PRIVATIZATION OF STATE-OWNED ENTERPRISES

KANWAL SALEEM
(feedback@pgeconomist.com)
Aug 23 - 29, 20
10

The concept of privatisation is not new in Pakistan. The privatisation process was started in the 50s with the setting up of Pakistan Industrial Development Corporation (PIDC) in 1952. PIDC set up about 50 industrial units all over the country and after running them successfully these units were transferred from the public to the private sector.

The privatisation of State Owned Enterprises (SOEs) became an important instrument of economic policy of the Ziaul Haq government in late 80s. However, the privatisation process in Pakistan began in earnest after the creation of Privatisation Commission on January 22, 1991, although the commission's mandate initially restricted to industrial transactions. By 1993, it had expanded to also include power, oil and gas, transport (aviation, railways, ports and shipping), telecommunications, banking, and insurance sectors.

During January 1991 to June 2009, the commission completed 167 transactions for Rs476.421 billion. The government is continuing with the policy of privatisation of the state-owned entities with the help of stock exchanges.

During the year 2009, the commission has realised an amount of Rs237.058 million because of balance proceeds of Wah Cement Company, HBL's IPO generated Rs2.515 million. The government of Pakistan has completed or approved 167 transactions at gross sale price of Rs476.421 billion so far.

In the 2009-10 budget, the government had shown privatisation proceeds of Rs19.351 billion, but nothing was materialised throughout the year. This was only due to poor economic situation of the country.

SECTOR

SALE PROCEEDS 1991 TO JUN 2010

  NO. AMOUNT (RS IN MILLION)
Banking 7 41,023
Capital Market Transaction 22 133,124
Energy 14 51,756
Telecom 4 187,360
Automobile 7 1,102
Cement 17 16,177
Chemical 16 1,643
Engineering 7 182
Fertilisers 7 40,281
Ghee Mills 24 842
Rice 8 236
Roti Plants 15 91
Textile 4 370
Newspapers 5 270
Tourism 4 1,805
Others 6 159
Total 167 476,421

Sources in privatization commission told Pakistan and Gulf Economist (Page), the privatisation process slowed down during the past two to three years due to global economic recession as well as economic meltdown in Pakistan. However, PC has been making concerted efforts for the last one year to expedite the privatization program by interacting with the market players to get their views on innovative privatisation structure. Because of these efforts the PC received informal feedback from international markets regarding proposal of monetising GoP's equity holding in oil and gas development company limited (OGDCL) to the extent of approximately 5-7 per cent via an equity-linked instrument.

According to the sources, privatization commission has received indicative proposals from JP Morgan, Barclays, RBS, Citi Bank, Nomura Bank, Credit Suisse, Deutsche Bank, Standard Chartered, HSBC, KASB and Bank of America/Merrill Lynch.

According to federal minister for privatization, Waqar Ahmed Khan, there was a huge potential of investments in textiles, food processing and other agro-based industrial projects in the country and the initiative of setting up economic zones would reshape the entire philosophy of attracting foreign investments from brotherly countries like Saudi Arabia and Bahrain in various sectors.

DETAILS OF PRIVATISATION PROCEEDS (1991 TO JUNE 2010) RS (IN MILLION)

