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 utilized?

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 justify it?

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 correct?

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

YEAR

Equity injected

1998

21.0

2001

7.9

TOTAL

28.9

 

HABIB BANK LIMITED (HBL)
Rupees in Billions

YEAR

Equity injected

1998

9.7

2001

8.0

TOTAL

17.7

The position of financial restructuring of KESC is as under:

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.