A DIFFICULT TASK
government should facilitate creation of facilities and abstain from
getting involved in production or services providing business
SHABBIR H. KAZMI
May 13 - 19, 2002
There are benefits and advantages of governments
indulging in establishing and managing industrial and/or commercial
activities. Over the last five decades the world has seen two
extremes, leaving all types of business activities at the discretion
of private sector and governments owning and operating industrial and
services providing entities. However, none of the systems have emerged
perfect. The sale of public sector units to private sector started in
late eighties as a global phenomenon. Pakistan is not trying to
re-invest the wheel. The economic managers can benefit a lot from the
experience of other countries and come up with a home-grown plan. The
process must be carried out expeditiously or the country will become a
victim of lost opportunities.
The process of liberalization, deregulation and
privatization initiated globally in eighties. Some of the countries
were able to complete the transition in smooth and swift way. Others
are still struggling. It is evident that those countries which
followed an elaborate and realistic strategy emerged successful.
Whereas, the countries lacking home-grown plan are not only still
struggling without such of success but have been facing the mishaps.
The present economic managers of Pakistan have also
prepared, an ambitious plan. Partly, it is home-grown plan and partly,
due to mounting pressure of donors. Despite their best efforts, they
have not achieved that they should be proud of. Going forward one
should try to find plausible explanation for some of the questions.
Can they be really blamed for lack of commitment? are they not making
enough efforts? Do they wish to achieve too much in too little time?
Do the prevailing global economic conditions allow the investors to
make mega investment decisions regarding emerging markets?
Before making any attempt to find out replies for
the above mentioned some of the questions, it is necessary to look
back at the past. Privatization was part of the three-pronged strategy
developed by the GoP in eighties, rather it was the third item on the
agenda. The top two were liberalization and deregulation. Under the
liberalization plan, some of the sectors where private sector was not
allowed to invest were opened for them, i.e. cement and power
generation. It was followed by deregulation policy — discontinuing
the mandatory GoP permission for the selection of plant location and
giving the opportunity to manufacturers to fix the prices of their
The objective behind liberalization and
deregulation, prior to commencement of process of privatization, was
to create regulatory environment to avoid exploitation of the
stakeholders. i.e. employees, customers, shareholders and financial
institutions. However, the process was bogged down to a large extent
because the bureaucracy was not ready to let its power go away so
conveniently. Private sector, which has been enjoying highest
protection also resisted introduction of market-based policies.
As regards privatization, the policy itself came
under tremendous criticism, both the management of state-owned
enterprises and the unions drawing strength from political parties
opposed the plan. It is still being said, "We cannot trust the
private sector because: 1) they do
not have the expertise, 2)
large-scale retrenchment of workers is feared, 3)
tax evasion will be high and 4) they will mint the profit through
price hike. Some of the apprehensions may have roots but others are
the outcome of diabolic thinking of the opponents of privatization to
safe-guard their strong holds.
The efforts of politicians, to malign the
opponents, was so vehement that at time national objectives were put
at stake. Three years long legal battle between WAPDA and HUBCO is the
glaring example. The others are dispute between WAPDA and KAPCO,
closure of National Fibres Limited, delay in corporatization of Power
Wing of WAPDA. Most of these were avoidable controversies but
propagated unnecessarily to attain political mileage.
Another, but important event which completely
halted the process of privatization, was imposition of economic
sanctions on Pakistan in May 1998. Then came the September 11 incident
and subsequent events in the region, particularly war in Afghanistan.
The world already suffering from recession, further plunged into
'synchronized global recession'. The investors are still involved in
struggle for their own existence. They have deferred most of their
future investment plans.
As regards efforts for privatization by the present
economic managers, Altaf M. Saleem, Federal Minister for
Privatization, announced the agenda in early 2001 (details available
in Pakistan & Gulf Economist issue number 8 of year 2001). He
explained the priorities and the strategy. This included: 1)
sale of shares with transfer of management, 2)
sale of remaining shares of the GoP in privatized units, 3)
financial restructuring of some units prior to offer for sale and 4)
even liquidation of some of the units economically unviable. The
September 11 incident not only tipsy tarvey the entire plan but may
take some time to remove the negative perception about Pakistan.
As the process is yet to gain momentum, it provides
an opportunity to re-examine the plan, re-arrange the priorities and
also arrange the road shows to show the credentials. It may be true
that pressure on Pakistan is mounting to contain losses being incurred
by state-owned enterprises, sale of profit making units only, should
be a source of concern. Another issue, lack of interest of first tier
global companies demand re-engineering of the whole process. The lack
of interest of first tier companies is evident from the response
received for the offer for sale of PTCL and KESC.