SR. NO UNIT NAME SALE PRICE DATE OF TRANSFER BUYER NAME
BANKING AND FINANCE
BANK
1 Allied Bank Limited (51%) 971.6 Feb-91 EMG
2 Muslim Commercial Bank (75%) 2,420.0 Apr-91 National Group
3 Bankers Equity (51%) 618.7 Jun-96 LTV Group
4 Habib Credit & Exchange (70 %) (52,500,000) 1,633.9 Jul-97 Sh. Nahyan bin Mubarik Al-Nahyan
5 United Bank Ltd. (51%) (1,549,465,680) 12,350.0 Oct-02 Consortium of Bestway & Abu Dhabi Group
6 Bank Alfalah (30%)(22,500,000) 620.0 Dec-02 Abu Dhabi Group
7 Habib Bank (51%) 22,409.0 Dec-03 Aga Khan Fund for Economic Development
. Total 41,023.2 . .
CAPITAL MARKET TRANSACTION
8 Muslim Commercial Bank (6.8%) 563.2 Jan-01 MCB Employees-PF & Pension Fund
9 Muslim Commercial Bank (4.4%) 364.0 Nov-01 MCB Employees-PF & Pension Fund
10 NBP 10% shares IPO 373.0 (37.3 million shares) Feb-02 General Public Thru Stock Exchange
11 Muslim Commercial Bank† (CDC)(24,024,560 shares) 664.0 Oct-02 Sale†Thru CDC
12 Pakistan Oil Fields Limited shares (CDC) (28,546,810 shares) 5,138.0 Oct-02 Sale†Thru CDC
13 Attock Refinery Ltd. shares (CDC) (10,206,000 shares) 1039.0 Jan-03 Sale†Thru CDC
14 ICP Lot - A 175.0 Sep-02 ABAMCO
15 ICP Lot - B 303.0 Oct-02 PICIC
16 ICP - SEMF 787.0 Apr-03 PICIC
17 National Bank of Pakistan 10% SPO (37,303,932 shares) 782.0 Nov-02 Sale†Thru CDC
18 DG Khan Cement shares (CDC) (3,601,126 shares) 63.0 Dec-02 General Public thru Stock Exchange
19 NBP 3.52% 3rd offer (13,131,000 shares) 604.0 Nov-03 General Public thru Stock Exchange
20 OGDCL 5%- IPO (215,046,420 shares) 6,851.0 Nov-03 General Public thru Stock Exchange
21 SSGC 10% - SPO (67,117,000 shares) 1,734.0 Feb-04 General Public thru Stock Exchange
22 PIA 5.8% shares SPO 1,215.1 Jul-04 General Public thru Stock Exchange
23 PPL 15% IPO (102,875,000 shares) 5,632.6 Jul-04 General Public thru Stock Exchange
24 KAPCO 20% IPO (160,798,500 shares) 4,814.8 Apr-05 General Public thru Stock Exchange
25 UBL 4.2% IPO (21,867,000 shares) 1,087.2 Aug-05 General Public thru Stock Exchange
26 OGDCL 9.5% GDR (408,588,000 Shares) 46,963.0 Dec-06 GDR offering to international & domestic institutions
27 OGDCL 0.5% SPO (21,505,000 shares) 2,359.6 Apr-07 General Public thru Stock Exchange
28 UBL 25% GDR (202,343,752 shares) 39,450.7 Jun-07 GDR offering to international & domestic institutions
29 HBL 7.5% thru IPO (51,750,000 shares) 12,161.0 Oct-07 General Public thru Stock Exchange
. Total 133,124.2 . .
. Total Banking & Finance: 174,147.4 .. ..
ENERGY SECTOR
30 Mari Gas (20%) 102.4 Apr-94 Mari Gas Company Ltd.
31 Kot Addu Power Company (26%) 7,105.0 Jun-96 National Power
32 Kot Addu Power Company (10%) 3,046.0 Nov-96 National Power
33 Kot Addu (Escrow A/c) 900.7 Apr-02 National Power
34 SSGC LPG business 369.0 Aug-00 Caltex Oil Pak.(Pvt) Ltd.
35 SNGPL LPG business 142.0 Oct-01 Shell Gas LPG Pakistan
36 Badin II (Revised) 503.2 Jun-02 BP Pakistan & Occidental Pakistan
37 Adhi 618.9 May-02 Pakistan Oil Field
38 Dhurnal 161.0 May-02 Western Acquisition
39 Ratana 24.6 May-02 Western Acquisition
40 Badin I 6,433.0 Jun-02 BP Pakistan & Occidental Pakistan
41 Turkwal 75.6 Jun-02 Attock Oil Company
42 NRL (51% GOP shares) 16,415 May-05 Consortium of Attock Refinery Ltd
43 KESC (73% GOP shares) 15,859.7 Nov-05 Hassan Associates
. Total 51,756.1 . .
TELECOMMUNICATIONS
44 PTCL (2%) 3,032.5 Aug-94 General Public thru Stock Exchange
45 PTCL (10%) 27,499.0 Sep-94 Through DR form
46 26% (1.326 billion) B class of shares of PTCL 156,328.4 Jul-05 Etislat-UAE
47 Carrier Telephone Industries 500.0 Oct-05 Siemens-Pakistan Engineering Co. Ltd.
. Total 187,359.9 . .
INDUSTRIAL UNITS
AUTOMOBILE
48 Al-Ghazi Tractors Ltd. 105.6 Nov-91 Al-Futain Industries (Pvt) Ltd. UAE
49 National Motors Ltd. 150.4 Jan-92 Biboojee Services
