PRIVATISATION OF STRATEGIC SOES NOT IN NATIONAL INTEREST

ENGR HUSSAIN AHMAD SIDDIQUI
Aug 18 - 24, 2008

On June 26, Federal Minister for Privatisation and Investment Syed Naveed Qamar has announced the re-prioritized privatisation programme to be implemented during the year 2008-09. The long list of State Owned Enterprises (SOEs) includes prime engineering industrial units such as Heavy Electrical Complex (HEC) at Hattar and Pakistan Machine Tool Factory (PMTF) at Karachi for which the privatization process was initiated by the Shaukat-Aziz government.

Earlier, the Minister had assured that before finalising the on-going privatisation process the respective stakeholders including the employees would be taken on board, making the process pro-worker and pro-people. The SOEs on privatisation list, as already approved, were to be reviewed accordingly. This has not been done in real earnest. Engineering units like Pakistan Steel, Heavy Mechanical Complex (HMC), HEC and PMTF are of national strategic importance and should not be transferred to the private sector as suggested to the government, time and again, by the industry experts.

According to the press reports, PPP Co-Chairman Asif Ali Zardari had directed the Privatisation Commission (PC), sometime in May, to drop strategic units from the sell-off programme. These are Pakistan Steel Mills, Pakistan State Oil (PSO), Oil and Gas Development Co (OGDC), Pakistan Petroleum Limited (PPL), Sui Southern Gas Co (SSGC) and Sui Northern Gas Pipelines Ltd (SNGPL). The PC has done this. On the same principle, and on similar pattern, the remaining units of strategic importance, namely HEC, PMTF and PECO, which all are at present managed by State Engineering Corporation, are to be taken off the privatisation list.

If at all the Shaukat-Aziz government would be remembered for some good act it would be that of de-listing Karachi Shipyard & Engineering Works (KSEW) and Heavy Mechanical Complex (HMC), the two heavy engineering units, from privatisation programme. The Government of Pakistan is currently managing operations of these two national projects directly, and the companies are showing improved results. Thus, list of the SOEs needed to be retained by the government should also include PMTF and HEC, in the best national interest. Both the companies are profitable and viable!

The private sector has been allowed to invest, rather in a big way, in power generation sub-sector, while strengthening and development of transmission and distribution (T&D) sub-sector remains the sole responsibility of public sector. Plans are being implemented to almost double the present installed power generation capacity by the year 2015. To connect additional generation capacity a number of 500 kV and 220 kV transmission lines are planned for construction countrywide. This will create huge market demand for power transformers that are being produced by HEC. A rough estimate is of 580 Nos. transformers required during next five years, costing about Rs 15 billion.

HEC has an annual installed capacity of producing 148 Nos. power transformers of a wide range. It is a single-product single-customer manufacturing facility and as such not very attractive for the private sector in following the present production programme that has long payback period too. The private parties interested to take over HEC may therefore opt for manufacturing domestic appliances instead, for example, that may be more lucrative to them or match with their current production activities at some other location.

The divestment of the Complex therefore may weaken the base created for high voltage electrical equipment, and, in such case, the government has to resort to import of power transformers, draining further on foreign exchange resources. Nonetheless, it is a matter of concern that the PC invited the Expressions of Interest (EOIs) for sale of 90% shares of HEC along with its management in November 2006 but there has been no tangible progress on its transfer of ownership as yet. If the prevalent situation continues for some more time the Complex could turn into a sick unit.

Similar is the case of PMTF for which the EOIs were invited from the prospective investors by December 26, 2007. The poor response forced the PC to extend last date for receiving the EOIs two times, to January 22, 2008 and then to February 7. It reflects on the lack of will on the part of private sector to continue to run the company operations in future, as required by the PC. PMTF is the only unit of its kind in the country and has contributed largely towards industrialisation. The facility was created for indigenous manufacturing of machine tools, under technical collaboration and technology transfer agreements with the world-reputed machine tool manufacturers. Subsequently, its design and manufacturing capabilities were upgraded and modernised a number of times.

A well-developed machine-tools sub-sector is essential for reproducing technologies and adoption of advanced manufacturing processes. Unfortunately, the private sector has never come forward to invest in this area in formal sector. On this premise, it is likely that the prospective buyer would only be interested in acquisition of PMTF's real estate, which is spread over an area of 226 acres in prime location of Landhi, Karachi. The trend was witnessed in the sell-off of other engineering units in the past that ceased operations on take over by the private sector. The Company also produces modern defence equipment that could come to a halt in case of its divestment.

In the wake of recent commitments made for the betterment of the masses, the government was expected to ensure that past mistakes made in privatisation during the last two decades or so, would not be repeated. But, as they say, we learn from the history that we learn nothing. During 1992-95 six industrial units of the State Engineering Corporation were sold, at a paltry sum of total Rs 140 million. Most of these units are closed down since change of ownership, resulting in loss of revenue, unemployment and economic regression. Privatisation of these engineering companies was a total failure.

Karachi Pipe Mills, Metropolitan Steel Corporation (MSC) and Quality Steel Works, all located in Karachi, were highly profitable entities, but were privatised since "it's not government's business to do business." On the other hand, assets of Pakistan Switchgear Limited (PSL), Lahore and Textile Machinery Co, Karachi were disposed of for the reason that these companies were incurring losses. All these SOEs were privatised without doing proper homework, and the vested interests played their role in divestment of its valuable assets at throwaway prices. Another unit, Pioneer Steel Mills, was returned to its owner of pre-nationalised days.

Engineering industry is termed as prime mover for the economic growth. To achieve import substitution and export promotion it is essential to strengthen the national engineering industry, which has stagnated over the last many years. This can best be done in public sector, given the conditions. The PPP-led government is reminded that developing heavy engineering industry for achieving self-reliance was the vision of Prime Minister Zulfikar Ali Bhutto, whereas Prime Minister Benazir Bhutto inaugurated HEC in 1994. Also, Prime Minister Benazir Bhutto had directed not to privatise PMTF that was termed as strategic asset.

(The writer is former Chairman of State Engineering Corporation of the Ministry of Industries and Production)