Rs5.6bn approved for revival of two grounded PIA aircraft

ISLAMABAD: Amid notices of default and suspension of services by foreign partners to the national flag carrier, the government on Tuesday did not approve about Rs9 billion financing to the Pakistan International Airlines (PIA) and allowed Rs5.6bn guarantee to revive two grounded aircraft.

The decision was taken at a meeting of the Economic Coordination Committee of the cabinet presided over Finance Minister Asad Umar. The ECC also allowed the Frontier Oil Company (FOC) to lay a 470km pipeline for transportation of petroleum products and sought a study on possible LNG (liquefied natural gas) requirements in the country to plan re-gasification infrastructure.

The PIA is “faced with the challenges of accumulated liabilities, whereas on one hand, default notices are being served by Aircraft Lessor and, on the other, pressure is being exerted by vendors and service providers like General Authority of Civil Aviation, Saudi Ground Services and international fuel suppliers regarding suspension of services”, the aviation division said and demanded Rs8.4bn government guarantee, besides Rs485 million cash grant to repair in-flight entertainment system.

The finance ministry did not agree to the financing, saying complete data should be provided as to how such a financing would generate additional revenue for the PIA which was seeking the money for sustainable operations. Also, it wanted to reconcile payments due to foreign suppliers, service providers and vendors.

ECC allows FWO subsidiary to undertake 470km oil pipeline project

The ECC, however, allowed Rs5.6bn guarantee to enable the PIA to revive two grounded aircraft on an urgent basis to secure some new routes as part of the overall route rationalisation plan and smooth Haj operations.

The finance minister also allowed upward adjustment in government guarantees issued against dollar-denominated loans of the PIACL to offset difference arising out of exchange rate depreciation. “Additional guarantees to PIACL of Rs5.6bn for repair and maintenance of engines and acquisition of related spare parts for operationalising grounded planes would strengthen route rationalisation initiatives and add to revenue generation of the national flag carrier,” an official statement said.

Oil pipeline project

The ECC allowed the Frontier Oil Company, a subsidiary of the Frontier Works Organisation (FWO), to undertake and implement the 470km Machike-Tarujabba oil pipeline project. The project consisting of three sections — Machike-Chak Pirana, Chak Pirana-Rawat and Rawat-Tarujabba — aims to transport high speed diesel and motor spirit.

Informed sources said the ECC had rejected a demand by the Interstate Gas Systems (ISGS), a subsidiary of the petroleum division, to allow it to implement the 470km pipeline project as per a decision of the previous government.

The sources said the ECC had allowed both contenders — FOC and ISGS — to present their proposals and respond to questions from the committee members, but the ISGS management failed to satisfy the committee on the questions raised. Also, the FOC and Oil and Gas Regulatory Authority (Ogra) clearly outweighed the ISGS arguments on technical and financial grounds.

The ECC was told that the FOC had estimated the project’s cost at about $370m, while a relatively lower bid quoted by ISGS contractors had expired in September last year and the fresh bidding would take a lot of additional time. Also, the FOC obtained a valid licence from Ogra which had not yet granted such a licence to the ISGS.

The petroleum division opined in writing that it appeared the ISGS could not further initiate its work on the project.

The ISGS had commissioned media reports to revive the project, an official said, while the FOC had initiated work on the project.

The petroleum division told the ECC that from a national economic point of view, the country required infrastructure, including pipelines, whether undertaken by the private sector or any public sector entity. It proposed that under the given circumstances, the project “be implemented by FOC while ISGS be advised not to pursue the project”.

The ECC agreed to the petroleum division’s opinion and advised the FOC to go ahead with the project and directed the ISGS to find some other project to stay relevant. The petroleum secretary told the committee that the ISGS had other projects in hand.

LNG terminals

The maritime affairs ministry informed the ECC that selection of the current location for LNG processing terminals was inappropriate to begin with because of channel’s constraints in terms of maneuverability of ships and low draught conditions. In many cases, it said, LNG ships blocked the traffic of normal shipping lines in view of security procedures and in some cases normal traffic, including those of oil products, remained suspended for weeks.

It was explained that the port authorities had dedicated a new location for the future LNG terminals and were no more allowing any terminal at the existing Port Qasim site. In fact, the port authorities wanted relocation of the existing terminals to the new site because of safety, security and operational reasons.

Finance Minister Umar asked the ministries of energy and maritime affairs to conduct a comprehensive study on the future requirements of LNG keeping in view the demand and supply situation on the basis of which the ECC could take a considered decision about the location of existing or future LNG processing plants.

Cotton crop uplift

The ECC took up measures for uplift of cotton crop in the country and discussed issues and challenges in the cotton sector. Experts in the field of cotton growing, who were specially invited to the meeting, gave their input for developing cotton crop.

The ECC directed the Ministry of National Food Security and Research to present within 30 days a plan for strengthening research and development services for different crops with particular focus on cotton. The ministry will also submit a plan for revitalisation of federal institutions tasked with the responsibility of developing the cotton sector.

The meeting directed the authorities concerned to expedite efforts for implementing PB Ropes technology to counter pink bollworm which impedes cotton growth. The ECC asked the Ministry of Industries and Production to take measures for recovery of cotton cess from textile mills so as to give impetus to cotton promotion activities, which are to be funded through the cess.

Published in Dawn, February 13th, 2019