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November 26, 2018

PIA, PSM suffer Rs552 bn loss in 10 years, audit reveals

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November 26, 2018

ISLAMABAD: As the government struggles to shore up its finances and create fiscal space for delivering better governance and drive socio-economic agenda as promised on the July elections trail, state-owned enterprises continue to bleed the public expenditure with Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM) accumulating a whopping Rs552 billion loss over the last 10 years.

As of now, the PIA has contributed loss to the tune of Rs361 billion to the national exchequer, while the PSM is not lagging much behind with a troubling Rs191 billion loss to the national kitty, The News has learnt. The losses suffered by the two premier state institutions over the last one decade have been revealed after a through audit of the affairs the PIA.

The News learnt that the PSM also caused a loss of Rs191 billion till September 2018 on different heads. The PTI government is considering different proposals to convert this white elephant into a profit-earning entity. The PSM was shut down by the previous government in June 2015 when it reached to no profit no loss ratio. The Mills’ operation was put on halt due disconnection of gas bill. Since then, the government is paying Rs380 million every year due as salaries to PSM staff.

The audit of the PIA reveals that the institution has been run like a non-business entity, governed by non-professional board of directors and managed by CEOs lacking industry-specific management experience and exhibiting total absence of prudence, due diligence and best industry practices and decisions are taken on the basis of ad-hocism.

As per audit findings, the losses by PIA were incurred also due to bad decisions regarding hiring, procurement of different material including spare parts, operation expenditures, hotels, sale of routes to other airlines and in operation of premier flights from Pakistan to UK.

The audit report, a copy of which is available with The News, reveals that the PIA BoD was routinely nominated without any criteria as none of the members possessed aviation industry experience. So much so that the BoD could not even finalise financial statements or fix timelines for policy decisions and route opening/closing and determine airfare. Similarly, the BoD performance was never evaluated while Secretary Finance of the BoD remained absent from 71 percent meetings for evaluation.

Sources told this correspondent that when the Auditor General’s office asked the PIA to reply objections raised by their teams, they never responded despite a lapse of two months. However, former boss of the PIA Shujaat Azim submitted reply to the AG office about the expenditures during his tenure.

As per the audit report, the PIA owned 35 aircraft and this number decreased to 12 in 2017. On the other side, the PIA had seven aircraft on dry lease in 2008 and in 2017 the number of aircraft on dry lease was 20. In 2008, the PIA’s revenue was Rs88.8 billion and expenditure stood at Rs125 billion causing a loss of Rs36.14 billion.

In 2017, after 10 years, the PIA revenue rose to Rs90.5 billion and expenditures went up to Rs134.33 billion, causing a loss of Rs43 billion in one year, reads the audit report presented before the Supreme Court of Pakistan.

Documents available with The News showed the PIA faced major loss of Rs117 billion due to aviation policy. As result of that policy, eight foreign airlines took advantage and the PIA lost its passengers travelling from Pakistan to countries. (USD was calculated @ Rs110). In 2017, total 4.72 million passengers travelled to other countries through foreign carriers.

Major losses caused to the PIA include Rs1 billion in purchase of medicine, Rs1.7 billion in irregular award of contract to daily-wage employees, Rs3.33 billion due to excess strength of human forces than sanctioned numbers, Rs33 billion due to dry lease, Rs10 billion in wet lease contract and Rs12 billion due to leasing on higher rates in comparison with other airlines, read the audit report.

Other major areas which caused loss to the PIA include improper implementation of the BoD decision (Rs13 billion), revenue decline due to imprudent merger of fuel surcharge in base fare (Rs46 billion), loss by misusing reservation booking data by travel agents (Rs44.5 billion), non-recovery of defaulting travel agents (Rs3.2 billion), and discrepancy in passenger ticket sales and number of passengers actually travelled (Rs32.1 billion).

Then came the area of revenue leakages where the PIA lost minimum Rs13 billion and another Rs38 billion due to inefficient engineering and maintenance. Then poor supply chain and contract management caused total loss of Rs23 billion in these years and another loss of Rs13 billion was caused due to inefficient fuel management.

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