Feb 23 - Mar 01, 2009

Cabinet Committee on Privatization (CCoP) has approved the privatization policy of the present government. The policy envisages public private partnership with transfer of management control with 26% shares of the 21 state owned enterprises (SOEs). The CCoP also approved sale of 12% shares of all the SOEs to the workers of these entities. However, the Committee has not fixed the timelines or targets for the completion of privatization process of these SOEs.

The CCOP has directed Privatization Commission to constitute a committee to look into the details concerning transfer of management control of these entities by ensuring transparency and good governance.

Federal Minister for Privatization, Syed Naveed Qamar, announced the details of the policy at a press conference. He informed that CCoP has approved privatization of four electric supply companies-Peshawar, Hyderabad, Faisalabad and Quetta. Besides, National Insurance Company, Pakistan Reinsurance Company and State Life Insurance Corporation will also be privatized.

The Minster said that CCoP also approved privatization of SME Bank, National Power Construction Company (51% shares, Pakistan Railways, Heavy Electrical Complex, Pakistan Machine Tool Factory, PTDC motels and restaurants, Utility Stores Corporation, Pakistan Post, and Kot Addu Power Company. Along with this CCoP approved land issues pertaining to privatization of Printing Corporation of Pakistan, Services International Hotel, Sindh Engineering Limited and Republic Motors Limited.

As explained by the Minister, the Policy is based on political agenda of the present government aimed at improving overall performance of the SOEs and enhancing value of government shareholding for ultimate privatization of these entities. He said that this policy would benefit the country in long-term as the improved structure and efficient entities would fetch more money for the government. These SOEs would be transferred to the investors having credible technical as well as financial record of running these kinds of entities.

According to the Minister, the CCOP has de-linked sale of 12% shares to the workers of the SOEs from the privatization program and the government would soon start sale of these shares to the workers. He said that Utility Stores Corporations would be privatized to improve its financial strength and efficiency. However, the government would continue to use this organization for providing essential items to the masses at lower cost price. Explaining privatization of Pakistan Railways, the minister said the process would be completed in phases because its different departments require additional investment and improvement in services.

Privatization of Pakistan Post would be based on a model approved by PPP and this important organization would be converted into Post Office Bank after privatization. Explaining privatization Jamshoro Power Company (JAPCO) option of leasing would be examined for its ultimate privatization. He maintained that privatization proceeds would not be used to finance budget deficit.

Providing updates of some of the transaction Naved informed that the CCOP approved the proposal for agreeing to the request of successful bidders of Falettis Hotel Development Private Limited (formally 4 B Marketing Limited) to develop hotel site in accordance with the site plan and complete the project within 36 months subject to stipulated conditions.

Minister informed that CCOP approved a summary regarding recovery of the principal amount of balance sale price along with simple mark up to be realized within six month period of Wah Cement Company Limited and Metropolitan Steel Corporation.

He also informed that the IMF has not attached any conditions to the proposed privatization program. However, privatization transactions undertaken by the last government would be audited and reports would be placed before the public accounts committee.

The Policy announced by the minister may seem a little outrageous to some of the critics because of global down turn, shy local investors, political controversies, and external pressures. However, completion of some of the transactions, if structured properly should not face any difficulties.

The government intends to follow two-pronged strategy: offer of shares of SOEs to public and sale of substantial shares to the strategic investors along with transfer of management control. To achieve both the targets some confidence building measures have to be put in place.

The persistent bearish sentiments engulfing the equities market have forced the investors to explore other options but not the equities. It was the 'settlement crises' but gross mishandling of the situation by the apex regulators aggravated the muddle. The inordinate delay in installing bailout/opportunity fund created a lot of mess including sale of securities kept in investors' accounts by some of the brokerage houses. Despite, fully aware of the maltreatment by these brokerage houses, regulators have failed in resolving the issue.

Reportedly, the NIT managed fund has used about 35% of the total amount and there has been some visible change in the sentiments. However, the overwhelming perception among the investors is that during this tyranny large net worth and institutional investors have virtually acquired whatever small percentage of total shares owned by the medium and small investors.

Bringing the small investors back to the equities market is necessary before offering shares of the entities on privatization list. However, the objective just cannot be achieved simply by issuing politically motivated statements.

Whether liked or not by the sitting coalition government, it has to follow the policy of 'Privatization for People' not transferring the assets to transnational companies. This suggestion has come because of a fragile regulatory regime emerging after the change in the government.

It goes without saying that as long as local investors are shy no foreign investor would like to make long-term investment in the country. The policy makers must also keep in mind an old saying, "Foreign capital is like migratory birds and it only goes to safe heavens".

Pakistan needs to expand its industrial and agriculture base and infrastructure requiring billions of dollars investment. Sufficient funds cannot be mobilized domestically and foreign investors must be brought to Pakistan-a market comprising of more than 170 million people.