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Start of a new era or yet another display to keep the international lenders happy

By NADEEM NAQVI
The Author is Head of Research
 at Khadim Ali Shah Bukhari & Co.
Feb 19 - 25, 2001

Privatization is back in the headlines. Within a spate of a few weeks, we have had news of privatization plans for PTCL, PSO, PIA and an added sweetener via the sell off of the government stake in MCB. Is this a start of a bold new era of decisive action by the administration on this front, or are we witnessing yet another round of noises to make the IMF/ World Bank happy prior to the next review of the economic restructuring process by international lending agencies. The truth is anybody's guess. One thing seems clear though: the whole process of privatization still appears bogged down in legal, procedural and administrative details. The broad policy parameters are not even clearly spelt out. Sometimes we hear that various public sector entities will first be restructured and their earnings improved so that privatization can fetch a higher price. At other times six-month deadlines are announced for the final sell-off. In between, unanswered questions remain regarding regulatory frameworks in various sectors, pricing mechanism in the post privatization era, legal implications for any possible personnel retrenchment, position of intra public sector receivables and a host of issues concerning financial and organizational restructuring of the public sector corporations.

Recently, while waiting to meet the chairman of a public sector entity in Islamabad, we overheard a fascinating conversation between two gentlemen who were also in the waiting room. One person was lamenting that his son had still not got a job in the company despite phone calls having been arranged from two ministers. He appeared all the more upset because, according to him, several people from a neighbouring "bradari" secured jobs in the company over the last six months and he seemed to believe that it was the 'right' of his bradari to also get a job in the company. There was no mention of qualifications, skills or the job responsibilities. The entire fifteen minutes or so that we were there the discussion remained focused on the 'right' to get a job.

What we found amazing was the degree to which our population has been dissociated with a simple reality of life. To gain anything, effort must be expended, struggle and pain must be incurred there is no free lunch in life. On the other hand, we do not blame the above mentioned persons. For them, as for millions of us in the country, the reality has been so distorted that all of us collectively now believe that things should be handed over to us on a silver platter as of birthright. The mass nationalization, intervention of the government in every aspect of socio-economic activity, has drugged the population that something can be had for nothing. It is the prevalence of this "free-rider" culture that has done the greatest damage to us as a nation and as a society. In our view, the longer public ownership of economic entities continues, the more devastating will be the effect on the country.

We believe that the key issue is one of tackling the fundamentals. And the most fundamental issue, in our opinion, is to build a consensus about the question of privatization. In this regard, would it not be appropriate for the government to issue, for example, a "white paper", that describes the necessity and compulsions for privatization; that specifies the exact losses of each public sector entity, not just in P & L terms but also the opportunity cost in terms of inefficiency as well as overt and covert cost overruns as compared to regional / international concerns in similar industries; that deals with the important aspect of retraining and redeployment of potentially retrenched staff, including the issue of civil service rules versus private sector compensation packages; that covers regulatory and legal framework which would govern the privatized industries ensuring a balance between the demands of various constituencies; and other related issues.

If there is greater transparency about the exact amount of losses incurred by the public sector entities the average citizen and taxpayer who currently bears the burden of subsidizing these entities will become aware of the need to privatize and the speed with which this must be done. Unless such a holistic approach is adopted, the entrenched vested interests that have their hands in the honey pot of public assets will continue creating hurdles in the path of transition from an administered to a market driven economy.

We are not against economic planning, even at times sector directed economic policies. What we argue against is concentration of power in the hands of bureaucrats in allocating the precious few resources of the country. Beyond very broad policy level parameters, these powers are invariably abused and misused. Then a new constituency for accountability rises and that scares even honest personnel from taking any decision. The result is policy paralysis or worse, implementation paralysis as no one wants to take responsibility for any decision.

The way forward is to phase the process of privatization in a coherent and realistic order that allows for proper legal processes, regulatory

framework, any pre-privatization organizational and financial restructuring to be put in place before the unit is put up for sale. There needs to be a publicly disclosed road map with time bound benchmarks for measuring progress towards eventual sale. We cannot overemphasize the need for proper legal framework. In a civilized society differences (which invariably arise in any human endeavour) are settled by referring to the law. And the law must be clearly defined covering as many aspects of this process as possible. Only when this is done will the government, any government will have the ability to take bold decisions and move ahead with confidence. More important, only then will serious investors sit up and take notice and come forward to respond to privatization proposals.

We fully support the initiatives being taken by the current administration to restructure the economy and put it on sounder foundations from which to begin sustainable long-term growth. At the same time, we remain concerned the attention and priority that should be given to privatization does appear to be forthcoming. In our opinion, this is a critical plank of any policy aimed at reviving the economy and moving it towards its true potential. If this is not done, all other measures will end up becoming meaningless, as the rent-seekers will continue holding the productive segments of the population hostage to their tune. Proper allocation of resources to economically viable sectors will simply not accrue as changing and politically motivated ordinances destroy the signally mechanism in the economy as has been the case in the past. And the end result will be continued elusiveness of better future for the rest of the population.

SOEs for sale

BANKING AND FINANCE

Name of Institution

Type of sale

Allied Bank Limited (ABL)

Public offer

Muslim Commercial Bank (MCB)

Public offer

Habib Bank Limited (HBL)

Strategic sale

United Bank Limited (UBL)

Strategic sale

NIT/ICP

Auction of right to manage funds

National Bank of Pakistan (NBP)

Public offer

 


 

SOEs for sale

OIL AND GAS

Name of Institution

Type of sale

Working interest in 9 oil/gas fields

Auction

Pakistan Oilfields Limited (POL)

Public offer

Oil and Gas Development Corporation (OGDC)

Strategic sale

Pakistan Petroleum Limited (PPL)

Strategic sale

Attock Refinery Limited (ARL)

Public offer

Pakistan State Oil (PSO)

Strategic sale

SNGPL/SSGC

Strategic sale

National Refinery Limited (NRL)

Strategic sale

Working interest in 9 additional fields

Auction

 


 

SOEs for sale

COMMUNICATIONS AND INDUSTRY

Name of Institution

Type of sale

Pakistan Telecommunications Company Limited (PTCL)

Strategic sale

Pak-Saudi and Pak-Arab Fertilizers

Auction

Miscellaneous Industrial Units

Auction

 


 

SOEs for sale

INSURANCE AND AVIATION

Name of Institution

Type of sale

State Life Insurance Corporation (SLIC)

To be determined

Other insurance companies

To be determined

Pakistan International Airlines Corporation

Strategic sale

 


 

SOEs for sale

POWER

Name of Institution

Type of sale

Karachi Electric Supply Company (KESC)

Strategic sale

At least one other distribution company

Strategic sale

At least one generation company

Strategic sale