PIA disputes Rs1 billion loss charges

ISLAMABAD: The PIA management on Friday disputed the claims of Transparency International about the loans obtained by PIA Investment by mortgaging the prestigious Roosevelt Hotel in New York but TIP insisted that an inquiry must be held by the Finance Ministry to ascertain that the deal was right.

In the 13 allegations leveled by TIP, it was estimated that a loss of Rs 1 billion per year was being faced by the PIA because of the loan deal. This was reported by The News on Friday.In a rebuttal, the PIA issued a press release denying all allegations leveled against PIA-IL by TIP as without merit.

“It is clarified that PIAIL’s existing loans amounting to US $131 million were due to mature on November 9, 2011. Therefore, in February 2011, PIAIL started sending requests to leading financial institutions of international repute comprising of (1) CIBC, (2) Blackstone, (3) Bank of America, (4) Deutsche Bank, (5), Starwood Capital, (6), Cantor Fitzgerald, (7) Goldman Sachs, (8) PB Capital, (9) Citibank, (10) Calyon / Credit Agricole, (11) Eurohypo, (12) Fortress, (13) Cornerstone, (14) AIG, (15) Wells Fargo, (16) UBS, (17) Credit Suisse, (18) HSBC, (19) NBP, (20) UBL and (21) HBL, to submit financial proposals to PIA-IL to repay these maturing loans.

“Of the aforesaid 21 potential lenders, only nine furnished their financing term sheets. These term sheets, with the assistance of Company’s professionals, were aggressively negotiated with each respective lender. As a result rates which were better than prevailing market rates were secured. After obtaining the competent authority’s approval, the funds were borrowed. There is absolutely no merit in the allegation that PIA-IL would suffer a loss as a result of the said borrowing.

The PIA press release also said that PIA-IL was a private limited company incorporated in British Virgin Islands (“BVI”). Until April 2012, the company was owned by two shareholders ie. PIAC and Prince Faisal of Saudi Arabia. Its affairs are governed and regulated in accordance with the laws of its incorporation i.e. BVI.

Usman Manzoor adds: There are a number of hidden points which the PIA press release has not touched, besides new information about the whole deal. Surprisingly the PIA admits that the loan of US $131 million was renegotiated in November 2012 but it has not mentioned the figure of the new loan which is US $133 million, a mysterious addition of 2 million dollars.

Likewise PIA is also misleading the readers by claiming that the PIA-IL was owned by two shareholders, Saudis and Pakistanis. The fact which PIA is hiding is that in 2006 the 99 per cent shares of PIA-IL were taken over by PIA and only one per cent shares were left with the Saudis for legal and technical reasons. Since then no Saudi has been on the PIA-IL Board of Directors.

The PIA press release also claims that no loss has been suffered but according to the available data, PIA has negotiated the new $133 million loan at a high rate of over 6.5 per cent while during the same period the loss making mother company PIA airline also obtained a similar loan at only 6.04 per cent. If this half per cent extra percentage is not a loss, what is it? If a loss making PIA can obtain a better rate than a profit making Roosevelt Hotel, what kind of management decisions have been taken has not been explained.

Moreover while PIA claims that the PIA-IL is a company incorporated in Virgin Islands, why it has not been incorporated in Pakistan when all its five directors are Pakistanis and all 100 per cent shares are held by PIA, as now admitted in the PIA press release.

The losses are also suffered in another form as all board meetings of PIA-IL are held either in Paris, New York or Dubai, while all directors live in Pakistan. Thus they are provided free junkets every year and at times more than once to attend these meetings at PIA-IL expense. Why the board meetings cannot be held in Pakistan as they were done once or twice in the past.

PIA is also not talking about the structural changes that the PIA-IL board has already approved which will result in incorporation of the Virgin Islands company in New York. Thus it will become a purely American company with 100 per cent Pakistani ownership and the MD of PIA-IL, who is an American citizen, will hold all the cards. Even now every year the MD travels abroad for more than a 100 days in a year and for each day an allowance of $500 is claimed besides his monthly salary of Rs4 million.

While no government audit is allowed, PIA-IL is not even audited by the internal auditors of PIA itself which has kept the lid on this whole scam for years.TIP’s response: In response to the PIA press release Transparency International again stated on Friday that PPRA is applicable on this private company also, and if all procurements were and are being done as per PPRA Rules, PIA should confirm it to be so.

“In case it is not, then inquiry must be held on why the violations were done. PIA should also disclose if the Ministry of Finance has approved the loan,” the TIP said.Transparency said: “PIA was sent the complaint containing 13 issues alleged. The PIA MD was requested that the complaint may be examined, and if the allegations are found to be true, action should be take to immediately get the PIA-IL and PIA Accounts Audited by the Auditor General Pakistan, PIA-Investment Limited registered office shifted to Pakistan, and administrative action taken against those who are held responsible for the losses of billion of rupees.”

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