The single most important issue in any privatisation exercise is transparency. It is the key to privatisation, since transparency creates a general perception of a level playing field, which helps build support for the privatisation process.
Whatever the norm may have been in the past, the present government has pledged to initiate the privatisation process in a very transparent manner by taking all stakeholders on board. The privatisation process has been transparent in design and, so far, in implementation.
Our efforts have also been recognised by one of Asia’s most prestigious corporate ranking journals, The Asset; we have received three international awards in 2015 in recognition of our transactional work on the divestment of GoP shareholding in HBL and ABL. One of these awards was for ‘best privatisation in Asia’, which we won for the divestment of 41.5 percent stake in HBL.
Despite these achievements, there has been a lot of criticism on the privatisation process in recent weeks – particularly related to the power companies, HBL and PIA. Whether or not these public–sector entities should be privatised is a separate debate – a political debate. However, what is most important to focus on and understand are the robust check and balances and strong control mechanisms set up in the privatisation process to ensure transparency. This is one of the key focus areas undertaken by the Privatisation Commission irrespective of the government’s final decision on which entities to privatise or not.
Unfortunately, the current perception among many of the critics is that the privatisation process only includes the Privatisation Commission as the sole decision maker thus making independent decisions.
There are four key forums that are part of the privatisation process – 1) Evaluation Committee; 2) Transaction Committee; 3) Board of the Privatisation Commission; and 4) Cabinet Committee on Privatisation (CCOP).
The Evaluation Committee’s objective is to evaluate the financial and technical proposals for the hiring of financial advisors (FAs) for a transaction – a process which is often taken on independently in many other organisations. However, in the Privatisation Commission, this process is defined in the PC Ordinance 2000 and includes a broad participation of representatives from the PC, Finance Division, relevant line ministries and the PC Board.
Furthermore, the selection process of the FAs includes a separate evaluation and marking of the financial and technical proposal. The financial bids are even opened separately and it is only when both proposals have been evaluated on separate terms that their marking (which is also carried out in accordance with the PC Ordinance 2000) is taken to the Privatisation Commission Board for evaluation and approval.
The FAs are also not single organisations but a consortium of leading and credible international and national investment banks, chartered accountant firms, HR consultant groups and top legal firms. These include Credit Suisse, PricewaterhouseCoopers (PWC), Citi Bank, HBL, KPMG, Deloitte, Arif Habib Group and Deutsche Bank just to mention a few.
The reason why the Privatisation Commission has drawn on the expertise of such credible organisations is so as to ensure that the proposed transaction structure takes into account all the financial, legal, technical and employee concerns of the entity.
Once the FAs have completed the due diligence, the proposed transaction structure is taken to the Transaction Committee. This committee represents different stakeholder groups and includes senior representatives from both the public and private sector, including the regulators of the relevant sector and the management of the entity to be privatised. The committee plays a long-term role in the transaction process, as it works alongside the FAs throughout the process. In the case of PIA, the transaction committee is being headed by Zaffar Khan, former chairman of PIA and former CEO of Engro Corporation. A credible and senior business leader, Zafar Khan is on the PIA transaction committee to ensure professional and expert input to the process. The same expertise is being provided by the other heads of the transaction committees which have been set up for the power companies, PSM and others.
The process however continues. The transaction committee deliberates on the structure – any feedback or further input provided is taken into consideration – and the final structure is presented to the PC Board for their deliberation. The PC Board has 13 members, who are all primarily from the private financial and corporate sector. Once again, the structure is deliberated on and it is only once the PC Board approves the transaction structure that it is presented to the Cabinet Committee on Privatisation (CCoP) for the final approval. The CCoP, which includes economy-related federal ministers, governor SBP, chairman SECP and chairman BOI, is the final decision-maker on the transaction.
The Privatisation Commission also goes through a stringent audit process which includes a standard internal audit in addition to the auditor general’s audit and the audit carried out by a third private accounting firm. In addition to this robust process, the commission also takes on board other forums such as the National Accountability Bureau (NAB), the Public Procurement Regulatory Authority (PPRA) and the Competition Commission of Pakistan (CCP). These forums are taken on board by the Privatisation Commission to ensure and also promote accountability of the work being done by the commission.
As demonstrated above, the privatisation programme involves a broad-based decision-making process, which includes engagement and consultation with many forums. The chairman or the secretary of the Privatisation Commission therefore has no independent powers to direct or influence any transaction. The main role of both representatives is to monitor and regulate the process.
Bringing transparency to the mechanisms of privatisation and providing information about its dealing is in the best interest of all stakeholders, including the Privatisation Commission. Transparency is, and will, remain the key to building support for privatisation. It will also minimise confusion among the shareholders and the public, who – being the consumers – are the ultimate stakeholders of the SOEs.
The writer is minister of state forprivatisation and chairman of the Privatisation Commission.