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Privatisation in cold storage

By Zeeshan Haider
Mon, 09, 16

INSIGHT

Privatisation of state-owned entities was one of the major planks of the present government’s economic policies. After coming into power in mid-2013, the Pakistan Muslim League-Nawaz (PML-N) government had listed 68 entities to be sold during its five-year tenure, and had short-listed 16 small and big entities to be privatised under the three-year 6.2 billion dollars IMF’s Extended Fund Facility (EFF) that successfully completed this month.

But despite the passage of three and a half years, the PML-N government succeeded in privatising only a handful of entities which were making good profits.

These included Habib Bank Limited, United Bank Limited, Allied Bank Limited, Pakistan Petroleum Limited, and lately National Power Construction Company.

With just less than two years left in the next elections, it is highly unlikely the government could undertake any major transaction, particularly in the wake of growing political temperature in the country.

Moreover, there is also a sense of complacency among the government leaders over the successful end of the IMF programme. Since there are no further plans for more IMF loans, at least for the time being, the government seems under no pressure to fast track its privatisation programme.

Minister of State for Privatisation, Mohammad Zubair admits that the completion of the IMF programme has eased the pressure on the government from intensifying privatisation of public entities, but denies that the programme has been permanently shelved.

“Yes, we are under no pressure to do this to qualify for the IMF transactions, but it was not something we have been doing under any pressure or doing it for the sake of IMF. All was being done in the best national interests,” he said.

According to him, the PML-N has very categorically mentioned in its election manifesto that it would carry out privatisation to diminish government’s role in running public sector entities, particularly when it had to pump billions of rupees to make up for the losses due to inefficiency and corruption.

“During IMF negotiations before the deal, they asked us what our economic programme was and we told them that we plan to do these transactions during our tenure,” he said. “They did not make any reference to privatise any entity. It was our own agenda and our programme.”

However, during the course of reviews for the EFF programme, the IMF officials have persistently expressed concerns over the delays in government’s commitments to carry out privatisation and they did raise questions over the deadlines missed for the sale of sick entities.

At present, the government feels to have come out of that pressure. Observers believe that IMF Managing Director Christine Lagarde in her visit to Islamabad next month will ask Pakistani authorities to carry out long delayed economic reforms to put the economy on strong footing, and to sell out sick PSEs.

During the last review for the EFF programme held in Dubai last month, the IMF negotiators listed losses from the PSEs as a concern that need to be addressed by Pakistan “to consolidate and reinforce the gains achieved in the last three years”.

Zubair said the government has been very enthusiastic in carrying out its privatisation programme, but the delays in transactions were not of its own making. “They were caused by unforeseen developments that could not be predicted.”

For instance, he said during the UBL transaction the attack on Karachi airport took place, while Pakistan Petroleum Limited road show in Lahore has to be delayed because of the Model Town incident. Similarly, he said, during ABL privatisation, the Pakistan Tehreek-e-Insaf had given a call for a shutter down strike in Karachi.

“In such situations you cannot strictly stick to your timelines and that is why we have been changing dates for these transactions.”

However, he said his government was committed to press ahead with its privatisation programme, as there was no substitute for the government to get out of the business of running these gigantic entities.

He said the process of splitting PIA into two companies has been completed and now the issue would be placed before the airlines board of governors, possibly in the next two weeks, and then to the cabinet committee on privatisation for further action.

“The vital decisions are to be taken by them,” he added.

Responding to a question about the sale of power distribution and generation companies, the minister of state said the government plans to sell 15 to 20 percent of their shares through Initial Public Offering (IPO) on Karachi stock exchange to make them more transparent and accountable.

“We want to do restructuring through improved governance before privatisation in order to enhance the value of the entity,” he maintained.

He said the IPO of Faisalabad Electricity Supply Company was expected to take place in November while that of Lahore and Islamabad would be held later.

Answering a question about privatisation of Pakistan Steel Mills, he said the Sindh government had not taken up the offer to purchase the mills and now its marketing process was expected to start in the next few weeks.

He said road show for the Kot Addu Power Company as well as sale of the SME Bank Limited would also take place in the coming months.

“The process is fully on track,” he added.

The critics, however, said the government’s privatisation plans seem to have run out of steam in view of the rising political temperatures and political opposition to government’s way of selling these entities.

Like any other country, privatisation is generally an unpopular process in Pakistan as well, as labourers fear getting laid off to improve efficiency of the soon-to-be-privatised entities.

With eyes set on the next general election due to take place in 2018, the government is unlikely to take risk of inviting public ire by selling public entities particularly major companies like PIA and Pakistan Steel Mills.

Observers believe that the government may not formally admit to shelving the privatisation plan, rather it will drastically slow down its pace in an effort not to annoy the masses.

“They did not do not do any major transaction in the past three years. How can they do that in the remaining two years particularly, when the privatisation has become a major political issue in the country, as happened in the case of PIA,” senior economist and government critic Dr Shahid Hasan Siddiqui said.

He said the government has so far only sold shares of the profit-making companies and could not do anything with regard to the loss-making entities.

He said sale of any further entity was a hugely difficult task for the government in the present political circumstances.

“They have not shelved the privatisation process formally, but they have put it on the back burner. It is now in the cold storage,” he added.

The writer is a senior journalist based in Islamabad