90 per cent of the privatization proceeds will be spent on debt retirement


Aug 28 - Sep 03, 2000

The Chairman Privatization Commission (PC) Mr. Altaf Saleem unfolded on Thursday the two year privatization policy covering the remaining slightly over two years of the tenure allowed by the Supreme Court to the present government. The policy approved at a joint meeting of the National Security Council and the federal cabinet a day earlier. The commission has prepared a list of 49 units which it intends to privatize during the next 2 years estimated to fetch over 4 billion US dollars.

According the new policy which has been enforced through an ordinance, 90 per cent of the privatization proceeds will be spent on debt retirement and the remaining 10 per cent on poverty alleviation programme.

"The privatization process will kick-off on August 24 with the sale of liquefied petroleum gas (LPG) business", Chairman of Privatization Commission, told a press conference adding that the government would not fix a benchmark price as the buyers would themselves determine the price of a unit in open competition. The new privatization law would give legal cover to transactions, protect the rights of buyers and consumers.

He unfolded present government's two-year privatization policy covering short-term and medium-term transactions. He also gave the names of 49 state-owned entities included in the two-year privatization plan. All 49 entities will not be completely sold. In certain cases we will sell only 25 per cent shares, in others 50 to 100 per cent, he explained to a questioner who believed earnings of four billion dollars were not a sufficient amount for all the 49 units. He said about a dozen units were expected to earn 75 per cent of the total proceeds while the remaining would fetch 25 per cent.

He said at least one entity would be put on sale every alternate month for price maximization. The plan is to start from small entities, to medium size and then to bigger ones to develop credibility. "During the process we will also judge the appetite of the market as well, " he said.

The Chairman told newsmen that the process would be completed in two years and a regulatory framework, to be announced shortly, would govern this process. The sale/disinvestment of utilities organizations would be covered by a regulator for price control, shares would be handed over to bidders with the debt burden, and benchmarks would be set for evaluation of the organizations and their shares, he said.

The financial and utilities organizations which are to be unloaded wholly or in part by December 2000 are: Allied Bank (disinvestment of 49 per cent shares); NBP, HBL, MCB and Sui Southern Gas Company (public offer); nine oil/gas fields (working interest); LPG and meter manufacturing units of the SSGC, SNGPL and PSO, POL, ARL (minority share-holding); PSO shares in PRL; and Pak-Saudi Fertilizers.

Industrial units are Pak Steel Fabricating, Suzuki Motorcycle Pak Ltd., Sindh Engineering, Kohinoor Oil Mills, Morafco Industries, A.C. Rohri Cement, Javedan Cement, Lyallpur Chemicals, Hazara Phosphate, Ravi Rayon, Larkana Sugar Mills, Shahdadkot Textile Mills, Talpur Textile Mills, Dir Forest Complex, PECO (Badami Bagh), and TDC Vehicle Engineering.

Besides, transactions envisaged to be undertaken during the medium-term privatization plan (ending on June 30, 2002) include telecommunication, financial/ banking, oil/gas, power/ electricity, insurance, industrial, etc.

The PC, Chairman claimed "our privatization plan is realistic and our calculations reasonable. There is every possibility that we would succeed in raising 4.50 billion dollars (against target of 4 billion dollars) by selling the public sector units". Saleem was pointed out that in view of the declining foreign investment over the last few years and reluctance of the local businessmen to invest in privatization plan which envisages to raise 4 billion dollars from the sale of 49 public sector units in a two-year phased programme appeared ambitious and unrealistic.

He said the commission had taken 6/7months to formulate the new plan announced on Thursday. "During this period, we have tried to frame and put in place a regulatory environment, restore investors' confidence and reform the economy to attract foreign investors. So one can guarantee the future but we are hopeful that our plan will succeed in achieving the target. But even if we succeed in raising 3 billion dollars, it will not be a small thing. We also hope that foreign investors will again come to Pakistan," he said.

The PC Chairman said the government also planned to sell at least 10 per cent shares of several public sector banks and utilities through stock exchanges to small investors. "We want to involve small investors in the privatization process apart from strategic buyers".

He did not agree with the critics of the Privatization programme, saying most public sector units had become unmanageable. He said the government had sold the Muslim Commercial Bank (MCB) in the early 1990 to private investors. "Since its privatization the bank has not retrenched a single employee and successfully expanded its network. On the other hand, the government had retrenched 10,000 employees from the two other banks Habib Bank Ltd and United Bank Ltd and injected an equity of Rs29 billion to stabilize them during the same period

Similarly, the government has so far injected Rs.29 billion in the Karachi Electric Supply Corporation (KESC) which still require an injection of Rs. 60 billion if it has to continue power supply to the people of Karachi. In these conditions, you can judge for yourself whether the government should keep these units or sell them," he said.

Mr. Altaf Saleem did not agree with the perception that pace of privatization had been extremely slow in Pakistan. He said that data on privatization over the past 6-7 years in the region indicated that Pakistan did not fare badly. Privatization worth 1.7 billion dollars was achieved by Pakistan in the period in comparison to 1.6 billion dollars by Thailand and 900 million dollars by Malaysia.

The minimum regional achievement was 1.5 billion, reflecting the performance of Pakistan on the positive side. He said that out of Rs.59.6 billion dollars worth of sale so far conducted, only Rs 2.5 billion was outstanding due to litigation. "That is not a discouraging performance," he remarked.

The following projects and organizations fall under the medium-term privatization plan; PTCL, Telephone Industries of Pakistan, CTI, HBL, UBL, First Women Bank, NIT, ICP, OGDC, Pakistan Gas Corporation, working interest in nine oil/gas fields (other than those included in the short term) Pakistan Petroleum, PSO, SNGPL, SSGC, KESC and the National Power Construction company.

The insurance companies to be disinvested under the long-term plan are; State Life Insurance and Pakistan Insurance Corporation. the industrial units listed under this plan are Pak-American Fertilizers, Pak-Arab Fertilizers, A&B Industrial Gases, Maqbool Oil Mills, E&M Oil Mills, Sargroh Vegetable Ghee Mills, Thatta Cement, Mustahkam Cement, Spinning Machinery, Republic Motors, Pak Motor Car Company, PECO (Kot Lakhpat), Harnai Woollen Mills, and Bolan and Lasbella Textile Mills. The list also includes Flattis Hotel, Lahore, and National Construction Company.