Feb 23 - Mar 01, 2009

Based on public-private partnership a new privatization policy has been approved by the Cabinet Committee on Privatization last week. According to the new policy, government has enlisted upcoming 23 privatization transactions, including contract-out and shares sale-out to public or syndicate for time to come, of state owned entities (SOEs). No timeline has been set on privatization of SOEs as generation of sale proceeds is not the priority of the incumbent government, but performance appraisal of buyers would determine the direction of the privatization program.

It is said that shares of SOEs will be floated in phased manner in conformity with the level of improvement in performances of sold entities and value addition to them over a period by the private investors. As done in previous government that restrained itself from divestment of shares in large entities in one go, privatization executives of this government will also acquiesce to adopt a safe side and flexible option of selling shares in piecemeal so that they would not confine privatization to few potential investors and thereby nipping the competition in the bud.

Decision of sale of 26 percent equity stakes with management control of entities to private local and foreign investors has descended from the previous privatization model of Kot Addu Power Company, PTCL, MCB, and Allied Bank. Privatization of entities will carry on modes that include sale of assets and business, sale of shares through public auction or tender, public offering through stock exchange, management or employees buyouts by management or employees of a SOE, lease contracts, etc.

According to the new policy, if public and private proportion proves impractical then it may change percentage of shares. Thus, viability of the privatization model can better be judged following the execution of a privatization agreement under the new policy. Since it has to be ensured that privatization will not lead to cartel or private monopolies, privatization commission will offer minor shares initially to benefit from the prospective market value of shares of entities. In other words, government will hold majority stakes in privatized entities to strengthen its bargaining position in the wake of their undesirable performances of post-privatization and infringement of basic regulations by private parties. Divestment of residual shares will depend on post-privatization performance of the entities and market conditions.

From all dimension, this privatization model based on public-private partnership draws a reasonable framework of generating revenue without hurting interests of non-investing stakeholders like public. It is too early to say that if 12 percent shares decided to be reserved for workers in the privatized units will go along with the prime interests of investors despite that the policy hinted at mechanism for sale of privatized entities to third party and winding up and protection to employees in post-divestment scenario. Certainly, transfer restrictions and lock-in periods on the partner will avert premature departure, which was seen in earlier privatization transaction of KESC for instance. The sudden change of ownerships is detriment to performances of privatized entities.

The policy resolved to disallow sale of strategic assets of the nation. By that, perhaps it meant that large and capital intensive state owned entities would not be put on privatization anvil. Therefore, government struck out Pakistan Steel Mills and Qadirpur Gas Field in the list of upcoming privatization transactions. However, it kept intact SME Bank Limited, National Power Construction Company, Faisalabad-Peshawar-Quetta-Hyderabad electric supply companies, Jamshoro Power Company Limited, Heavy Electrical Complex, Pakistan Machine Tool Factory, Pakistan Mineral Development Corporation, Morafco Industries, Pakistan Railways, PTDC hotels and restaurants, Utility Store Corporation and stores, Pakistan Post, KAPCO, National Insurance Company, Pakistan Reinsurance Company, State Life Insurance Corporation, Printing Corporation of Pakistan Limited, Services International Hotel, Sindh Engineering Limited, and Republic Motors Limited.

During the period 1991-Feb 2009, government raised Rs. 4.75 trillion from 167 privatization transactions. Last buyout of Hazara Phosphate Fertilizer Limited by Pak American Fertilizers earned government Rs. 1.34 billion. Although, privatization ministry has not set target of privatization proceeds for fiscal 2008-09, the unofficial target is reportedly Rs. 25 billion. Behind not predefining projection lies ministry's vision of finding desirable investors without time constraints. The devotion should continue to an extent that proceeds be used for infrastructure building not to increase government profligacy.

Past few bitter experiences of privatizations of SOEs dragged neutral opinions towards pessimism. Comments of Privatization Minister Syed Naveed Qamar about not linking of privatization proceeds with improving balance of payment conditions but performances of entities opened room for positivity to stay somehow. While privatization of PTCL started to trickle down benefits to public after a long span, KESC has been an abysmal failure in this case. Even after four years of KESC privatization in 2005, no change in its state of affairs appeared rather its performance is on unrelenting downward trajectory. That makes so many antagonists of privatization conclude that privatization is a mere deception that it disentangles functionary riddles of government-run public utilities.

The list of upcoming privatization transactions also includes lease of thermal power stations (Jamshoro, Kotri with production capacity of 880MW and 174 MW respectively) of JPCL, which is one of the Gencos (generation companies) owned by Wapda. CCoP approved sale of government's 51 percent shares in JPCL and transfer of its management to private parties. It is interesting to know that twice the sell-off process of the company has renounced first in 2003 and then in 2004 due to same reason of disagreement on power tariffs.

Privatization policy is result-oriented if it generates revenue for improvement of performances in privatized units and government spends proceeds on development of hospitable industrial environment. Holding major shares by the government is advantageous in two ways: one upper hand in negotiation, and second keeping wide-open renegotiation option.