50 Millat Tractors Ltd. 306.0 Jan-92 EMG
51 Baluchistan Wheels Ltd. 276.4 May-92 Abdul Qadir & Saleem I.Kapoorwala
52 Pak Suzuki Co. Ltd. 172.0 Sep-92 Suzuki Motors Co. Japan
53 Naya Daur Motors Ltd. 22.3 Jan-93 Farid Tawakkal & Saleem I.Kapoorwala
54 Bolan Castings 69.2 Jun-93 EMG
. Total 1,101.9 . .
CEMENT
55 Maple Leaf Cement 485.7 Jan-92 Nishat Mills Ltd.
56 Pak Cement 188.9 Jan-92 Mian Jehingir Ellahi & Ass
57 White Cement 137.5 Jan-92 Mian Jehingir Ellahi & Associates
58 DG Khan Cement 1,960.8 May-92 Tariq Sehgal & Associates
59 Dandot Cement 636.7 May-92 EMG
60 Garibwal Cement 836.3 Sep-92 Haji Saifullah & Group
61 Zeal Pak Cement 239.9 Oct-92 Sardar M. Ashraf D. Baluch
62 Kohat Cement 527.9 Oct-92 Palace Enterprises
63 Dandot Works - National Cement 110.0 Jan-95 EMG
64 General Refractories Limited 18.9 Feb-96 Shah Rukh Engineering
65 Wah Cement 2,415.8 Feb-96 EMG
66 Associated Cement Rohri 255.0 Nov-03 National Transport Karachi
67 Thatta Cement 793.0 Jan-04 Al-Abbas Group
68 10% additional shares-Dandot Cement 8.3 Oct-04 EMG
69 10% additional shares-Kohat Cement 40.7 Oct-04 EMG
70 Mustehkam Cement† Limited 3,204,.9 Nov-05 Bestway Cement Limited
71 Javedan Cement Company Limited 4,315.9 Aug-06 Haji Ghani Usman & Group
. Total 16,176.9 . .
CHEMICAL
72 National Fibres Ltd 756.6 Feb-92 Schon Group
73 Kurram Chemicals 33.8 Feb-92 Upjohn Company USA
74 Pak PVC Ltd 63.6 Jun-92 Riaz Shaffi Reysheem
75 Sind Alkalis Ltd 152.3 Oct-92 EMG
76 Antibiotics (Pvt) Ltd 24.0 Oct-92 Tesco (Pvt) Ltd.
77 Swat Elutriation 16.7 Dec-94 Sahib Sultan Enterprises
78 Nowshera PVC Co. Limited 20.9 Feb-95 Al Syed Enterprises
79 Swat Ceramics (Pvt) Limited 38.6 May-95 Imperial Group
80 Ittehad Chemicals 399.5 Jul-95 Chemi Group
81 Pak Hye Oils 53.6 Jul-95 Tariq Siddique Associates
82 Ravi Engineering Limited 5.4 Jan-96 Petrosin Products Pte
83 Nowshera Chemicals 21.2 Apr-96 Mehboob Ali Manjee
84 National Petrocarbon 21.9 Jul-96 Happy Trading
85 National Petrocarbon (addíl† 10% shares) 2.3 Mar-02 Happy Trading
86 Khuram Chemicals (additional 10%) 6.0 Oct-03 Pfyzer Pakistan
87 10% additional shares - Ittehad Chemicals 26.1 Oct-04 EMG
. . 1,642.5 . .
ENGINEERING
88 Karachi Pipe Mills 18.9 Jan-92 Jamal Pipe Industries
89 Pioneer Steel 4.4 Feb-92 M. Usman
90 Metropolitan Steel Mills Limited 66.7 May-92 Sardar M. Ashraf D. Baluch
91 Pakistan Switchgear 8.9 Jun-92 EMG
92 Quality Steel 13.2 Apr-93 Marketing Enterprises
93 Textile Machinery Co 27.9 Oct-95 Mehran Industries
94 Indus Steel Pipe 42.5 Jul-97 Hussien Industries
. . 182.5 . .
FERTILISER
95 Pak China Fertilizers Company Limited 435.4 May-92 Schon Group
96 Pak Saudi Fertilizers Ltd. 7,335.9 May & Sep-02 Fauji Fertilizers
97 Pak Saudi Fertilizers Ltd. (10%) 815.0 Sep-02 Fauji Fertilizers
98 Pak Arab Fertilizers (Pvt) Ltd. (94.8%) 14,125.6 May-05 Export Reliance- Consortium
99 Pak American Fertilizers (100%) 15,949.0 Jul-06 Azgard 9
100 Lyallpur Chemical & Fertilizers 280.2 Dec-06 Al Hamd Chemcial (Pvt) Limited
101 Hazara Phosphate Fertilizers Limited 1,340.00.2 Nov-08 Pak American Fertilizers
. Total 40,281.1 . .
RICE
102 Sheikhupura 28.0 May-92 Contrast Pvt Ld.
103 Faizabad 21.2 May-92 Packages Ltd.
104 Siranwali 16.2 Jul-92 Enkay Enterprises
105 Hafizabad 20.0 Sep-92 Pak Pearl Rice Mills
106 Eminabad 24.1 Nov-92 Pak Arab Food Industries
107 Dhaunkel 79.2 Jun-93 Dhonda Pakistan Pvt Ltd.
108 Mabarikpur 14.4 Nov-93 Maktex (Pvt) Ltd.
109 Shikarpur 32.5 Mar-96 Afzaal Ahmad
. . 235.6 . .
TEXTILE
110 Quaidabad Woollen Mills 85.5 Jan-93 Jehingir Awan Associates
111 Cotton Ginning Factory 1.2 Jun-95 Hamid Mirza
112 Bolan Textile Mills 128.0 Oct-05 Sadaf Enterprises
113 Lasbella Textile Mills 156.0 Nov-06 Raees Ahmed
. . 370.7 . .

