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
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
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
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.