The existing privatization programme is progressing
satisfactorily. During 1991 to October, 2002, 128 privatization
transactions had been completed and proceeds of Rs.94,170.2 million were
realized. This includes 22 transactions for Rs.35 billion for the period
from October 1999 to October, 2002. In addition, 15 industrial units
were excluded from the Privatization Programme either for liquidation
purpose or being non-privatizable. Upon change of Government in
November, 2002, Dr. Abdul Hafeez Shaikh was appointed as Advisor to the
Prime Minister on Board of Investment and Privatization and subsequently
inducted in the Cabinet as Minister for Privatization. The CCOP was
reconstituted on 3rd February, 2003. The Board of the Privatization
Commission was re-constituted on 19th March, 2003. During the period
from November, 2002 to 9th May, 2003, 3,683,600 shares of ARL were sold
through stock exchange by means of CDC for gross proceeds of Rs. 337.429
million. Similarly 3,070,000 shares of D.G. Khan Cement were sold for
gross proceeds of Rs.41.719 million upto 3rd January, 2003. 20,190,800
shares of POL have been sold for gross proceeds of Rs 3.376 billion upto
9th May, 2003 and the process is on-going. In addition, the bidding for
transfer of management rights of ICP SEMF was held, bidding results
approved and the rights transferred for proceeds of Rs.786.786 million.
PAGE wanted to publish comprehensive report in its
Annual 2003 on Privatization Commission, its past performance and future
programme. In order to have the version of the Commission on the various
questions. PAGE requested the Minister for Privatization and Investment
for an interview. Alongwith the letter, seven specific questions were
also sent as a pre-information of the trend of interview. Perhaps too
busy, the Minister could not spare time for the interview but replies to
six question were received from his office.
Following is the brief write up and replies to the
questions received from the Privatization Commission.
Q: The privatization process started on 1991. Since
then, how many units (list) have been privatized (year wise) with the
total amount of sale proceeds? How and where this money has been
A: 132 units were sold/transactions completed
during the period 1991 to May 16, 2003 for Rs.99,338 million.
Q: The speed of privatization is slow. Targets fixed
from time to time are not being achieved, PC annual report 2002 enlisted
20 units for the year 2003. Only one has been disposed off till today.
What are the reasons? In your recent meeting you identified 30 units.
How long will it take to dispose them off?
A: Privatization of major units such as utilities
requires a stable and attractive investment climate, appropriate pricing
policies, and adequate regulatory frameworks. It also requires support
from the relevant ministry, the relevant regulator, and the management
of the entity being privatized. These take time to build up. Absence of
these factors has made it difficult to close major privatization
transactions. The problems have been exacerbated by excessive
litigation. To overcome these factors, GOP took several measures to
improve the enabling environment and enhance transparency. The measure
include the restructuring and strengthening the Privatization Commission
by promulgation of Privatization Commission Ordinance 2000, establishing
and strengthening of regulatory framework, deregulation. It was
rewarding for its attempts by many expressions of interest for some
large transactions last summer. However, the disruptions following the
September 11 events again made most investors shy away, forcing
postponement of number of transactions at the request of bidders.
Preparations for major transactions are, however, largely on track.
Q: PC should concentrate on selling units causing
losses (about 100 billion annually) but focus seems to be on disposal of
profitable units like PTCL, PSO, OGDC etc. Why is it so and how will you
A: Our long-term vision is a government that
focuses on good governance and regulation, while fostering conditions
that provide incentives for the private sector to invest in providing
goods and services efficiently. Direct participation of the Government
in commercial activities should progressively reduce. In this regard the
Government should focus on two broad areas. First, building up a stable
governance and environment that encourages investment but, at the same
time, safeguards the public interest through a regulatory framework in
case of key areas such as power, telecommunication, oil & gas and
transport sectors. Second, helping to create a suitable physical and
technological infrastructure required for the unhindered economic
development of our rapidly growing society. Accordingly, privatization
is a matter of principled ideology rather than a matter of expediency.
The Government does not differentiate between
specific transactions as loss making or profit making when mapping its
Privatization Programme. Notwithstanding the above, it is also wrong to
say that the Privatization Program is focused on profitable units and
not loss making units. There are many units like Karachi Electric Supply
Company, Karachi Shipyard and Engineering Works and National
Construction, which are either loss making or dependent upon
Government's subsidies and assistance for their continued survival.
