings otherwise, it will not sink alone, it will sink the entire economy and the national integrity along with it.

The other white elephant is Pakistan Railways which suffered similar blows at the hands of politicians and is now being closed down, bit by bit. The blame of its demise is being conveniently laid at the doors of bureaucrats but by training and experience, bureaucrats are incapable of destroying national assets. This job has always been successfully undertaken by other players. The story of Pakistan Steal is no different and its death is taking place right in full sight of everyone.

What is it that the Government can do to save these entities, and consequently the country, in the present circumstances? There was a paper which appeared in April 2004 edition of Asian Journal of Government Auditing on survival strategy of public sector entities. Although the paper discusses post-regulation scenario of telecom sector, yet some of the solutions can be adopted for survival of these white elephants. The paper stresses increased focus on the principles of corporate governance for survival of public sector corporations which are as under:

Effectiveness of the governing bodies

For proper corporate governance, the Boards of Directors and Management of these entities are required to be independent and competent in order to become effective. While nominating members on these boards, the Government should exercise special care to ensure that the interests of the entities do not get compromised due to conflicting personal or business interests of the members. These members should be selected on merit keeping in view their experience in, and exposure to, the dynamics of telecom market. Selection criteria other than this merit will spell disaster and will hurt the commercial interests of these two entities much ahead of the commencement of actual competition.

Roles and responsibilities within the organization and accountability

Corporate governance principles require that these entities should have clearly documented objectives and should establish clear roles and responsibilities within the organization. The entities should also ensure that these roles and responsibilities are clearly understood by everyone in the organization from the Board to the lowest level of the management. In the history of Pakistan’s corporate sector, there have been unfortunate instances of undue interference by the Ministries’ bureaucracy, which had no clue to the business, in the day-to-day affairs of these corporations with the result that no clear responsibilities could be fixed for the collapse of public sector. The Government should ensure that its role confines to policy directives only and it does not get down to transacting the business of these entities which is the responsibility of experienced professionals. For appropriate corporate governance, the respective Boards and managers should be made fully responsible for performance of these entities. Failing in this area will hamper the building of constructive relationships within the entity. In addition to this, the corporate accountability for poor performance and for failure to meet the expectations of taxpayers and stakeholders will be impossible to enforce in the absence of clear roles and responsibilities.

Effective monitoring

The public sector entities should make effective monitoring arrangements within the organization. This monitoring system includes the establishment of internal control mechanisms, a clear policy on internal audits and appointment of independent audit committees reporting to no one except the Board. While there is some arrangement for internal audit, this audit has to report to the management and not to the audit committees of the Board, which compromises independence of audit. The quality of internal audit within these entities, therefore, becomes questionable. The internal auditors should be adequately equipped with appropriate professional skills, should be truly independent of the management and should have a comprehensive view of the best international business practices, and should also have an understanding of all the spheres of the business of the entity. This internal accountability will keep the managers on their toes and they will be under pressure to perform in a transparent manner.

Systematic and integrated risk management system

Risk management is a critical element of corporate governance and in the liberalized markets, when businesses are exposed to a variety of risks, conventional reactive approach is neither sufficient nor relevant anymore. These risks include financial risks, risk of losing subscribers’ confidence, risk of losing credibility with private sector partners, risk of unwarranted and illegal external interference and above all, risk of failure in view of all these risks. It is to be seen whether our public sector telecom entities incorporate risk management explicitly in their governance processes, or do these entities include risk management into strategic and business planning processes. Governance-specific information on these entities is rarely available through their Annual Reports, and little information that is readily available suggests that these organizations do not explicitly identify and asses their key risks or they do not have any risk management strategy or policy in place. The absence of a risk management system leads to inefficiencies in prioritizing and allocating resources to manage risk.

Transparency through good external reporting

Transparency through good external reporting is an essential element of corporate governance in case of public sector telecom entities in Pakistan. For the time being, this element is totally non-existent in view of the absence of external public accountability through the SAI and Public Accounts Committees. Till such time that appropriate transparency arrangements are put in place, the absence of this critical element can be compensated through appropriate accountability by the regulator, provided the regulator is truly independent of the influence of vested interests of any of these entities.

Despite the fact that government is spending 25% of tax-payers’ money to meet budgetary deficit of loss-making public sector corporations, it is in no mind to sell them off. Nice thinking… The government is, instead, undertaking restructuring of Pakistan International Airlines (PIA), Pakistan Railways (PR) and Pakistan Steel Mills (PSM) to make them turnaround, as this is not the appropriate time to sell our precious national assets for small discounts.

Although the government has no business to do business, yet all the three entities are national strategic assets and should not be thrown away for peanuts like PTCL. Experience has shown that PTCL privatization has not only brought the monopoly back totally defeating Telecom Deregulation Policy, 2003, it has destroyed private sector in telecom industry.

But will it still be wise to bleed ourselves just in order to keep these white elephants? Pakistan Privatization Minister recently told a seminar that the total government expenses were Rs.160 billion while currently Rs.40 billion were being spent to run these institutions. The taxpayers are spending 25% of the resources on keeping these white elephants which are themselves supposed to be not only self-supporting but making monetary contributions to national coffers. This situation could be attractive for private investors as there was a vast scope for local and foreign private sector to come forward and bridge the gap through their positive contribution, he stated.

A report by Online quoted the Minister as saying that the government was in the process of hiring people of tremendous integrity and credibility from the private sector as MD, COO and ED to run the State Owned Entities (SOEs) efficiently, making them profitable and enabling each entity to function independently and answerable to the respective Board of Directors. Giving the current scenario of SOEs performance, he informed that Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipeline Limited (SNGPL) have not revalued their assets for the last 15 years whereas Pakistan Railways has no balance sheet. The impression regarding PIA expenditure in salaries was not correct, as it was only 9 % of its total expenditure, he added.

Due to government’s reconciliation policy and continuity of policies made in an open and transparent manner, political stability has been achieved, which was reflected during 18th amendment, war against terror, budget and the Prime Minister’s election and such stability provided conducive atmosphere to private sector for expanding and establishing their businesses.

The Minister informed that the government was focused to relay on its own resources and to utilize its talent for revenue generation and making private sector more efficient and to stop political interference in the SOEs.

Do you have any idea how management of another State Enterprise, a national flag carrier has mis-managed Pakistan International Airlines Corporation. With its aircrafts packed to capacity and with its misplaced economy in the areas of passenger service, it is still running into losses to the tune of billions. Like Pakistan Steel, it is on the lifeline provided by the Government in the form of bail-out package every now and then. These packages alone are going to sink the national ship of economy. For how long will the poor masses pay for inefficiencies and corruption in the high places in Public Sector entities?

And mind you, PIA has all the elements of a vibrant organization. It has 40 aircrafts flying to 59 destinations. Its slogan proudly says, come fly with us. But it seems that the only thing flying these days is cash out of PIA coffers. It is the same organization which was in dire straits in the 90s but recovered in 2000 onwards.  It was earning profit till 2004 (Rs. 2.31 billion) where after it started losing altitude and eventually was nose diving. At the end of 2008, it had a loss of Rs. 36 billion. Major reason for its downfall is its number of employees per aircraft which is highest in the world. Since it has a very attractive compensation package, every political party tried to stuff it with its workers or the ministers and MPs sold PIA jobs during their regime. Steel Mills, Railways and PIA are going to destroy Pakistan if their management is not corrected and they continue to breathe under oxygen tent of bailout packages.