Thursday, January 20th, 2022
Home »Stocks and Bonds » Pakistan » PAC stops PIA from hedging fuel

Public Accounts Committee of National Assembly on Thursday clamped ban on Pakistan International Airline for fuel hedging in future, which it observed inflicted huge financial loss to the entity. Chaudhry Nisar chaired the committee meeting, which reviewed the Ministry of Defence Audit Report for the year 2008-9. The committee chairman claimed PIA operated the Haj flights by hedging fuel, which inflicted Rs 120 billion colossal losses to public exchequer in 2008.

The Managing Director explaining his position said fuel hedging was his own decision and he was ready for any kind of accountability. He claimed that government hailed this decision as it had been taken at a time when oil prices in international market were showing upward trend.

He said on the request of flag carrier, Citibank (Pvt) Ltd and Standard Chartered Bank (Pvt) Ltd made hedging arrangements for 425,000 barrels at $120 per barrel. He said the Ministry of Religious Affairs persuaded the PIA management for fixing Haj fares of 2008. The ministry wanted the exact amount of Haj fares prior to announcement of Haj Policy. "The PIA board decided to go for fuel hedging to give a ticket price in Haj policy 2008," he said.

He added that as services of oil hedging experts were very costly in international market, therefore, they had to depend on the banks. Defence Secretary Lieutenant General Ather Ali (Retd) said he is not satisfied with the hedging arrangements and would discourage this practice in future even in case of Haj operations.

Answering another question, the defence secretary said that privatisation of PIA was not on the cards. He said in new government policy, the performance of PIA would be improved by professional management and good governance. On this, the committee chairman referred to the finance minister's annual budget speech in parliament saying PIA with other seven public sector entities is eating economic resources of the country.

He said the financial health of PIA would never improve unless political appointments are stopped. He pointed out that already as per international standards, aircraft employees' ratio was very high and 5000 more political recruitment has recently been made in PIA. In every government including Nawaz Sharif's previous regime, massive political appointments were made which reflected the plight of the bleeding organisation, he added.

Replying to the query of a committee's member, he said the impact of circular debt has also been extended to cancellation of international traffic for some time. This also aggravated the colossal losses of PIA and Civil Aviation Authority. The supply to Pakistan State Oil by oil refineries was suspended due to inability of PSO to clear its debt in the past. "We approached the ministry of petroleum and natural resources and requested it to intervene and restore supply to flights. Now the matter is amicably resolved," he said.

The financial statement of 2008 presents a huge gap between revenue and expenses. The revenue increased by 27 percent in the year under review but the operating expenses increased by 58 percent. It has been stated that chief contributing factors were increase in fuel price, depreciation and exchange losses, which increased by Rs 15.54 billion, Rs 2.4 billion and Rs 23.4 billion, respectively.

Briefing the committee, the MD said despite volatility of global economy, PIA management succeeded in meeting its expenses through bank borrowing. "We spent Rs 33 million on refurbishing grounded 747 and 310 aircraft and used them in Haj flights, thus saving Rs 2 billion." The committee chairman said arrangements would be made for a separate briefing on the affairs and performance of the national flag carrier in coming session.

Copyright Business Recorder, 2010


the author

Top
Close
Close