Also while some of the companies on the Privatization
Programme may be currently profitable, this is not surprising given that
they are operating in a monopoly environment and /or in an era of
attractive oil prices. In fact, some of these companies have failed to
provide services demanded by consumers at reasonable cost and fail to
live up to their potential in terms of the level of production and
profits. Privatization, when accompanied by the transfer of management
control and prudent regulation, can change this. It can overcome
constraints brought about by bureaucratic interference and processes. It
can provide an impetus to deregulation and competition, reduce
cross-subsidies, bring in new management and capital, and facilitate the
introduction of new technology. It can also strengthen public finances
by a combination of reducing losses, enhancing taxes from increased
profits, and Privatization proceeds.
Privatization would also send a strong signal to
investors of the Government's faith in the private sector to generate
economic growth and productive employment. International investors, in
particular, view Privatization as a principal proxy of the seriousness
of a government's reform programme. An improved business climate would
bring in new investment, potentially reversing the capital flight that
has occurred in recent years.
Efficient enterprises providing enhanced quality and
quantity of goods and services, safeguard the security and national
interests of the country more effectively than inefficient and loss
making public enterprises. Worldwide experience has shown private
companies to be more efficient than public ones. The incentives all work
towards having greater efficiency in the private sector.
Although such companies are profitable now, there is
no guarantee that they will remain profitable if oil prices were to go
into a slump, or if future governments interfere in the operations of
the companies. Many of today's loss making public enterprises were once
profitable. However, even if one could be assured that the companies
would continue making profits, the Government is likely to receive more
fiscal revenues if the companies were privatized, mainly because the
private company is likely to make higher profits. Moreover, government
policy makers would then be free to set policies and govern rather than
be involved in management decisions of the companies.
Q: There are reports that there is some rethinking on
the privatization of PTCL which has shown huge operational profit this
year. It is stated that the Ministry of Science and Technology has asked
to defer the Privatization Programme of PTCL. How far these reports are
A: The Government is fully committed to the
privatization of PTCL. The Ministry of Science and Technology, Ministry
of Privatization and all other agencies of the Government have a
complete consensus in this regard. However, it is the government's
endeavor that during the privatization process, the national interests
are fully safeguarded and that the units are privatized and handed over
to investors who have the capacity to run and manage these units in an
efficient and effective manner. These interests will not be sacrificed
for the sake of mere expediency. While it will be the endeavor of the
government to speed up the Privatization process, it will ensure that
all national and strategic interests are protected before privatization.
The Privatization of an entity like PTCL requires
sensitive decisions on pricing, restructuring and rightsizing. As such a
lot of preparatory work needs to be done in the form of improving the
enabling environment and establishing and strengthening regulatory
framework. This is being undertaken in consultation with all the
relevant stakeholders including the Ministry of Science and Technology.
Q: How much money was/has been spent on making UBL,
HBL and KESC to make them worthwhile to attract investors.
A: The details of equity injection in HBL and UBL
to date by the SBP is as under:
UNITED BANK LIMITED (UBL)
Rupees in Billions
HABIB BANK LIMITED (HBL)
Rupees in Billions
The position of financial restructuring of KESC is as
A debt for equity swap totaling Rs.83 billion has
been completed and capital reduction for Rs.57 billion has been approved
by the ECC and KESC shareholders. Petition on capital reduction was
filed with the Sindh High Court on 3rd September, 2002 and the Court
granted the petition on 11th October, 2002. Good progress has been made
in preparing the company for privatization.
Q: Despite all claims and rhetoric investment, both
foreign and domestic is not picking up. Whatever little has come is in
the lucrative sector of oil and gas — that too from those who are
already operating in Pakistan. New investors are rare despite various
incentives being offered by the government. Why? How you propose to deal
with the situation?
A: Investment requires doing "many things
right" rather than one or two steps and that is why historically
Pakistan has not been able to attract such investment. However, this
trend appears to be changing. While average FDI during the last 15 years
has been less than half a billion dollar a year, this year the figures
have already surpassed $ 700 million, and we expect further increases.
In general, existing investors have to come forward first before
newcomers come in and this also has begun taking place in Pakistan. Due
to the improved macro economic environment, stable and consistent
policies and now the renewed focus on investment alongwith better
regional situation, investment in Pakistan has begun to rise. The
Government has to keep referring its policies and improve facilitation,
bringing the cost of doing business down (as in the case of interest
rates) and highlight the achievements of better performing companies in
Pakistan and improve country image. All these steps are being worked on
and the BOI is being made more effective.