The two-pronged policy being followed by the government is aimed at broadening investors' base and enabling local investors to benefit from earnings of state-owned enterprises

Sep 13 - 19, 2004

According to the latest reports Privatization Commission has succeeded in raising about 50 billion rupee over the last 18 months through the ongoing process of privatization. The beauty of two-pronged policy being followed is that while the efforts for finding strategic buyers for state-owned entities is going on, the divestment policy is helping in broadening investors' base in the country. Yet another advantage of the divestment policy is that buyers of the shares being offered through stock exchanges are benefiting from the dividend payout by these companies, which was previously going to the government. The real beauty of this policy is while the government is off loading part of its holding at attractive value, it continues to enjoy majority stake and management control. The active participation by foreign investors has also helped in mobilizing proceeds in foreign exchange.

The present government is fully cognizant that only a strong and dynamic private sector can help Pakistan in achieving its long-term economic objectives. The government's policy of deregulation, liberalization and privatization is aimed at promoting market-based, private sector-led growth. Long-term growth is a key tool for poverty reduction. Distorted prices, lack of competition, and poor government management of businesses have hindered economic development, introduced inefficiencies, generated unproductive and unsustainable employment, slowed down investment, reduced access to services by the poor, resulted in sub-standard goods and services, and contributed to fiscal bleeding. Privatization can help change this.

Ideally privatization is aimed at strengthening public finances and bringing in new investment while simultaneously enhancing the quantity and quality of goods and services. By attracting better management and staff and by freeing the company from public sector red tape and procedures, privatization can unleash the potential of the company. The greater efficiency and availability of capital, coupled with built-in incentives to improve customer service, normally results in more satisfied customers and a lowered need to raise taxes.

The vision of Government of Pakistan is to focus on good governance and regulation, while fostering conditions that provide incentives for the private sector to invest in providing goods and services efficiently. This philosophy is aimed at creating employment opportunities to achieve the ultimate objective for poverty alleviation. The government believes that it has no business being in business. The Privatization Commission trying to put business into the right hands while freeing the government to focus on matters requiring its attention that include ensuring law and order and creating enabling infrastructure.

Macroeconomic stability and a stable law and order situation are essential for creating a climate that is conducive to private investment. At the same time, competition, liberalization and deregulation are needed for protecting the interests of consumers and for sending the right price signals to consumers and investors. However, in many infrastructure and utility services, competition may not be feasible. In such cases, a fair and comprehensive regulatory framework has to be put in place to balance the needs of consumers and investors. In addition to defining standards for performance, safety, health and the environment, the regulatory framework must ensure that prices of goods and services reflect their costs of production and that investors are justly rewarded for their risks. The long-term interests of consumers are best protected by balancing the needs of investors and consumers.

The current privatization programme includes many transactions in the banking and finance, oil and gas, telecommunications, power, and industrial sectors. However, the privatization agenda is much broader. For example, while KESC is likely to be the first privatization of a fully integrated utility in the energy sector following KAPCO, the government is committed to privatizing all the generation and distribution companies. Preparatory work for this purpose is underway. In some areas, such as the national flagship airline, PIA, the Pakistan Steel Mills and Pakistan Railways, the government is attempting to turn around the companies before considering the privatization option.

Privatization also sends a strong signal to potential investors of the government's faith in the private sector to generate economic growth and productive employment. International investors, in particular, view privatization as a principal proxy of the seriousness of a government's reform programme. Privatization also provides an impetus for needed pricing, deregulation and taxation reforms and for an improvement in services, such as electricity and telecommunications, which are essential for a supportive business climate and the generation of productive jobs, economic growth and prosperity. An improved business climate would bring in new investment, reversing the capital flight that has occurred in recent years.

Privatization is also aimed at bring in better management with the right incentives to cut waste, reduce corruption, and improve the coverage and quality of services that are essential for both businesses and households. To the extent that excess staff are laid off, human capital would be freed up that could be more productively employed in the private sector, which would become more vibrant after receiving improved infrastructure services. At the same time, the government would be free from micro-managing businesses. Senior policy makers presently spend much time and effort in making business decisions to attempt to stop the fiscal bleeding from state-owned enterprises and/or to improve their efficiency.

In addition to privatizing companies by handing over management control to new investors, the government is using privatization as a means of broadening the ownership of assets, mobilizing savings, and helping strengthen capital markets. For this reason, the government plans to sell minority shares in selected companies through the stock market either before or after the transfer of management control. Listing and offering shares of state-owned enterprises through local stock exchanges is providing the much-needed boost to the equities market and helping tap into savings. Simply listing a 100 percent government owned company at the stock exchange has the potential of improving corporate governance as the company will be obliged to comply with the stringent reporting requirements of the stock exchanges and Securities and Exchange Commission of Pakistan.

