The historical journey of privatization in Pakistan reflects a complex interplay of political will, economic challenges and strategic priorities. While the process has seen varying degrees of success and setbacks, the overarching goal remains to create a more efficient and competitive economic environment.
The historical journey of privatization in Pakistan reflects a complex interplay of political will, economic challenges and strategic priorities. While the process has seen varying degrees of success and setbacks, the overarching goal remains to create a more efficient and competitive economic environment.
As the country moves forward with its current privatization agenda, lessons from past efforts will be crucial in navigating the challenges and seizing the opportunities that lie ahead.
In response to a recent directive from Prime Minister Shehbaz Sharif, the Privatisation Commission is set to develop a comprehensive Five Year (2024-2029) Privatisation Programme. This initiative aims to expedite the divestment of loss-incurring commercial state-owned enterprises (SOEs), covering sectors such as industrial, real estate, aviation, and financial, alongside the energy sector. In total, 25 SOEs are slated for divestment under this ambitious programme in the first phase.
Included in this list are the remaining three industrial units: Pakistan Steel Mills (PSM) Karachi, Pakistan Engineering (PECO) Lahore, and Sindh Engineering Private Ltd (SEL) Karachi. Notably, the caretaker government, overstepping its mandate, delisted PSM from the ongoing privatization programme on December 20, 2023.
PSM has since been transferred to the Ministry of Industries and Production for revival, despite the ministry's previous failure to present a viable revival plan four years ago. PSM, which ceased operations in June 2015, is incurring substantial annual losses of Rs23 billion, with accumulated losses reaching Rs206 billion as of April 30, 2023. The nation has also suffered an estimated $18 billion loss in foreign exchange due to steel product imports.
PECO and SEL, both in the industrial sector, are next in line for privatization. Over the past five years, these SOEs have accumulated billions of rupees in losses and are currently non-operational. SEL, initially established in 1963 as a private automobile assembly and manufacturing plant, was nationalized in 1973 and renamed. Despite being on the privatization list for an extended period, a deal has yet to materialize due to unresolved “inherent issues.”
The privatization of SEL has a long history, with initial efforts dating back to the 1980s. In the 1990s, SEL was included in a comprehensive privatization programme; in the 2000s, the focus on economic reforms renewed efforts to privatize the company. However, attention remained primarily on larger enterprises. The government once attempted to partner SEL with a foreign automobile manufacturer to leverage SEL’s facilities for the progressive manufacturing of buses, trucks, and commercial vehicles.
In October 2002, SEL secured a franchise and technical assistance from Dongfeng Motor Corporation, China, but progress stalled. Dongfeng subsequently partnered with Ghandhara Automobiles in 2015 to successfully produce, assemble, and market commercial vehicles in Pakistan.
In 2010, the government continued to identify SEL as a potential privatization candidate, but the process stalled. In later years, strategic plans were developed to privatise SEL, inviting domestic and foreign investors to inject capital and modernize the plant.
The Privatisation Commission sought Expressions of Interest (EOIs) from potential investors, especially in light of the Automotive Development Policy (2016-2021) and the expanding automobile market. Despite these efforts, the response was poor -- and SEL remains on the active privatisation list, suffering from financial and technological decline due to obsolete machinery.
Repeated attempts by the commission to appoint a financial adviser for SEL’s divestment, with EOIs issued in 2019, January 2020, November 2020, and May 2021, have all failed. According to the last press advertisement for appointing a financial adviser in May 2021, the government has abandoned plans to revive the manufacturing unit. Instead, it has decided to sell SEL's commercial and industrial real-estate assets in Karachi, Lahore, and Kasur District (Punjab). However, the Privatisation Commission has been unable to proceed with selling these assets due to unresolved 'inherent issues and encumbrances' persisting over four decades.
The directive from Prime Minister Shehbaz Sharif to expedite the privatisation of SOEs underscores the government's commitment to addressing the financial drain caused by loss-making enterprises. It remains to be seen whether the new five-year programme will overcome the historical challenges and lead to successful divestments, revitalising these sectors and contributing positively to the national economy.
The writer is a retired chairman of the State Engineering Corporation, and former member (PT) of the Pakistan Nuclear Regulatory Authority.