According to a spokesman of privatization commission, the PC is mandated to divest title, interests, rights, ownership and control in the SOEs by means of various modes of privatisation. Section 25 of the PC Ordinance stipulates that the commission shall carry out privatisation in accordance with the prescribed procedure, through any of the following modes:-

(a) sale of assets and business;
(b) sale of shares through public auction or tender;
(c) public offering of shares through a stock exchange;
(d) management or employee buyouts by management or employees of a SOE
(e) lease, management or concession contracts; or
(f) anyother method as may be prescribed.

One of the models employed in the privatisation of large SOEs is the divestment of a minority strategic stake along with transfer of management control. For example sale of 26 per cent shares with management control was used in the privatisation of Kot Addu Power Company, PTCL, MCB and Allied Bank. This strategy is based on the rationale that given the large size, a single offer for total divestment for some transactions would limit the interest of potential investors and consequently affect the level of competition. It also helps to sell the remaining equity in a phased manner to maximise the eventual sale proceeds once the private sector has had a chance to bring about substantial value addition to the SOE.

According to him, the main objective of privatization of 26 per cent equity stake with management rights through a Public-Private Partnership (PPP) model is to put national resources and assets to optimal use and in particular to unleash the productive potential inherent in SOEs.

Government would continue to ensure that divestment does not result in alienation of national assets and reduction in quality of production and service to the detriment of its people. It would also ensure that divestment does not result in private monopolies and cartels. In order to strengthen the privatisation process in the country, it is necessary for the government to improve governance and ensure transparency in all official matters.