EFFECTIVE FOLLOW UP AND MONITORING IS ADVISABLE AFTER PRIVATIZATION OF PUBLIC SECTOR ENTITIES

It is the need of the hour that an undertaking is needed from the deserving bidders that they would enhance the existing capacity in accordance to the need of the country

AMANULLAH BASHAR
Oct 02 - Oct 08, 2006

The private sector has to play a much greater role for sustainable economic growth, that seems the objective of the economic agenda of the government. The privatization process being carried out has successfully brought foreign investment in Pakistan so far.

However, it look of paramount importance that an effective follow up and monitoring of the performance of the privatized units is also equally important so that the private sector is made responsible for gradually enhance the capacity of the projects in future as well. This deems quite fit in the case of Pakistan Steel which has a plant to enhance its existing capacity from 1.1 million to 3 million tons in future. Similarly, the new management of KESC should also be pursued for expansion in its power generation capacity to cater to the increasing demand for power in Karachi. So far the experience was not good especially in case of the KESC as the utility has miserably failed to cater to the power requirement of the city. The consumers are subjected to prolong load shedding and break down even for a period of more than six hours in the scorching summer heat.

This was demanded of the government by the leading industrialists especially related to steel, construction and automobile business. They argued that one time payment of the agreed price was not important, what it matters is the financial strength and desire to go for the expansion of the existing capacity from 1.1 million to 3 million tons of steel.

Capacity expansion of the Pakistan Steel is highly desirable in the backdrop of robust economic growth especially in the large scale manufacturing sector where steel is used as the raw material.

It is the need of the hour that an undertaking is needed from the deserving bidders that they would enhance the existing capacity in accordance to the need of the country.

It may be noted that the present government has achieved exceptional results by privatizing 58 units to collect $5.3 billion in this short span of time. It looks amazing that the previous government collected less than one billion dollars by selling 102 public sector entities during the period of 1991-1999.

The largest deal strike during the period of the present regime was the privatization of telecom (PTCL) which yielded over Rs186 billion.

It was the banking sector which contributed Rs241 as the largest share in the privatization kitty of the government owned units, however, much and exciting figures are still in the store and that might come out with the privatization of PSO, SSGC, SNGPL, PPL, SLIC,(State Life Insurance Company), Heavy Mechanical Complex, Heavy Electrical Complex and Machine Tool Factory. The State Life Insurance Corporation or company is said to be the richest organization, having a huge umpire in terms of real estate assets, yet this organization has miserably rather shamefully failed to serve the purpose of its existence. It failed to bag insurance business even from one percent of the total population of the country despite enjoying a monopoly in life insurance business for decades in this country. This organization is needed to be privatized on top priority basis to get rid of the crop of inefficient, unwilling and corrupt employees produced during last five or six decades. Get rid of at the earliest.

These forthcoming units are the giants in their respective areas, and deserve an aggressive marketing both within the country and abroad to get maximum price of these assets.

Following two natural gas companies are also on the active list of privatization.

These two gas companies are responsible for supplying gas throughout country.

Since the natural gas is heading towards the stage where it would be responsible for supply of gas as the major fuel for power generation, transportation and other industrial purposes. Hence the situation calls every care should be taken to ensure uninterrupted gas supply to consumers in the larger economic and social interest of the country. Following are the glimpses of the financial performance of the two energy giants of the country.

SSGC

The sales revenue Sui Southern Gas Company increased in value over the previous year by 26% to Rs 68.5 billion with a corresponding increase in volume of 6% to 359 Billion Cubic Feet (bcf). The growth in volume came mainly from the industry and power sectors. The power sector was the largest customer segment with KESC being the single largest customer accounting for 24% of sales by volume and 28% by value.

The volume of gas purchased increased by 5% and the cost of gas sold increased by 27% during the year. Increased off takes were mainly from the Naimat Basal , Badin , Zamzama , Sawan , Kadanwari and Miano gas fields. The cost of gas now represents 87% of the average selling price and is showing an increasing trend.

The operating cost excluding depreciation increased by 10% over the previous year; however , as a percentage of revenue , it declined from 7.0% to 6.1% , which is a robust benchmark of increased productivity and efficiency. The current year's operating cost includes expenditure on the gas import projects aimed at securing future supplies.

