Broad policy parameters are not clearly spelt out
By SHABBIR H. KAZMI
May 21 - Jun 03, 2001
Privatization is back in the headlines. However, it
is not clear whether it is start of a bold new era or yet another round
of noises to convince the multilateral lenders. It may be true that the
GoP is serious but the whole process of privatization seems to be bogged
down in legal, procedural and administrative snags. Yet another point
which is not clear is, whether the GoP would sell off the entities on
'as is where is' basis or the units would be sold after restructuring.
The units which have been selected for privatization
have been divided into three categories: banking and finance, oil and
gas and communication and industry. In the first categories includes
Allied Bank of Pakistan, Muslim Commercial Bank, Habib Bank, United Bank
and National Bank of Pakistan. An interesting proceeding to watch is
credit rating of these entities by end June this year. Many sector
analysts strongly believe that the GoP will be forced to extend the
deadline because most of these entities would not qualify for quality
investment. Therefore, first the GoP has to restructure a number of
these entities by injecting additional liquidity.
In the oil and gas category, the selected entities
include Pakistan Oilfields, Pakistan Petroleum, Attock Refinery,
Pakistan State Oil, Sui twins, National Refinery, OGDC and sale of
working interest in various oil/gas fields. One of the factors affecting
operations of oil/gas exploration companies, in the private sector, had
been limited oil refining capacity in the country. Whereas analysts were
of the view that unless crude oil production was increased, expansion in
refinery capacity would not be possible. However, commencement of
commercial production by PARCO has created substantial demand for crude
oil in the country.
Privatization of Pakistan Telecommunication Company (PTCL)
posses the biggest challenge. Not because the Company is not making
profit, but because of lost of overseas investors in telecommunication
companies. The euphoria of investing in telecom companies prevalent in
nineties is over. The lost of interest can be gauged from the fact that
most of the fund managers have either already sold their stake or are
willing to liquidate their positions even at loss. This has also
happened in Pakistan evident by the low price of scrip due to over free
float above market appetite.
Sale of KESC, GENCOs, NTDC and DISCOs (previously
power wing of WAPDA) seems to be of not an immediate interest for the
GoP. It is true that all these entities suffer from financial problems,
many analysts strongly believe that the GoP is not serious. The Pakistan
Electric Power Company (PEPCO) was created in 1998 and given a two-year
time frame to complete the restructuring, corporatization and facilitate
privatization of WAPDA's Power Wing. The lack of will is clearly evident
from GoP's programme which does not include sale of corporatized units.
The overseas investors are not going to wait indefinitely for the GoP's
According to some analysts yet another reason for
lack of foreign investors for Pakistan is the delay in formation of
various regulatory authorities and performance of National Electric
Power Regulatory Authority (NEPRA) over the years. Though, creation and
autonomous status for these authorities is a demand of international
financial institutions as well a pre-requisite for protecting the
interest of various stakeholders, the policy planners have been failing
in putting the things in true perspective.
Private sector participation is needed because the
GoP does not have ample resources at its disposal. Besides, managing
production facilities is not the duty of the government. Only market
forces should be allowed to guide the investment.
The initiative of the current managers, to put
economy back on track, is supported by all. However, there are serious
apprehensions about the priorities, particularly privatization.
According to an analyst reiterating the
importance of privatization at this stage, is not required. The
financial condition of most of the state-owned enterprises clearly
demand that the GoP must get rid of these entities as early as possible.
The slogan of 'first restructuring and then sale' is a bogey which
should not be carried forward. The GoP has to express its commitment by
speedy and transparent privatization of a few entities. The interest was
visible when LPG business of Sui Southern Gas Company (SSGC) was offered
The other point to emphasise is that the GoP must
adhere to its announced schedule. There has to be a publicly disclosed
road map with time bound bench marks for measuring progress towards
The importance of proper legal framework cannot be
over emphasized. In a civilized society whenever differences arise they
are settled by referring to the law. Only following this practice can
restore confidence of investors.
Pakistan is not trying to reinvest the wheel. There
are ample evidences of successful privatization in other countries.