Privatization efforts began in earnest after the creation of Privatization Commission on January 22, 1991. Although, the PC mandate was initially restricted to industrial transactions, by 1993 it had expanded to include Power, Oil & Gas, Transport (Aviation, Railways, Ports and Shipping), Telecommunications and Banking and Insurance. During January 1991 to June 2002, the Commission completed 132 transactions mobilizing 101.272 billion rupee.

In the recent past, the Commission has successfully completed 8 transactions including privatization of Habib Bank, Associated Cement, Thatta Cement, Kohinoor Oil Mills, and a number of Capital Market Transactions. These transaction included sale of shares of OGDC, SSGC, POL, Attock Refinery, D. G. Khan Cement and National Bank of Pakistan. The total sale proceeds realized during the year amounted to 33.303 billion rupee, which was 49.94% higher than the previous year. Out of the sale proceeds received during the year and the funds available from the previous year, the Commission remitted 11.221 billion rupee to the Government of Pakistan for debt retirement and poverty alleviation programmes and 12.639 billion rupee to State Bank of Pakistan and Investment Corporation of Pakistan for sale of their shares in different entities. Moreover, an amount of 1.786 billion rupee has been paid to the different banks in settlement of the liabilities of the Ghee Corporation of Pakistan units absorbed by the Government of Pakistan at the time of their privatization.

The Commission during period from July 2003 to July 31, 2004 has realized 41.498 billion rupee from sale of 51% shares of Habib Bank, part of the GoP shareholding in OGDCL, NBP, POL, ARL, D. G. Khan Cement, SSGC, Thatta Cement, Associated Cement, Rohri, Faletti's Hotel, Kohinoor Oil Mills and 10% shares of Kurram Chemicals. By July 31, 2004 the GoP had completed or approved 143 transactions at gross proceeds of 142.520 billion rupee.

During the period from November 26, 2002 to July 31, 2004 privatization proceeds of 49.555 billion rupee have been realized from 18 transactions. The Privatization Commission in order to ensure participation of the small investors and benefit from the privatization programme also sold GoP shareholding in NBP, POL, ARL, DG Khan Cement, OGDCL, SSGC and PPL through Capital Market.


Privatization is also seen as a way to reduce corruption. The experience in many countries, including Pakistan, is that public ownership of businesses provides many opportunities for corruption. Allocating public funds to unfairly benefit an individual or firm is typically the costliest form of corruption. This may occur via kickbacks on the purchase of goods and services or by providing favoured treatment to an individual or company. Often a poor business decision is really a well-thought out decision calculated to benefit a small group of employees and a private firm or individual at the expense of society. Theft and abuse of public property are other forms of corruption. Some employees of public companies providing services such as electricity, telephony, or banking may collude with certain consumers to provide free or cheap services in exchange for side payments. Decision makers, senior ministry officials, and other influential people may exacerbate the situation by staffing state-owned enterprises with their cronies and supporters and by pressuring state-owned banks to lend funds to bankrupt state-owned companies or to influential businessmen for risky or dubious projects. Honest consumers and taxpayers become the big losers. Privatization will help curtail all such forms of corruption.

Achievement of the above objectives will, in turn, enhance economic growth, which is the key to sustainable poverty reduction and improved living standards. The biggest gainers are likely to be poor consumers, most of whom do not presently have access to a number of services. The second large and diverse group that will benefit substantially is the taxpayer, who currently pays a variety of direct and indirect taxes to cover the losses of state-owned enterprises and fails to get a satisfactory rate of return on taxpayer money that has been invested in state-owned companies. The third large group to gain is the workers who are capable and willing to work, their job opportunities and rewards will expand with privatization. In general, the private sector employers are often able and willing to remunerate in line with the individual's contribution and more likely to empower the individuals to make decisions that benefit the company.


Some of the critics may still say that the process followed by the present government is not fully transparent. To arrive at the authanticity of the claim one should refer to the history. In most of the transaction conducted in nineties, the government has to face a number of suits. As against this, hardly any of transaction either during the chairmanship of Altaf Saleem or Dr. Abdul Hafeez Sheikh has been challanged in the court of law. Some of the aggrieved parties may have filed the cases but most of them were politically motivated.


