Deal of Pakistan Steel declared nul and void

SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
July 03 - July 09, 2006

In a landmark judgment announced on June 23, 2006, the full bench of the Supreme Court comprised of nine judges and headed by the Chief Justice Iftikhar Ahmed Chaudhry, unanimously decided to stop the sale of Pakistan Steel Mills by declaring it as unconstitutional and illegal.

Disposing of petitions filed by the Wattan Party and the Pakistan Steel Mills Peoples Workers Union challenging the privatisation of PSML, the Supreme Court directed the government to refer the matter to the Council of Common Interests (CCI); the court also directed the federal government to make the CCI functional within six weeks to finalize policy issues.

The Court said: "Conscious of the mandate of Articles 153 and 154 of the constitution, we hold that the establishment and working of the Council of common Interests is a cornerstone of the federal structure important institutions is not functioning presently, and taking note of the statement of Advocate Abdul Hafeez Pirzada, who is representing the federal government, that the process for making it functional is underway, we direct the federal government to do the needful expeditiously as far as possible but not later than six weeks".

The Court said: "The approval for the privatisation of PSM by the CCI on May 29, 1997 continues to hold the field. In view of the developments that have taken place during the intervening period and the divergent stand taken by the counsel for the federal government that this approval was never recalled and the stand taken by the steel mills' counsel that the matter of its privatisation was dropped subsequently, it would be in order if the matter is referred to the CCI for consideration".

In its short order issued after a four week hearing of the petitions, the Court observed: "While exercising the power of judicial review, it is not the function of this court, ordinarily, to interfere in the policy making domain of the Executive, which in the instant case is relatable to the privatisation of state owned projects, as it has its own merits reflected in the economic indicators". However, the Court said in its ruling that in PSM's case, the privatisation process had been "vitiated by the legal violations by the state functionaries, including acts of omission and commission". It said that the government was giving " extra benefits to the successful bidders".

The court said the transaction had caused a loss of Rs.18 billion to the government. The order noted that the Privatisation Commission had extended extra benefits to the purchasers, including handing over Rs. 10 billion worth of stock in trade in the PSM units to the purchasers and cash amounting o RS. 8.599 billion lying in PSM's bank accounts - out of which post dated cheques for about 7.67 billion had already been issued to clear the liability of loans, which were due from the year 2013 to 2019. Also, a tax liability Rs. 3 billion has already been paid, out of which Rs. 1 billion would have been refunded to the purchaser on taking over the unit.

The undue haste and the deviations from the terms and conditions of the initial public offering that marked the sale of PSMC had led to a hue and cry across the length and breadth of the country. Not only the political opponents of the government cried foul but apolitical elements within the civil society were also at a loss to comprehend the merits and bonafide of the sale transaction. The employees' Collective Bargaining Agent (CBA) of the OSMC had moved the honorable Sindh High Court for annulment of the sale transaction but failed to get relief on the ground at the Sindh government had agreed to the transaction. Thereafter, the CBA moved the highest appellate court for redress.

Some well-known heavy weights of the bar appeared on behalf of the federal government, the buyers and the Privatisation Commission. They, however, failed to convince the court with regard to the transparency and bonafide of the transaction. The lack of coordination amongst the counsels was noticeably obvious during the four-week proceedings of the case. Even, simple questions from the bench such as what was the legal position of a consortium under the Pakistan Companies Law went a begging. The going abroad of the leading counsel representing the buyers, a prominent member of the bar, while court proceedings were still in progress, left many dumbfounded and remains inexplicable to this day. The submissions of the PSMC management and the documents submitted by it in the court did not support and at times undermined the pleadings of the government and the Privatisation Commission's counsels.

It is good on the part of the government that no less as person than the Prime Minister himself has declared that the decision of the Supreme Court would be adhered to in letter and spirit. He, however, claimed that the judgment has not caused any set back to the process of privatisation. He appeared confident that the deal would be approved by the Council of Common Interest for which nomination have been finalized and sent to President for final approval.

While government functionaries are putting on a brave face and seem confident that the Council of Common Interests, when constituted, would approve the privatisation of Pakistan Steel, independent observers feel that the aftershocks of the Supreme Court judgment on Pakistan Steel Mils deal would reverberate through the economy. A realistic view is that privatisation process might not be derailed but would definitely slow down. And, this may have adverse repercussions for the budget and the economy.

In 2005-06, privatisation proceeds played a key role in keeping the fiscal and current account deficit within targets. And for 2006-07, the government is again banking upon privatisation receipts to keep the deficits within manageable limits. The privatisation of government-managed entities has all along been a divisive issue among the politicians and the economic managers.

The CCI has met six times in the last 33 years. The Supreme Court has said that CCI is a comerstone of protection to the rights of the federating units.

At the same time, the Supreme Court says that the approval for the Privatisation of Pakistan Steel by CCI on May 29, 1997 continues to hold the field. But the counsel for the Federation, Hafeez Pirzada, and the counsel for Pakistan Steel, Wasim Sajjad, have taken divergent stands. While one says that CCI approval to privatize Pakistan Steel still stands, the other said that the matter was dropped subsequently; therefore it would be appropriate that the matter be referred to CCI for a consideration. Further, the court says that the Privatization Commission Ordinance of 2000 is not ultra virus of the constitution. Many lawyers are interpreting this that past and closed (privatisation) transactions are safe. But others are of the opinion that the privatisation of KESC, Habib Bank and PTCL would be impacted by judgment on Pakistan Steel.

The Supreme Court, while upholding executive's authority to privatize state enterprises, says that it would exercise the power of judicial review and felt that certain acts of omissions and commissions of functionaries vitiated the process of privatisation of Pakistan Steel. The Supreme Court is likely to go into these acts of omission and commission is its detailed judgment. However, the short order does point out to certain glaring anomalies. The Cabinet Committee on Privatisation (CCOP) had reduced the reference price to Rs. 16.18 per share despite the fact that Privatisation Commission had recommended value of Rs. 17.43 per share.

According to observers, the government apparently looks the cased in the Supreme Court lightly and felt that junior lawyers were no matches to heavyweights on their side. The Supreme Court's emphasis to notify the CCI and hold it's meeting instead of the Federal Cabinet taking decision on its behalf is what the Constitution contemplates. It will be the forum for provinces to challenge the unilateral decisions by federal government and exercise their economic rights. Will foreign investors be nervous if not sacred by the controversy and allegations of non-transparency - will depend on how the fallout is handled.

In any case, however, the Supreme Court unanimous and historic judgment must have woken up the government functionaries from the state of complacency, the verdict of the apex court has been widely hailed in the media and evoked people appreciation. Obviously the opposition parties, who had been alleging underhand dealing's and expressing all kind of suspicious and doubts regarding Steel Mills sale out at a throw away price are jubilant over the Supreme Court verdict as its has vindicated their position.