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Oct 15 - 21, 2001

The privatization programme of the government of Pakistan is yet another sector which has received a serious set back in the aftermath of Sept. 11 scenario and US attack on Afghanistan. As a result, Pakistan recession hit economy is heading for another shock as it faces a shortfall of about 600 to 700 million US dollars due to withdrawal of interested foreign investors from the race to bid for giant public sector enterprises such as PTCL, UBL and nine oil and gas fields which were scheduled to be privatized by end December this year.

The Minister for Privatization Mr. Altaf Saleem has send that the forthcoming transactions involving foreign investors have been put on hold because of the Afghanistan situation which means the country could loose, for the time being $ 600 to 700 million from total of $ 1 billion that was expected from privatization proceeds this calendar year. He said the Privatization Commission (PC) will go ahead with the transactions that involved the local investors but the ones in which foreign investors had given expressions of interest might be delayed. The major transactions plan to be offered to the investors by the end of this year were the Pakistan Telecommunication Company Limited (PTCL), nine oil and gas fields, United Bank Limited (UBL), the National Investment Trust (NIT) and the Pak-Saudi Fertilizer Company

The PTCL and nine oil and gas fields could possibly go beyond the December deadline because of the situation, which he said came at the "wrong time" because the commission was planning key transactions between October and December. "Let us hope the present situation is short lived" he added while talking informally to newsmen at a diplomatic function.

Most interested investors in the sale proceeds of major entities have cancelled their visits to Islamabad in view of the US attack against Afghanistan, sources further said. The ongoing crisis will have an adverse impact on the present government's endeavours to sell these entities to private sector during the current fiscal year. According to action plan prepared by the Planning Commission Pakistan expects that the privatization proceeds may reach Rs. 200 billion over the next three years.

"But the entire exercise of the government to accomplish certain transactions within this calendar year will be in doldrums as parties interested to buy PTCL and the nine oil and gas fields have cancelled their visits in view of war breaking out in the region", the sources said. The foreign investors cannot visit Islamabad in the prevailing situation and they have apprised the Privatization Ministry about their cancellation plans. It is not known exactly when would they be able to reschedule their visit to participate in the important sale process.

The economic managers of Pakistan have been trying to kick-start the derailed economy but, known as they are for setting unrealistic targets, their efforts relating to privatization process were among the ambitious targets. The government has yet to make any significant achievement in this connections and most of the last two years were spent in providing legal cover to this whole process. The government succeeded to promulgate an ordinance in this regard. "We intend to increase the pace of the process in the current fiscal year and a schedule has been finalized of major transactions but the prevailing situation has created impediments in the way of achieving the desired results, an official said. The official said. "No one will be ready to come in Pakistan until the hovering clouds of war are removed".

The Cabinet committee on Privatization (CCOP) which met in Islamabad last week, took stock of the present situation. The meeting which was presided over by the Finance Minister Shaukat Aziz however, asked the PC to go ahead with the transactions where foreign investors were not involved which included off loading of 14 million shares of MCB, 49 per cent shares of Allied Bank, 30 per cent shares of Bank Alflah, (formerly Habib Credit & Exchange Bank). The CCOP also directed the Privatization Commission to expedite the processing of the public sale offer of 10 per cent shares of National Bank of Pakistan at par value and thereby to pave the way for the listing of the NBP in the stock market so that the general investing public is benefited from participation as shareholders of this major bank of the country. Additionally, go-ahead was given for the sale of the minority working interest of the government in the oil and gas fields, and the privatization of Pak-Saudi Fertilizer Company, Jamshoro Power Company Limited and Faisalabad Electric Supply Company Limited was also included in the ongoing programme.

While fully agreeing that privatization programme should continue, the independent economists are, however, of the view that entire process should be put on hold for the time being in view of the recent development in the region. At the present juncture the investors' confidence in the stock market stands shattered and equity values are moving on a slippery path for reasons which have originated largely from external events following the terror attacks in New York and Washington. The subsequent military buildup by the US and other nations to make Afghanistan the first target in the war against terrorists is further likely to prolong the prevailing uncertainties around Pakistan's economic activity in general and the capital market/stock market in particular. In this context, the directives of the CCOP to the Privatization Commission appears to be rather ill-timed. It is well-known that privatization is very much a part of investment activity. When the investment climate is bleak due to unexpected circumstances which cannot be brought under control through any measures by the government, the only alternative would be to way for the clearance of the clouds of uncertainties from the investment marke. Any hasty steps by the Privatization Commission can hardly be expected to receive the desired response from the potential investors or buyers of the government shareholdings in the state-owned enterprises.