PSO, NIT, NPCC, OGDC AND JAMSHORO POWER COMPANY AT AN ADVANCED STAGE OF PRIVATIZATION

SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
Oct 16 - 22, 2006

Minister for Privatization and Investment Zahid Hamid discussed the process of privatization with Pakistan and Gulf Economist (PAGE), especially the situation after the Supreme Court verdict declaring the deal of Pakistan Steel as null and void.

PAGE: WHAT POLICY DECISION/ACTION HAVE YOU TAKEN TO IMPROVE THE WORKING OF THE PC IN THE LIGHT OF THE SUPREME COURT OBSERVATIONS IN PAKISTAN STEEL MILLS CASE?

ZH: In accordance with the directions of the Supreme Court of Pakistan (SCP) in the Pakistan Steel Mills Corporation (PSMC) case, the PSMC privatization issue was referred to the Council of Common Interests (CCI) for fresh consideration. The CCI reaffirmed the approval for privatization of PSMC given by it in its meeting held on 29th May 1997. Privatization of PSMC is now being taken up de novo.

With regard to some observations of the SCP, a review petition has been filed requesting the Court for reconsideration/clarification of certain issues so as to remove possible hindrances/ambiguities in the privatization process. Meanwhile, all directions and observations of the SCP regarding implementation of procedures relating to the advertisement inviting expressions of interest, pre-qualification, valuation and documentation with the successful bidder will be complied with.

PAGE: HAS THE PRIVATIZATION PROCESS BEEN STALLED SINCE THE SUPREME COURT JUDGMENT IN PAKISTAN STEEL MILLS CASE?

ZH: The privatization process has not been stalled as a result of the judgement of the SCP in the PSMC case. Two privatization transactions have been completed after the judgement Pak-American Fertilizer Co. and Javedan Cement Co. Bidding for sale of Lasbela Textile Mills has also taken place. Other transactions which are at an advanced implementation stage include those relating to the OGDC GDR, PSO, Jamshoro Power, NIT, NPCC Services International Hotel land and the Tomato Paste Plant. These should be completed in the next few months, while many others will be completed before the end of the financial year 2006-2007.

PAGE WILL THE PC WAIT FOR THE APEX COURT DECISION ON THE PETITION FILED BY IT FOR THE REVIEW OF PSM DECISION BEFORE RESUMING THE PRIVATIZATION PROCESS?

ZH: As stated by me, the privatization process never stopped and hence the question of 'restarting' it does not arise. Privatization is an important element of the highly successful economic reforms initiated by the government of Gen: Pervez Musharraf through the then Finance Minister and now Prime Minister Shaukat Aziz, which have resulted in the very impressive economic achievements during the last several years. It is a matter of immense satisfaction to the government that the Privatization Commission Ordinance 2000, which was promulgated by the government of Gen: Pervez Musharraf to give statutory cover to the privatization process, ensure utilization of privatization proceeds for debt retirement and poverty alleviation and to structure the decision-making authority of the PC, has been upheld by the august SCP. The government continues to vigorously pursue implementation of its broad based privatisation program in accordance with this law and the rules and regulation framed there-under as well as the observation of the SCP, and is not awaiting the hearing of the review petition.

PAGE: PRIVATIZATION PROCESS OF PSO, NIT, NPCC, PPL, OGDCL, JAMSHORO POWER COMPANY AND FAISALABAD ELECTRIC SUPPLY COMPANY WAS IN ADVANCED STAGE. ARE THEY ALL HELD IN ABEYANCE NOW?

ZH: None of these privatizations has been held in abeyance. As mentioned by me the PSO, NIT, NPCC, OGDC and Jamshoro Power Company transactions are at an advanced stage and will InshaAllah be completed within the next few months. In the case of FESCO, tariff is expected shortly, after which due diligence by the nine pre-qualified bidders will commence. Bidding is targeted in the third quarter of the financial year. Issues relating to PPL are also being resolved and this transaction is expected in early 2007.

It is important to remember that privatization is a complex process and every stage requires utmost transparency and high level of managerial, financial and technical expertise. Furthermore, the privatization process is dependent on many external factors such as stable regional situation, international market trends and investor interest.

