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Oil and gas sector is the priority, replacing the financial sector

From Shamim Ahmed Rizvi, Islamabad
Frb 21 - 27, 2000

The new privatization process which has almost been stalled for over a year may have a jumstart from next week under a new policy and with changed priorities. Under the new policy the lucrative units of fuel, gas and telecom are to be sold first followed by Banks, Financial Development Institutions (FDI) and fertilizers.

The first phase of the new privatization programme starts by next week when expression of interests will be invited both from the local and foreign investors 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).

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 stort-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 of 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 Rs. 5 billion helping the government to retire its short-term expensive foreign loans due by next year.

The new privatization policy is expected to be announced this week and the reconstituted Privatization Commission has indicated that oil and gas sector is the priority, replacing the financial sector. Pak Telecom is ready for privatization and the government is waiting for the green signal from its financial adviser, Goldman Sachs. The information available revealed that under the new mechanism cited by the Privatization Commission, during zero to eight months, Sui Northern Gas, Sui Southern Gas and fertilizer companies' shares are likely to be sold to foreign inventors, while in eight to 18 months, the government would sell its stakes in PSO, PTCL, Habib Bank and UBL.

"Though at this stage it is difficult to ascertain how much the sale of assets would fetch but the companies' current financial position showed that the selling of the shares might fetch around Rs. 5 billion", an analyst said. He added that if the government reach the targets fixed, there are chances that it would become a tool to restore the confidence of foreign investors. The government is likely to achieve the revenue collection target, GDP growth of 4.5 to 4.7 percent and current account deficit to below 3.5 percent of GDP at the end of this fiscal year.

Firming up the strategic plan of privatization of state entities lined up for first and the second phases of privatization process, spread over eight and twenty months respectively, Saleem Altaf, PC, Chairman gave a comprehensive presentation of the plan to Finance Minister Shaukat Aziz. In all nine entities in oil and gas sectors top the list, followed by the financial sector with minority shares of a nationalized commercial bank and of some attractive companies. Some non-performing and loss making industrial units have also been included in the list.

During the first eight months, for oil and gas sector, PC has proposed to sell working interests of government in oil and gas fields, which in most of the cases will transfer strategic management to the investors. In addition to that minority shares of Attack Refinery Limited and Pakistan Oil Fields Limited (POL) have also been proposed for offering to the private investors. Also, the non-core assets of gas companies like meter making and liquid petroleum gas (LPG) will be offered for privatization.

In financial sector, during the same period, only minority shares (25 percent) of Muslim Commercial Bank Limited will be offered for privatization. Minority shares (5 to 15 percent) of attractive assets like fertilizer companies; gas distribution companies and some industrial units have also been included in the list.

The industrial sector comes at the bottom. Only those industries have been proposed to be privatized which are running in loss. Ghee mills belonging to Ghee Corporation of Pakistan (GCP) will also be offered for privatization. The method of their sale has yet to be decided. Some of them will be offered as real estate and other will be straitaway be liquidated.

Talking to newsman in Islamabad last week the P.C. Chairman Mr. Saleem Altaf said that it will not take more than 3 months to complete the process of disinvesting LPG units. The financial advisors of both the PSO and PPL have already completed their home work to privatize LPG units under them. Then PPL and PSO as a whole would be put up for sale.

"Later both the SNGPL and SSGPL, will go for privatization", he said adding that fortunately both the companies could not manage trillions of gas reserves already discovered in the country", he said adding that the local and international companies could take up the job of better gas utilization in Pakistan.

He was of the view it will not only help the government to have additional resources through the development of new gas discoveries but it will also help the consumers to have the advantage of gas. Currently, he said about 18 per cent people were utilizings gas which, he believed, could be even to 40 per cent of the people provided some new efficient arrangements were made by those companies which were interested in buying gas entities.

Asked why the government has chosen to off load government shareholding in the oil and gas sector, Altaf Saleem said that the country's oil import bill was very high which could be reduced by effectively using gas reserves "Our trillions and trillions of gas reserves needed to be developed so that we can convert our power plants into gas fired plants with a view to saving huge import cost of fuel oil".

To a question, he said that the government has also decided to disinvest its shareholding in oil and gas wells, "In fact this is going to be whole one package which has been finalized for privatization in the first phases". The purpose was to have the benchmark for undertaking greater disinvestment plan to be started with the selling of oil and Gas Development Corporation Limited (OGDCL). "First we have decided to privatize OGDCL's oil drilling equipment and oil field discoveries", he said adding that since the OGDCL was 100 per cent owned by the government of Pakistan, it will not take much time to privatize it as a whole soon. "Initially the government could save Rs. 500 million annually by selling some of the components of the OGDCL", he added.

Simultaneously he pointed out, five per cent shareholding in the Habib Bank Limited (HBL) will be disinvested within next four months period through stock markets. "This could be increased to six or seven per cent depending upon the market sentiments", Altaf Saleem added. Likewise, he said that 5 to 15 per cent shares of the Pak Saudi Fertilizer company and the UBL will also be off loaded.