PROCEEDS FROM PRIVATIZATION TRANSACTIONS
From July 2006 To August 12, 2006
RS (in million)

Sr. No

Unit Name

Sale Proceeds

Date of Transfer/ Bidding

Buyer Name

CEMENT

1

Javedan Cement

4,316.0

26-9-2005

Haji Ghani Usman & Group

TEXTILE

2

Lasbella Textile Mills

156.0

20-7-2006

Raees Ahmed

 

Total

4,472.0

   
 

Total (1991 to August 12, 2006)

378,030.3

   

SOURCES: PRIVATIZATION COMMISION OF PAKISTAN

Company has made significant inroads towards reducing its UFG by embarking on a focused and concerted effort as part of a five year plan. The actions taken include rehabilitation of pipelines , conducting overhead and underground leak surveys , replacement of slow meters and those not registering consumption and clamping down on the menace of theft of gas. These actions resulted in a reduction in the absolute volume of UFG , no mean achievement. However , due to the progressive reduction of targets set by OGRA , the Company continues to suffer a significant penalty. The Company has petitioned OGRA to review the targets in view of the ground realities in Pakistan which involve environment and cultural practices.

Company maintained its high level of capital expenditure which at Rs 5.4 billion in 2006 and follows that of Rs 6.2 billion in 2005. The transmission network was increased by 119 kilometers with an increase in capacity of 100 mmcfd. The distribution network was enhanced by 1 , 778 kilometers. The increased capital expenditure has begun to have a positive impact on capitalization and hence on the return that the Company earns under its regulated tariff. With a planned capital expenditure for the current year at a record high it is expected that future profitability will improve.

The Company earned Rs. 80 m from its meter manufacturing operations , Rs. 292 m from late payment surcharge and Rs. 367 m as royalty income from JJVL operations under the Implementation Agreement. OGRA has not allowed the above total amount of Rs. 739 m as other income but has included this amount as revenue. The Company has petitioned OGRA on this and is contesting the matter.

The Company earned a profit after tax of Rs.0.892 billion as compared to Rs.1.013 billion in the previous year. The impact of disallowances for excess unaccounted for gas (UFG) and other items by the Oil and Gas Regulatory Authority which together with a prior year tax charge of Rs 82 million reduced the profit for 2006. The adjustments made by OGRA include retrospective amounts for prior years. The profit and earnings per share of the Company would have been more than that of 2004-05 but for the prior year adjustments.

SNGPL

SNGPL's FY06 earnings are likely to depict 51% hike to Rs4,170m compared to Rs2,755m last year. This translated into an EPS at Rs8.35 as against Rs5.52 during FY05. The financial results of the company are also expected to accompany a final cash dividend in the range of 40-45% per share.

SNGPL's earnings for the July-March 2006 period depicted remarkable 108% growth to Rs3,257m (EPS: Rs6.52) compared to Rs1,569m (EPS: Rs3.14) during the same period last year. Higher profitability primarily emanated from the extraordinary hike in other operating income and 19pps decline in the effective tax rate. SNGPL sold 429,790MMCF gas during the period, portraying 9% upsurge compared to 393,362MMCF previously. Distribution cost and administrative expenses of the company increased by 12% and 8% respectively to Rs6, 498m and Rs809m. Finance cost of the company also increased by 22% to Rs866m as against Rs707m previously. During the July-March 2006 period, other operating income increased by 199% to Rs1, 291m compared to Rs431m previously. It includes respective Rs368m and Rs800m on account of delayed tax refund and return on bank deposits.

NUMBER OF PRIVATIZED TRANSACTIONS
(Rupees in million)

Sector

1991 to Jun 04

Jul 04 to Jun 05

Jul 05 to Dec 05

To date total

Amount

No.

Amount

No.

Amount

No.

Amount

No.

Banking

7

41,023

       

7

41,023

Capital Market Transaction

14

19,440

3

11,204

1

1,040

18

31,684

Energy

12

20,904

1

16,415

1

20,240

14

57,559

Telecom

2

30,558

   

2

155,500

4

186,058

Automobile

7

1,102

       

7

1,102

Cement

13

8,606

2

49

1

3,205

16

11,860

Chemical / Fertilizer

18

10,204

3

14,151

   

21

24,355

Engineering

7

183

       

7

183

Ghee Mills

22

838

   

1

8

23

846

Rice / Roti Plants

23

328

       

23

328

Textile

2

87

   

1

128

3

215

Newspapers

5

270

       

5

270

Tourism

3

594

1

1,211

   

4

1,805

Others

5

152

1

8

   

6

160

Total

140

134,289

11

43,038

7

180,121

158

357,448

SOURCES: PRIVATIZATION COMMISION OF PAKISTAN ANNUAL REPORT 2005