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The slow pace of privatization process

Out of 23 units which were planned to be privatized, only two have been disposed of

Jan 01 - 14, 2001

Despite various measures taken by the present government including conferring a ministerial status to the Privatization Commission (PC) with full powers to manage the privatization process without interference from other ministries and a special law empowering the new ministry to adopt different options for privatization, the fact remains that the Privatization Plan of the present government falls far behind the schedule.

Privatization Ministry's 4 billion two-year privatization plan is nowhere in sight. Out of 23 units which were planned to be privatized during its short term plan ending December 2000, only two have been disposed of bringing the achievement to less than 10 per cent of the target. The short-term plan, unveiled last July by the authorities, had envisaged selling of 23 entities by December 2000. In over five months the ministry has sold 9 per cent government shares in Muslim Commercial Bank (MCB) and Liquefied Petroleum Gas (LPG) business of Sui Southern Gas Company (SSGC).

The list of 23 included key entities like nationalized banks working interests in 9 oil and gas fields, noncore assets of Sui Southern Gas Company (SSGC), Sui Northern Gas Pipeline Limited (SNGPL) Pakistan State Oil (PSO), minority shares in POL and ARL, PSO shares in PRL and Pak-Saudi Fertilizer.

Besides these major entities the authorities had listed 16 industrial units to be handed over to private sector by the year-end. The privatization ministry, formerly privatization commission, had identified 49 units for privatization in the two-year short-term and medium-term plan.

The former Chairman and now a minister has been making emphatic claims to meet its short term and medium term targets. After failing to achieve the same he came out with various explanations. The latest being that the commission without being an independent Ministry felt handicapped in carrying out its operations That has also been granted now. The new minister is no other than the chairman of the Privatization Commission himself Mr. Altaf Saleem. And the law turns the commission into a corporate body, with full powers to manage the privatization process without interference from any ministry. The law provides the ministry a number of options for privatization namely sale of assets, sale of shares through public auction or tender, public offering through stock exchange, employee buyout and lease or management contract.

The other provisions of the law concern mostly issues that arise after the sale like litigation by affected and interested parties like employees, failed bidders and past owners and also the issue concerning how to use the privatization proceeds.

The mere fact that the privatization commission has been elevated to the rank of a cabinet ministry or a law facilitating an acceleration of the privatization process has been legislated, makes only a marginal difference. What is needed is the will of the government as a whole to take up the process in the right earnest.

After over six months deliberations the privatization policy was enforced through an ordinance in July 99. While unfolding the new policy, the former chairman of the commission said that under the new 2 year policy which had been approved by the National Security Council 49 units had been identified for privatization during the next 2 year to fetch over 4 billion US dollars. He declared privatization process will kick start on Aug.24 with the sale of liquefied gas (LPG) business and will be completed by July 2002. He also gave the names of 49 state-owned entities included in the two-year privatization plan. All 49 entities will not be completely sold. In certain cases we will sell only 25 per cent shares, in others 50 to 100 per cent, he explained to a questioner who believed earnings of four billion dollars were not a sufficient amount for all the 49 units. He said about a dozen units were expected to earn 75 per cent of the total proceeds while the remaining would fetch 25 per cent.

He claimed that at least one entity would be put on sale every alternate month for price maximization. The plan is to start from small entities, to medium size and then to bigger ones to develop credibility "During the process we will also judge the appetite of the market as well," he said.

The financial and utilities organizations which were to be unloaded wholly or in partly by Dec.2000 are: Allied Bank (disinvestment of 49 per cent share NBP, HBL, MCB and Sui Southern Gas Company (public offer); nine oil/gas fields (working interest); LPG and meter manufacturing units of the SSGC, SNGPL, and PSO, POL, ARL (minority share holding) PSO shares in PRL; and Pak-Saudi Fertilizers.

Industrial units are Pak Steel Fabricating, Suzuki Motorcycle Pak. Ltd. Sindh Engineering, Khonioor Oil Mills, Marafco Industries, A.C. Rohri Cement, Javedan Cement, Lyallpur Chemicals, Hazara Phosphate, Ravi Rayon, Larkana Sugar Mills, Shahdakot Textile Mills, Talpur Textile Mills, Dir Forest Complex, PECO (Badami Bagh), and TDC Vehicle Engineering.

Besides, transactions envisaged to be undertaken during the medium term privatization plan (ending on June 30, 2002) include telecommunication, financial/banking, Oil/gas power/electricity, insurance industrial, etc.

The former PC, Chairman claimed "our privatization plan is realistic and our calculations reasonable. There is every possibility that we would succeed in raising 4.50 billion dollars (against target of 4 billion dollars) by selling the public sector units". Saleem was pointed out that in view of the declining foreign investment over the last few years and reluctance of the local businessmen to invest in privatization plan which envisages to raise 4 billion dollars from the sale of 49 public sector units in a two-year phased programme appeared ambitious and unrealistic.

He said the commission had taken 6/7 months to formulate the new plan announced. "During this period, we have tried to frame and put in place a regulatory environment, restore investors' confidence and reform the economy to attract foreign investors. No one can guarantee the future but we are hopeful that our plan will succeed in achieving the target.

The real achievement of the Privatization Ministry, so far, has however, no relevance to its tall claims. As stated earlier out of 23 units earmarked for privatization till Dec.2000 only two could be sold. The process did start in Aug. as earlier announced but it could not pick up. Let us hope for some improvement now when the commission has been converted into a full fledged independent Ministry with all the powers demanded by the former Chairman of Privatization Commission.