The GoP must prove by acts that it is serious


Sep 01 - 07, 2003



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 otherwise.

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 profit.

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 sector.

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 entity".



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 commitment?