While some of the cynics may say that the government has not been successful in privatizing Pakistan State Oil, Karachi Electric Supply Corporation and corporatized entities of Power Wing of WAPDA etc. However, it is necessary to review each transaction in its true perspective, influence pressure groups and above all the response from the strategic buyers. It has been observed that in case of some of the entities trade unions are the biggest opponent of privatization. It is also being said that in some of the cases management of public sector companies, as they were driving huge benefits, also providing patronage to groups opposing the whole process of privatization.

Two of the transactions, Pakistan State Oil (PSO) and Karachi Electric Supply Corporation (KESC) need specific mentioning. According to an analyst "Privatization of both the entities are being delayed due to entirely different reasons. PSO is the supplier of POL products to armed forces and its privatization demands special attention. As against this, finding a strategic buyer for KESC is a different ball game. No buyer will be interested in taking over management control unless T&D losses are brought down. Bringing down these losses down is a very difficult job. These losses are due to political pressures as well as corrupt employees. Even the 'uniformed personnel' cannot say with certainty that they could overcome the theft. The transaction is also being delayed because strategic buyers have been asking the government to bring down the number of employees drastically low.

As regards, Pakistan Telecommunication Company (PTCL) the government has missed the train and has to wait till the next one arrives. Saying that one should also accept the fact that deregulation of the sector has been a big support. The latest entry of two foreign companies in cellar telephony business has paved the path for early privatization of the PTCL subsidiary in the mobile telephone business. The growing interest of local as well as foreign investors in wireless loop business also shows that if concerted efforts are made the government can succeed in finding a strategic buyer for PTCL.

Some of the analysts say, "Finding a suitable strategic investors for all the entities on the privatization list is not possible. Therefore, the government must stop hoping against the hope. The successful divestment of government holding in OGDC, SSGC, NBP shows that the government should go for private-pubic sector partnership. It will help in collecting proceed as well as maintaining management control. The government should induct professional management in state-owned enterprises and ensure their accountability to the shareholders. Once the management becomes accountable to the shareholders the level of corporate governance will be automatically improved.

One of the fears is that once the private sector gets control of public sector enterprises, it will once again start exploiting employees and customers. This may be a genuine apprehension but there are ways to reign the private sector. Establishing fully autonomous regulatory authorities can minimize exploitation of any of the stakeholder.


a) Sale of 51% of GoP stake in Habib Bank for Rs. 22.409 billion
b) Sale of GoP shareholding in POL, ARL and DG Khan Cement for Rs 5.861 billion
c) Divestment of 30% shares of Bank Al-Falah for Rs 620 million.
d) Sale of Management Rights of ICP-SEMF for Rs 787 million
e) Divestment of 13.2% shares of National Bank of Pakistan for Rs 1,387 million
f) Strategic sale of Associated Cement, Rohri for Rs 255 million
g) Sale of 5% ordinary shares of OGDCL for Rs 6.881 billion
h) Sale of 15% shares of Pakistan Petroleum for Rs 655 billion
i) Strategic sale of Thatta Cement for Rs 714 million
j) Strategic Sale of Hotel Hyatt Regency for Rs 530 million
k) Sale of 10% shares of SSGC for Rs 1.745 billion
l) Sale of the Falleti's Hotel, Lahore for Rs 1.211 billion
m) Sale of shares of Kohinoor Oil Mills for Rs 80.7 million


S. NO.




Pakistan Telecom Co Ltd (PTCL)


Telephone Industries of Pakistan


Carrier Telephone Industries



Oil and Gas Dev Corp Ltd (OGDCL)


Pirkoh Gas Company Limited. (PGCL)


Pakistan State Oil (PSO)


Sui Southern Gas Corp Ltd (SSGCL)


Sui Northern Gas Pipelines Ltd


Pakistan Petroleum Ltd (PPL)


National Refinery Ltd (NRL)



National Investment Trust (NIT)


Investment Corporation of Pakistan (ICP)



Faisalabad Electric Supply Co (FESCO)


Genco 1 (Jamshoro)


Karachi Electric Supply Corp (KESC)


Peshawar Electric Supply Co.



Pak Arab Fertilizer Ltd.


National Construction Ltd. (NCL)


Malam Jabba


Pak American Fertilizer Ltd.


Lyallpur Chemical


Hazara Phosphate


Republic Motor


Bolan Textile Mills


Lasbella Textile Mills



State Life Insurance Corporation


Pakistan Re-Insurance Co. Ltd.



Public Offer of Various entities



Source: Privatization Commission