Finance ministry’s clarification

This is with reference to the August 24 article published in Money Matters on the subject of privatisation. There are a number of points in this write up which need clarification.
The case for privatising inefficient and loss making public sector entities is well epitomised by the performance of Pakistan Steel Mills (PSM) over the last 7-8 years, which has been in continuous decline, but not for lack of attention as reported in the article. Successive governments have attempted to privatise the PSM. The Honourable Supreme Court suspended the last attempt in 2006 when a 75 percent stake was being sold for $375 million. The PPP government at the time gave its bailout package Rs41 billion to fix PSM, but it continued its decline.
Built in 1984 to produce 1.1 million tonnes of steel per year – not the 2.2 million – by 2014, PSM was producing at 1 percent of that capacity. Heeding its needs, the ECC allocated the next bailout of Rs18 billion to keep the mill running and to pay salaries with a target of 77 percent capacity by January 2015 up from the 1.6 percent level in April 2014. The bailout was also contingent upon water, gas, and electricity being supplied. Prior to the stoppages of water, electricity and gas in April 2015, PSM had increased its utilisation to 55 percent. Currently, of the Rs18 billion bailout, the PSM has spent Rs4.5 billion on salaries, import of raw material for the functioning, while Rs9 billion is still intact in the form of finished goods inventory. The government appointed a financial advisor for PSM in April 2015, so that the due diligence process can be completed by end-August 2015, and the transaction is finalised by end-December 2015.
The government has followed a transparent and open process for the privatisation transactions carried out so far, contrary to allegations of non-transparency raised by the writer. The recent transaction of National Power Construction Corporation (Pvt) Limited (NPCC) is a case in point. The sealed financial bids were opened before representatives of the three bidders, the news media and others at a public event hosted by the Privatisation Commission (PC). In addition to the standard access to sites, management, financial records – all part of the due diligence process, road show was also conducted with the primary objective of prompting NPCC among quality bidders and obtain higher sale – the PC provided all bidders with advanced share purchase agreements prior to their submission of technical and financial bids. Bidders knew exactly what terms to expect if successful – nothing could have been more transparent.
The writer advises the government to “carefully examine before it finalises its decision to offload remaining potential shares of Habib Bank Limited (HBL), United Bank Limited (UBL) and Allied Bank Limited (ABL). The PC has already off loaded government of Pakistan’s entire residual shares in HBL, UBL and ABL, thus fetching a total amount of $1.562 billion. Furthermore, PC showcased Pakistan as an investment attractive market when it received two international awards ie International Financial Review Asia and Asset Asian Award as “Best Deal Award” for Pakistan by The Asset. It is pertinent to point out that the four now privatised banks deliver better service to the consumer while returning to the national exchequer in Fiscal Year (FY) 2013-2014 a combined Rs36 billion.
With regards to the OGDCL transaction, it is clarified that the government received orders of $350million at a share price of Rs216, a four percent discount to market share price, which was among lowest discounts ever offered on such deals globally. The government actually withdrew from the OGDCL transaction due to the fact that global oil prices had plummeted, which adversely affected the OGDCL’s value. With reference to the sale of Heavy Electrical Complex (HEC), the fact remains that HEC was sold to the highest bidder at the cost of Rs1.09 billion, which included all liabilities of the HEC, instead of Rs520 million as stated by the writer.