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The slow pace of privatization

  1. Capital Markets
  2. External debt profile
  3. Foreign Direct Investment
  4. Commercial Banks
  5. Privatization
  6. Leasing sector
  7. NetSol International
  8. Insurance

From Shamim Ahmed Rizvi, Islamabad
May 08 - 21, 2000

The privatization process which has almost been stalled for over 18 months may have a jumpstart from next month under a new policy and with changed priorities. The new policy plan prepared by the commission is in the final stages of its approval and may be launched through an ordinance any time during the current month.

The Privatization Commission has, in the meanwhile invited expression of interest both from local and foreign investors for privatization of gas companies OGDG in addition to off-loading the government shares in the oil companies. Remaining government shares of Muslim Commercial may also be offered for sale to general public through stock exchanges in the month of June.

The new Chairman of the Privatization Commission (PC) Mr. Saleem Altaf a leading businessman in an exclusive interview to page said that the pace of privatization has been slow because the required preparatory work had not been done. A lot of regulatory work was required to be done before selling off public enterprises to private parties specially in the services sector to safeguard the interest of the consumer and ensuring the working of the privatized organization within the broad framework of national interest. The pre-requisites have to be accomplished before privatization. In some cases it has been done and in some other is being done now.

The other important reason for the slow down of the privatization process, the new chairman said, is the general recession both in domestic and international markets. Investors are difficult to find who can offer a reasonable price.

Extremely cautious in his answers to the question posed by this correspondent Mr. Saleem Altaf said that so far 103 units have been privatized for about Rs. 85 billion out of which Rs. 2.6 billion was still stuck-up. Because of unsatisfactory preparatory work and faulty regulatory framework, there are about 300 cases pending in the courts filed by or against the commission. A significant portion of privatization proceeds has been spent on golden handshake of staff and clearing other liabilities of privatized units. A major chunck had been utilised by the previous government for meeting budgetary gap and a minor share (not more than 25 per cent) has been utilised for retirement of debts. Under the new policy the government would be legally bound to use 90 per cent of privatization proceeds for debt retirement and only 10 per cent will be used  on programmes for poverty alleviation.

The revised list of units to be privatized include 40 units in industrial sector 7/8 in oil and gas sector, PTCL in communication sector, UBL, Habib Bank etc. The Chairman said that the commission hopes to complete this task in 24 to 30 months with an estimated total proceeds of about 4 billion dollars. Oil and gas sector is on the top as per changed priorities. NDFC and ADB, Railways, WAPDA, PIA are not included in the first phase of privatization programme of the present government as the same are undergoing a restructuring process in order to make them viable and attractive for buyers.

When asked why the commission has changed its priorities by bringing oil and gas sector which has been earning huge profit on top of the privatization programme instead of those which are running in losses and are a burden on national economy, the Chairman could not offer any convincing explanation except that there was not declared policy in this regard and even previous government wanted to privatize oil and gas sector. It was brought to the notice of the Chairman that the Petroleum Ministry headed by a powerful Minister, Nisar Mohammad Khan, in the ousted Nawaz Sharif government was strongly opposed to the privatzation of oil and gas which was earning about Rs. 70 billion revenue to the government and because of this strong opposition oil and gas sector could not be put on sale despite best efforts of the than PC Chairman and blessings of the then Prime Minister. How is it that the Ministry of Petroleum has resiled from their earlier stand and agreed to privatization of oil and gas on priority basis, the PC Chairman remarked that the clarification may be sought from the Ministry of Petroleum.

Although the PC Chairman would not comment on the logic behind this change in this policy, other official confided that the Privatization priorities have been changed because the government is keen to earn as many dollars as possible within the shortest possible time to pay off its short-term foreign loans at the earliest. For this purpose such units have to be offered for sale which could attract foreign investment. It would serve double purpose. Firstly the government through sale proceeds in foreign exchange can repay short-term foreign currency loans carrying high rate of interest secondly the government would regain the confidence the foreign investors and consequently it may lead to more direct foreign investment in the country.

The privatization of state-run companies in fuel, gas, telecom and financial sectors are likely to fetch over 4/5 billion helping the government to retire its short-term expensive foreign loans due by next year. So first phase of the new privatization programme has already started by inviting expression of interests to bid for liquefied petroleum gas (LPG) units of Pakistan State Oil (PSO), Pakistan Petroleum Limited (PPL), Sui Southern Gas Pipeline Limited. (SSGPL) and Sui Northern Gas Pipeline Limited (SNGPL). IBL & PTCL may follow suit, to raise about 4 billion dollars before March 2001 when payment of reseheduled loans falls due.