SICK UNITS A PROBLEM AREA FOR PRIVATIZATION COMMISSION

The ministry only constituted a committee that was totally ineffective and made no progress so far

From KHALID BUTT, Lahore
Mar 13 - 19, 2006

The government's efforts to privatize sick units ended up in futility in most of the cases either due to bureaucratic apathy or delayed by litigation, land title issues and lack of investors' interest to buy after working for years to reactivate these units, it is learnt.

Official sources told The Page that the government had closed these units for lack of funds and inefficient management, the main hindrances in making them functional.

When asked about the record regarding closed units, the source said the ministry had only constituted a committee that was totally ineffective and had made no progress so far. The committee had only held eight meetings as most of them were postponed.

During the last two decades all that the Ministry of Industries could do was that it changed the name of these units from sick to closed, and now using the word sick for them would be wrong, as the term did not exist any more, the sources emphasized.

The ministry had almost ceased working on the closed units, the sources said.

According to the sources, Morfaco Industries Limited, Harnai Woolen Mills, Universal Ghee Mills, A and B Industrial Gasses and Trans Mobile Limited were declared sick/closed and the government's efforts to revive these units have yet to be marked with any tangible progress.

The government wanted to privatize these closed units, however, in most of the cases the low offer was hindering the move.

For instance, the Privatization Commission also endeavored to sell off Morfaco Industries, Faisalabad, but in vain. The Cabinet Committee on Privatisation in October 2001 excluded the unit from the privatisation program and handed it over to the Ministry of Industries and Production for disposal, but land title issue hampered its further process.

However, following directives of the Ministry of Industries, the commission again included Morafco Industries Limited in the privatization list. Harnai Woollen Mills (HWM) was closed down in 1988 due to continuous losses. HWM was under liquidation since 2000 in Sindh High Court. The liquidators accepted final bid of Rs 37 million for the machinery, equipment and the building by Irfan International in September 2002.

According to an estimate there were around 4,000 defaulters to the banks to the extent of Rs 250 billion.

Sources said that lack of cooperation and incorrect reporting of NPA portfolio by financial institutions, procedural delays in courts affecting the desired expeditious resolution of NPAs, non-availability of restructuring fund for revival of sick industry/NPA, SBP Circular BPD 29 of 2002 and prolonged process of SBP dispute resolution committee resulting in lower NPA transfers, and restricted NPA transfers due to delay in amendment of CIRC laws were the key hindrances in the implementation of the policy to reactivate sick units.

About first option of the transferring of the reactivating sick units' inventory of NPAs to a government-owned financial institution, the sources said, it would result in such advantages: potential surplus on the transferred inventory of NPAs remains with government through the financial institution; smooth transfer of portfolio; and the existing infrastructure of financial institutions for handling this portfolio would be helpful.

Sources said that the major disadvantages would be reloading the government-owned financial institutions with bad portfolio and slow resolution/revival of sick industry by financial institution.

FTA WITH US

Dr Salman Shah, Advisor to Prime Minister on Financial Affairs, has expressed the hope that Free Trade Agreement (FTA) with US will be finalized by next year. "Recent tour of US President George W Bush was very successful in the sense that both the countries had very solid economic dialogues.

Talks are underway with regard to investment treaty, as some items need more discussion. He said these are the steps towards FTA, which hopefully will be finalized by next year," he observed.

US Energy Secretary is coming to Pakistan to discuss the energy needs while idea of "Reconstruction Opportunity Zone" had also been floated which now has to be approved by the US Congress. These zones would be set up in backward areas of Pakistan and production from these zones would be exported to US on zero rates. He was optimistic of a positive impact of these steps on bilateral trade and economy of Pakistan. About Bird Flu rumors, the Advisor to the Prime Minister said that in the last Cabinet meeting chicken was served to all the ministers and everything went excellent so there is nothing to worry about and all these are rumors which would die down very soon.

Replying to another question about National Accountability Bureau (NAB) exercise in sugar and oil prices, he said that it was government policy to collect information about stocks of different commodities present in the country. Different agencies were also collecting information that in the whole value chain which stakeholder earned what. While giving authority to fix POL prices to OGRA, he said that it was an old suggestion and approved by the ECC.

Earlier speaking at a seminar on "Private Sector Investment in Agri-Business: Problems and Prospects" held at Lahore Chamber of Commerce and Industry in collaboration with Punjab AgriMarketing Company (PAMCO), he said that each mega power project will add 3 to 4 percent in the Gross Domestic Product (GDP) of the country.

During last two years the country had witnessed the growth as a result rate of employment went up by 5.5 million, of which 2.7 million in rural areas.

He claimed that the government policies have been brining prosperity in the rural areas as a result poverty had reduced up to 25.5 percent from 32.1 percent in two years.

Dr Shah said that the Sensitive Price Index (SPI) has reduced up to 6.5 percent during the last six months of current fiscal year, which was at 30.5 percent during the same period of last fiscal year. Dr Shah said that the agriculture sector couldn't afford any inefficiency therefore we have to introduce new technology, new methods of supply chains and create huge market of agri products in the country. He said, "We have to introduce modern wholesale agri markets to support our agriculture". The LCCI President Mian Shafqat Ali said that tremendous influx of Chinese goods under the Early Harvest Program and the sheer pressure from Indian exporters with their protected products is making the scenario for Pakistani businessmen very competitive.

The difference between Chinese exports figures to Pakistan and the figures of Pakistan's import from China has reached US 1 billion. This is an unaccounted for gap due to under invoicing that can clearly harm the domestic industry. Government needs to take corrective measures. He said that frequent increase in the prices of energy is making our commodities expensive and incompetitive. The increases in the prices of energy need to be stopped forthwith. Mian Shafqat Ali said that there is a need to build government and private sector institutes that can promote the marketing of fresh fruits; vegetables and other perishable agricultural produce in international markets.