Since its launch
in the early 1990, Pakistan's bid to privatize state-owned enterprises
has proceeded in fits and starts. Despite privatization being a
mantra for reducing the budget deficit and improving efficiency, until
2003 the country had only managed a couple of major deals though
successive government had sold well over 100 state-owned units to
private entrepreneurs in the past decade.
The first hallmark
deal was the issue of global depository receipts for 9.8 percent of
state-owned telecom monopoly PTCL and the sale of another two percent
stake in the local market in 1994, raising about US$900 million.
The second major
effort was the sale of a 26 percent strategic stake (followed by
another 10 percent) in the 1,600mw Kot Addu thermal power plant to
British conglomerate International Power for about $200 million.
privatization in banking and finance, energy and manufacturing
continued until 2002. In all, stakes in 121 companies were sold,
generating about $1.3 billion for the national coffers.
But in 2003, the
Privatization Commission made 697 million dollar or more than half of
its total achievements in 13 years, giving a strong boost to what was
looking like an extremely lacklustre programme. It's going on in
quite a swift way ever since.
However, a raft of
negative factors had been hobbling the commission. The absence of a
legal framework defining privatization's limits, some questionable
deals, frequent changes of government and the result confusion over
policy, all contributed to the drift. A deteriorating law and order
situation as well as strong resistance from unions and politicians
only made matter worse.
Power, for instance, had to fight a legal battle for over six years to
establish the legitimacy of its deal to buy into Kot Addu Power.
Several leaders of the commission faced lawsuits and charges of taking
kickbacks. Widespread pre-privatisation layoffs at overstaffed
organization cost former prime ministers Nawaz Sharif and Benazir
Bhutto much of their earlier popularity.
But with most of
the spadework having been done by the government so these two former
premiers, President Pervez Musharraf was able to move things along
after he seized power.
In 2000, the
government has promulgated an ordinance legitimizing the Privatisation
Commission and defining its power to assist the government in
formulating and implementing its divestment policy. In addition,
since the general election in October 2002, the present government has
announced a series of reforms that have furthered the deregulation and
privatization process and kickstarted the robust privatization.
In December 2003,
Pakistan sold a 51 percent stake in Habib Bank, the country's second
largest bank, to the Aga Khan Fund for $389 million.
While waiting for
foreign strategic investors to show interest in the assets on offer,
the commission improvised a way to implement the plan rapidly. It
decided to make initial public offerings to domestic investors. The
commission raised more than $83 million through the sale of a 5
percent stake in the country's largest hydrocarbon explorer, the Oil
and Gas Development Company. A larger, strategic stake could be sold
this year while another lot of shares is scheduled to be offered to
public. The Pakistanis went after vehemently when another such IPO of
Pakistan Petroleum Limited (PPL) was announced, which was heavily
oversubscribed. Now IPO of government shares in Kot Addu has created
unprecedented euphoria. The commission offered 20 percent shares of
the government to general public and these 317,000 shares are said to
be chased by the applicants four times bigger in number. This is a
great opportunity to take an ownership stake in a highly profitable
company with a long and respectable operational track record.
The total number
of small shareholders in different state-owned enterprises would reach
to over 0.7 million that itself is a hallmark for the country where
capital market had remained unreachable for a commoner.
This year could be
rated as year of privatization as bigger strategic deals are very much
in the sight. Though, only one considerable deal has been made —
Karachi Electric Supply Corporation — bigger offers are likely to come
during current fiscal.
The current year's
sales programme includes Pakistan State Oil, the country's largest oil
marketing company, with the planned transfer of a 51 percent
controlling stake and 51 percent stakes in PPL. The process to
privatize the Pakistan Telecommunication Company Limited (PTCL) will
begin after the company's restructuring, which is expected in one
With a long list
of public sector organizations to be privatized, the commission also
plans to sell Pakistan Steel, Pakistan International Airlines, and
other local giants. The country has committed itself to using 90
percent of the privatization proceeds to retire foreign debt of some
$35 billion. It would be intriguing to see whether the next public
sector upliftment budget would reflect it or not.