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Agenda for privatization

Broad policy parameters are not clearly spelt out

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 decision.

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 for sale.

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 eventual sale.

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.