The successive governments, including the present
one, have expressed their firm commitment to pursue privatization
policy. The review of the performance of present regime shows that it
has not been able to conclude any major transaction as yet. There is
need to find out the reasons for the slow pace. Is it due to lack of
commitment or are there other factors impending the process?
Before going further, it is important to note that
since 9/11 almost all the countries are suffering from synchronized
recession. The investment priorities have changed and investors from
developed economies have hardly any interest in emerging markets.
Despite showing robust growth in the post 9/11 era, Pakistan has not
succeeded in attracting the investment it should have received
Some analysts say that the GoP is fully committed
but internal and external events continue to disrupt the process.
However, some analysts still believe that the GoP has not been able to
establish its firm commitment to the process of privatization. To
establish their point they refer to the GoP's plan of divestment
through stock exchanges. While the GoP may have continued exploring
credible strategic investors, it should have enlisted all the
state-owned enterprises on local stock exchanges and offers 5-10 per
cent shares of these entities to general public.
Bidding for Pakistan State Oil Company (PSO) has
been delayed because of a number of internal and external factors.
Initially, the bidders were seeking clarification regarding the
receivable from WAPDA and others. Then one of the local bidders and a
bidder from Middle East plunged into their own internal crises.
However, the key issue has been the resistance against sale of this
strategic asset to foreign investors. It is also being said that to
attract the bidders the GoP took various measures to enhance its
The due diligence for privatization of Pakistan
Telecommunication Company (PTCL) was expected to commence after the
announcement of the deregulation policy for the sector. Some analysts
fear that strategic investors may not be as interested in the company
as they were prior to announcement of the policy. One of the key
reasons for delay in privatization of PTCL is that now strategic
investors have hardly any interest in investing in telecommunication
The GoP is serious in privatization of Habib Bank (HBL).
Reportedly 18 bidders have submitted Expression of Interest (EoIs).
However, it is understood that the biggest hurdle in this transaction
is lack of interest of strategic buyers having the strength to
takeover the bank of this magnitude. Agha Khan Foundation (AKF) is
said to be the only potential buyer. Some of the analysts say,
"If HBL is privatized it will only be sold to AKF."
Though, the GoP is bent upon to privatize (KESC)
due to pressure from multilateral lenders it seems to be the most
difficult transaction. The issue is not its size but very high
transmission and distribution (T&D) losses. Some analysts say that
prospective buyers are not sure that they can overcome this issue.
Whereas, some analysts say, "It may be a long process but new
buyer can overcome T&D losses provided it ensures uninterrupted
supply of electricity at affordable rate and weed out the protectors
of 'Kunda Mafia' prevailing over the KESC management.
Theoretically, privatization of Sui Twins should
not be difficult, as they do not suffer from the problems most common
in other public sector entities. However, it is believed that the GoP
was never serious in privatization of these two entities. Some
analysts say, "To further delay the privatization the 'wizkids'
have suggested to the GoP to un-bundle the two gas distribution
companies, SSGC and SNGPL, prior to their privatization. In their
views un-bundling can ensure swift privatization". Whereas most
of the analysts believe that un-bundling is a long procedure and may
take two to three years.
Reportedly Privatization Commission has received 8
SoQs for Jamshoro and presently busy in evaluating 3 of these. Some
analysts do not support the policy of privatization of power
generation companies unless transmission and distribution companies
are privatized. The strategic buyers may be more than keen in taking
over power generation companies but this will only add to the losses
of distribution companies operating in the public sector.
Faisalabad Electricity Supply Company (FESCO) is
the only distribution entity being offered for sale. Reportedly the
Commission got 8 EoIs and 4 parties have filed SoQs. This company was
previously known as Faisalabad Electricity Board. This has been
privatization list for nearly a decade. International Finance
Corporation (IFC) has been advising the GoP on this transaction. Some
analysts say, "This transaction cannot been completed only
because WAPDA has been resisting the sale of its best performing
The GoP announced further divestment of shares of
PIA, SSGC and NBP. It also said that OGDC would be listed and its 5-10
per cent shares would be offered to public. The GoP plans to mobilize
Rs 4 billion from sale of shares of these companies within the first
quarter of current financial year. However, the dates for public offer
have not been announced as yet. Doesn't this indicate lack of