The divestment strategy is paying off but finding the strategic buyer is more important


May 10 - 16, 2004





The overwhelming response received by the public offer of shares of Oil & Gas Development Company (OGDC) and Sui Southern Gas Company (SSGC) has created records. Keeping in view the response, the expectations were that shares of Pakistan International Airlines (PIA) and Pakistan Petroleum Limited (PPL) would also be offered before June 30, 2004. However, it seems that the offer has been deferred, at least for the time being.

The reason for the complacency seems to be above expectation response to these transactions as well as offer for the sale of 51% shares of Habib Bank (HBL). While experts have contradictory views regarding the bid accepted by Privatization Commission, some analysts say, "It was not too bad a deal keeping in view the bid accepted for United Bank (UBL)".

Dr Abdul Hafeez Sheikh, Minister for Privatization and Investment has often reiterated the GoP stance regarding its privatization plan. The GoP is following two-pronged policy making efforts for sale of strategic stake along with transfer of management control and divestment of shares of state-owned enterprises through stock exchanges. The Minister has pronounced the divestment policy being followed by the GoP 'Privatization for People'. However, some of the analysts strongly believe that the policy may help the GoP to sell part of its stake in the state-owned enterprises but need of the hour is to improve franchise value of these entities which cannot be achieved without transfer of management of these companies to private sector.

The GoP is expected to offer shares of PIA, PPL, Kot Addu Power Company (KAPCO) during the next financial year. According to an analyst, "All these entities can be termed 'blue chip' offer for sale of shares is expected to receive. However, the growing concern is that PIA has not declared any dividend for the last several years. If its name is transferred to 'Defaulters Counter' it may jeopardize the plan. Therefore, the GoP has to ensure that PIA declares dividend for the financial year 2004, even though symbolic only".

However, prospects of privatization of Pakistan State Oil Company (PSO), Pakistan Telecommunication Company (PTCL) Karachi Electricity Supply Corporation (KESC) and corporatize entities of Power Wing of WAPDA in the near future remain bleak. The only feeling one tends to get is that the GoP still lacks will for selling these entities. Even if the GoP is serious it has not been able to show its firm commitment, at least by act.

According to an analyst, "In order to keep the interest of prospective bidders live in case of PSO, fabulous dividend is paid every year. To ensure this, a significantly high profit has to be posted at the cost of POL users. Over the years, the GoP has been able to get twin benefits, collection of colossal tax and benefit of dividend. While the GoP has not succeeded in selling the entity, the POL consumers have been fleeced."

In an attempt to keep KESC 'live' the GoP has undertaken various financial restructurings as well as injection of fresh funds but losses keep on mounting. According to an analyst, KESC suffers from two serious problems entirely dependent on thermal power generation and huge T&D losses. Unless these two issues are resolved injections of billions of rupees cannot make it economically viable entity.



As regards corporatized entities of Power Wing of WAPDA it is sufficient to say that the status quo prevails only due to lack of commitment. Initially the process of restructuring took more than desired time and even when the entities were created their annual accounts could never be prepared in time. If the financial statements are not available, how can the GoP expect any buyer to take any interest in these entities?


One must accept the fact that initially the process of privatization was imposed on Pakistan by the multilateral donors and the resistance was natural. Privatization was initiated to achieve two objectives retirement of debt and making the public sector entities efficient. Over the one and a half decade the situation has changed completely. The issue of retirement of debt has become irrelevant to a large extent and some improvement has been attained in the performance of public sector entities. Therefore, now a homegrown plan has to be prepared and pursued.

The facets of homegrown plan are evident and the GoP has also established its commitment, to some extent. However, at times emergence of inter-ministerial disputes and delay in resolving the issues give an impression that the government lacks commitment. It is also true that external factors have also adversely impacted the process.

At this juncture some difficult decisions have to be made. The prospects get bleak only due to uncertainty. Only coming up with firm plans and following the deadlines can remove the uncertainty. If the Commission can sell off UBL and HBL it can also find credible buyers for PSO and PTCL.