Pakistan’s First Major Privatisation in 20 Years

 

Pakistan's First Big Sell-Off in 20 Years: A Big Step with Some Messy Challenges Beyond the headlines and official statements,

Pakistan’s first major privatisation in nearly two decades is being celebrated as a landmark moment — and symbolically, it certainly is. But beyond the headlines and official statements, the development paints a far more complex picture of the country’s economic realities, limited investor appetite, deep-rooted bureaucratic hurdles, and widespread public scepticism surrounding the privatisation of state-owned enterprises (SOEs).

Pakistan’s First Major Privatisation in 20 Years

The breakthrough that many thought would always stay politically impossible has now happened with the government finally deciding to offload its majority stake in the national flag carrier, nearly five decades after an initial partial divestment under the Benazir Bhutto government, where a small portion of shares was offered through the stock exchange. In fact, missed deadlines and eventually aborted plans—not to mention last year’s failed attempt—had turned this exercise into nothing less than a cautionary tale.

Why It's Always Tough to Privatize State-Owned Enterprises 

The long battle to sell off companies like Pakistan International Airlines and Pakistan Steel Mills shows how politically charged and economically dangerous such moves have been for several governments. Any government trying to make changes has run into political protests, red tape, legal fights, and charges of selling national property for very little money.

Investor trust has also stayed low because of earlier cases where buyers were hurt politically, policies suddenly changed, there was no transparency, and there were long court interventions. These past dealings have made investors cautious, thereby increasing the cost —both financial and political—of privatization.

Tidy Up Before Selling: Unseen Expenses for the State 

Though the sale is being touted as a success, it must be noted that the airline could never have fetched buyers in its original financial state. The state had to first embark on a massive cleanup operation before buyers could be attracted. Decades' worth of debt, losses, and pension liabilities were all dumped into a different holding company. Apart from this, there were partial write-offs by the government, plus generous tax concessions plus deferred payments, and several other incentives to sweeten the deal for them. In effect, what was done was to repackage the airline into a more presentable asset—a move that would assuage investor fears but move large fiscal burdens right back onto the public balance sheet. 

What Buyers Really Get 

The new buyers are getting an airline that now has positive equity, flies about four million passengers each year, and has valuable international landing rights. These are facts that underscore the long-term strategic value of the global routes asset, which far outweighs immediate financial returns. It is in this context that the questioning of the winning bid finds relevance.

The total offer comes to Rs135 billion, but only Rs10 billion happens to be the real purchase price, while the balance is a commitment towards capital investment in operations and fleet renewal over the next five years.

This structure has led many observers to wonder whether the valuation really does represent what the airline is worth — or whether the deal is at heart about a state desperate to wrap up a long-delayed privatisation.

A Symbolic Victory, but Structural Hurdles Remain

The deal, which resolves a long-standing deadlock and sends a positive signal to markets, does not in and of itself fix the deeper problems afflicting Pakistan’s economy. Low investor demand, limited institutional capacity, and resistance to reform currently constrain the depth and pace of new privatisations.

This is far from the norms of rational capitalism; many analysts have raised questions over whether this new valuation really represents what PIA could be worth, or if a desperate state attempts to finally conclude a privatisation transaction that has been pending for more than a decade, fearing the consequences of an inevitable labour disruption in the buildup to an election year.

But even then, we should all wonder how realistic such investments are in market conditions, and also ask ourselves a more fundamental question: Whether lines like ‘risk factor’ will need to be modified before investors outside Pakistan begin taking us seriously.

Final Thoughts

The privatization of the country's national airline marks a historic moment that is undeniably significant. It is evidence that even the most politically sensitive reforms can falter when pressure mounts. But it also reveals the heavy price the state has to pay to make such deals happen.

Whether this moment marks a turning point for broader economic reform — or turns out to be an isolated success created through exceptional concessions — will depend on what happens with future privatisations, and whether we are serious about learning from this experience.