The focus of the privatization program in Pakistan has shifted from the more straightforward industrial transactions to those involving the transfer of management control in services such as banking, transport and utilities. The latter requires sensitive decisions on pricing, restructuring and rightsizing. For this purpose considerable preparatory work needs to be done to improve the enabling environment and to establish and strengthen the regulatory framework before actual privatisation takes place.

While it will remain the government's endeavor to expedite the privatisation process, it will continue to ensure that all national and strategic interests are fully protected and the transparency, fairness and integrity of the process is maintained.

PAGE: SENATOR PROF. KHURSHID AHMAD HAS FILED AN ADJOURNMENT MOTION IN THE SENATE TO DISCUSS THE PTCL PRIVATIZATION, ALLEGING GROSS VIOLATION OF PROCEDURE AND LOSS OF MILLIONS OF DOLLARS TO THE NATIONAL EXCHEQUER "THROUGH A SHADOWY AGREEMENT. WHAT YOU HAVE TO SAY IN THIS REGARD?

ZH: The PTCL transaction has already been discussed in depth in the Senate during the tenure of Dr. Abdul Hafeez Shaikh. No question arises on any irregularity/lack of transparency or loss to the national exchequer or 'shadowy agreement'/non-disclosure relating to the transaction. These criticisms are not only baseless, but are also surprising given the fact that the bidding process was admittedly open, fair and transparent, and Etisalat's highest bid of Rs 117.0 per share (total $ 2.599 billion for 26% shares) was more than the combined total of the other two bids by China Mobile ($ 1.41 billion) and Singtel ($ 1.167 billion). After Etisalat requested modifications in the conditions of the sale, revised terms and conditions were conveyed to the other two bidders also but they declined to participate further in the process. Salient features of the final purchase agreement have been mentioned in the press and discussed in detail at the meeting of the National Assembly's Standing Committee on Privatisation and Investment. Even under the revised terms approved by the Cabinet, Etisalat will pay the full bid amount ($ 1.4 billion initial payment and the balance $ 1.199 billion in nine equal semi annual installments).

PAGE: IS IT CORRECT THAT PC HAS COLLECTED RS 395 BILLION DURING THE LAST 15 YEARS (SINCE 1991) FROM THE PRIVATIZATION OF ABOUT 150 STATE ENTERPRISES? HAS THIS AMOUNT BEEN CORRECTLY UTILIZED (I.E. 90% FOR DEBT RETIREMENT AND 10% FOR POVERTY ALLEVIATION).

ZH: The correct position is that the total sale price of 160 transactions completed from 1991 todate is Rs 378 billion. Out of this amount, the PC has actually received Rs 313 billion (the balance 65 billion is receivable from Etisalat in installments for PTCL). After deducting payments to enterprises for their shares sold and to the Government of Pakistan for liabilities absorbed, and transaction costs, the balance amount was remitted to the Federal Government's account with the State Bank of Pakistan from which it is utilized in accordance with the provisions of the Privatisation Commission Ordinance 2000 for debt retirement and poverty alleviation.

PAGE: YOU HAVE RECENTLY RETURNED FROM THE MIDDLE EAST AFTER PARTICIPATING IN COUNTRY ROAD SHOWS. WHAT WAS THE RESPONSE FROM POTENTIAL INVESTORS?

ZH: "I and Dr. Salman Shah, Advisor to the Prime Minister for Finance and Economic Affairs, visited Kuwait, Abu Dhabi and Dubai in connection with the Country Road Shows. The large number of potential investors whom we met were greatly impressed by the remarkable performance of the Pakistan economy during the past several years and showed keen interest in the upcoming privatisation transactions and in the exciting Greenfield investment opportunities. Pakistan has one of the most liberal and attractive investment policies in the region and investment from the Middle East/Gulf states has made a major contribution to the rapidly increasing level of Foreign Direct Investment during the last three years. We expect this trend to continue at enhanced levels in coming years and the government/Board of Investment will make every effort to facilitate this investment".