Privatization yields Rs50 billion to government during 18 months



Oct 11 - 17, 2004




The accelerated pace of privatization of the government share holdings in the public sector entities helped earning about Rs50 billion during last one and half year.

Benefits of the privatization were equally shared by the people, especially the small investors, who according to an estimate earned a profit worth Rs10 billion during the said period.

According to official figures, over 400,000 people participated in the process of privatization of the government owned corporations through stock exchange which speaks about the slogan given by the privatization commission i.e.  "privatization for the people".

The participation of the people at such a massive scale helped appreciation in the shares to the tune of Rs10 billion  which resultantly the small investors benefited by Rs10 billion through the process. This exercise no doubt has created a sense of participation among the people at grass root level who are now eagerly looking for the next public offering for 20 percent shares of Kot Addu Electric Power Company (KEPCO). Actually, the ministry of privatization plans to offer 10 percent of KEPCO shares to the public probably after the Holy month of Ramazan, however, if the public offering oversubscribed which is certainly going to be, another 10 percent shares would also be given by applying the green shoe option to accommodate the maximum number of the subscribers.


Besides the public offering of Kot Addu, the shares of the State Life Insurance Corporation and the United Bank Limited are also in line for public offerings which are expected to give more spark to the stock market which has gone through a phase of depression last month.

According to plans, shares of Pak Arab Fertilizer and Carrier Telephone Industry (CTI) a subsidiary of the PTCL would also be offered later this year.

Meanwhile, the Privatization Commission has announced December 6, 2004 as the bidding date for the privatization of KESC. The decision for privatization on December 6 was taken at the pre-bidding meeting for the KESC which was held in Islamabad last week. The pre-bid conference was held to facilitate bidders for better understanding of the transaction and the process so that they are in a better position to decide on the bid documents and bidding schedule.

At present, all corners in the KESC are being rounded to the satisfaction of the three short listed buyers. If the transaction of the KESC goes according to schedule it would be a landmark in the power sector of the country. It is expected that transfer of the KESC into private hands would not only set the scene for a rapid turnaround of the utility company but would bring significant investment in the infrastructure of Karachi.

The potential bidders have already completed the initial due diligence of the transaction and were now busy in completing the bidding documents before the deadline of December 6.

The transaction structure of the KESC involves the sale of 51-74 percent ordinary shares of the KESC with an innovative rights issue of cumulative redeemable, preference shares to secure Rs6 billion additional funding to support the continued turnaround at KESC.

However, the government plans to retain 25 percent stake in the KESC for the time being to ensure commitment as a measure of comfort to the prospective buyer of the KESC.

In addition, the Asian Development Bank has indicated its willingness to acquire a 6.7 percent stake alongside the successful bidder and may also provide additional funding for the turn around.

The interest shown by the Asian Development Bank in holding a considerable size of shares in KESC may be taken as a strong indicator for the forthcoming turnaround in the KESC as such participation sometimes proves to be a windfall for the investors. The International Finanance Corporation (IFC), which had a considerable amount of shares in PPL has already benefited with huge profits for holding PPL shares.

The privatization of the KESC is going to be a big event in the energy sector of Pakistan which is expected to encourage foreign investment at a much accelerate pace in the country.

At present the utility company has to suffer around 38 percent of line losses due to power theft in the distribution system of the KESC. A loss of 38 percent means a huge loss which according to an estimate runs over Rs17 billion a year. If the private sector management succeeded in plugging even half of the leakage the entire loss would turn into profits making KESC a goldmine for the successful bidder. The power theft at such a massive scale cannot be transpired without the connivance of the KESC staff to a great extent. The private sector management would have its own parameters to check the loyalty of the employees with the organization. It is generally felt that the incidence of the power theft would shrink to a great extent soon after the change of hands take place in the KESC management. Hopefully, the government would protect the interest of the consumers by having a lever in its hands to bring down the electricity prices to an affordable level for the general consumers. Currently, the electricity price is so high in Pakistan that it has caused a serious erosion in the kitchen budget of the common man on one hand while the high rate of electricity has also caused a stagnant effect on the saving and investment conditions in the overall economic scenario of the country.