Some analysts term sale of PTCL, an effort to
encash the lost opportunity, at the best. Pakistan could not do this
when the market was ripe and investors were keen. At present most of
the leading global telecommunication companies are under excessive
pressure, fund managers are not ready to invest in the sector and
particularly in companies in the developing countries. Despite the
fact that PTCL offers incredibly attractive dividend yield, its share
have lost attraction for investors, at the best speculators are trying
to keep the interest live.
According to some analysts, "The present story
of privatization starts with PSO and also ends at PSO." Others
say, "Privatization Commission has done a marvelous job by
sale of 10 per cent shares of National Bank of Pakistan against an
offer of 5 per cent only, 2)
sale of Pak Saudi Fertilizer shares along with transfer of management
soliciting an attractive bid for Badin-I oilfield." They also
say, "Currently foreign investors have special interest in energy
related projects. Therefore, probability of soliciting attractive bids
for PSO, SSGC, SNGPL and OGDC is relatively high. The GoP must set the
ground ready for the bidding of these entities. These should not be
allowed to become the lost opportunity.
One of the factors which dampened prospects for
sale of companies belonging to power generation and oil and gas sector
was the delay in establishing sector related regulatory authorities.
Though, national Electric Power Regulatory Authority (NEPRA) was
formed years ago, there was a lot of criticism on its autonomy. The
GoP has established Gas Regulatory Authority (GRA), it has yet to play
its due role. Although, the GoP has been trying to deregulate POL
trade, the importance of an effective and autonomous concerned
authority cannot be undermined.
As regards privatization of power generation,
transmission and distribution companies, analysts have an advice for
the GoP. They say, "The GoP should not sell power generation
companies prior to the sale and transfer of management control of
transmission and distribution companies." Referring to the
experience of WAPDA and KESC they say, "These entities have
suffered the worst due to exceptionally high transmission and
distribution (T&D) losses, bulk of which comprise of outright
theft. It is also true that acute shortage of power generation gave
birth to IPPs and thermal power plants of WAPDA and KESC are less
However, higher than desired T&D losses are due
to overhead lines which proliferate electricity theft. Therefore, the
areas demanding immediate and large scale investment is distribution,
for upgradation of the network. The private sector can minimize the
theft by laying underground cable, additional investment would start
paying off immediately. The public sector electric power generation
efficiency could be improved by regular and timely maintenance and
In the past they had complaints like,
listed companies not making sufficient disclosure, 2)
poor level of corporate governance, 3)
insufficient laws and regulations to protect the interest of
small/minority shareholders, 4)
delays in transfer of shares and 5)
poor overall regulatory mechanism. Most of these complaints and
irritants have been removed to a large extent. There are ample
evidence that foreign fund managers have re-entered into Pakistan's
equities market with a greater confidence level. The successful sale
of shares of NBP paves way for divestment of remaining shares of
privatized banks through stock exchanges as well as sales of, at least
10 per cent shares of Habib Bank Limited and United Bank Limited.
The conditions may not be conducive for the
privatization, at least for the time being, but the nation cannot sit
with fingers crossed. All eyes are set at Privatization Commission.
The recent achievement have broken the ice. The negative perception
about Pakistan is also on the decline. Still a lot has to be done for
the removal of doubts and revival of the investors' confidence.
TRANSACTIONS ENVISAGED TO BE UNDERTAKEN
Pakistan Telecommunication Company Limited
Habib Bank Ltd. (HBL)
United Bank Ltd. (UBL)
Public offer of various entities including:
NBP, HBL, MCB
Monitory share-holding: POL, ARL
Divestment of 49% shares in ABL
OIL AND GAS
Working interest in oil/ gas fields (namely
Badin-I, Minwal, Turkwal and Mazarani)
(Bidding already held. Results under process).
Working interest in nine oil/ gas fields (namely Sawan,
Zamzama, Bhit, Chacher, Kandra, Tando Allah Yar, Zarghun South
Jhakra and Bhadra).
Oil & Gas Development Co. Ltd.
Pakistan Petroleum Ltd.
Pakistan State Oil
Sui Southern Gas Pipelines Ltd. (SNGPL)
Sui Southern Gas Company (SSGC)
Karachi Electric Supply Co.
National Power Construction Co.
State Life Insurance Corporation (SLIC)
Pakistan Insurance Corporation (PIC)
A.C. Rohri Cement
Sind Engineering Limited
PECO (Badami Bagh)
Pak-American Fertilizer Ltd.
Pak-Arab Fertilizer Ltd.
Republic Motors Ltd.
PECO (Kot Lakhpat)
Bolan and Lasbella Textile Mills
Faletti's Hotel, Lahore
Malam Jabba Resort Limited
National Construction Company.