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Wednesday May 29, 2024

Privatisation challenges

By Mansoor Ahmad
April 25, 2024
A security guard sits in front of a wall with signs and slogans at the operation building at the Pakistan Steel Mills (PSM) on the outskirts of Karachi. — APP File
A security guard sits in front of a wall with signs and slogans at the operation building at the Pakistan Steel Mills (PSM) on the outskirts of Karachi. — APP File 

LAHORE: The government is concerned that privatization could lead to widespread unemployment, as the new buyer may choose not to retain workers, many of whom are ineffective.

From a humanitarian perspective, these employees, despite their shortcomings, have families who depend on them. One of the most significant mistakes made by every government is the failure to establish clear guidelines for terminating employees of state-owned loss-making organizations.

In the 1990s, during the privatization of banks, employees were promised the option of a “golden handshake.” Under this arrangement, employees who opted for the golden handshake received full salary benefits for their remaining period of employment. For example, a 40-year-old employee would receive an upfront payment equivalent to 20 years of salary (reaching retirement age), along with benefits from their earlier service period. This lump sum allowed employees to either purchase a house or start a reasonable business.

During that period, 51,000 bank employees chose the golden handshake option, and there were no protests or strikes. Workers in state-owned enterprises are government employees, and the government is committed to their well-being. Those who did not opt for the golden handshake were guaranteed one year of service by the new owner. The competent employees survived, while the less capable ones left with standard benefits.

Proponents of privatization emphasize that the monthly salary is a minor part of the government’s liability. The major expenses include recurring costs such as office maintenance, power, petrol, travel, and other administrative expenses, as well as the losses incurred by state-owned entities at the manufacturing and operational levels.

This also encompasses issues like corruption and the prolonged stay of high government officials on deputation (who receive additional allowances in addition to their company pay). Even if employees are retained and asked to stay at home while receiving their monthly salaries, the state could save hundreds of billions. Loss-making entities could be handed over to the private sector.

Rather than shutting down operations and retaining machinery and equipment, it is essential to recognize that these assets require caretakers who might systematically misappropriate them. For instance, the Steel Mill has ceased operations, but its assets are gradually diminishing, and its land is encroached upon. The government continues to bear substantial expenses to safeguard these dwindling assets.

Consider the once formidable Mughalpura Railways Workshop in Lahore, which used to serve the combined Indian Railway network. It now lies in ruins, with scrap materials worth billions of rupees waiting to be auctioned off before they are entirely pilfered. Instead of retaining unrepairable engines and bodies, the Railways should sell them as scrap to clear their debt. Additionally, prime Railways properties like Mayo Garden, which currently accommodates only 42 employees of Grade 17-19, could be sold. The proceeds from such sales could cover all Railways losses and create a substantial surplus for Railways upgrades.

However, the government must avoid selling industrial land to real estate tycoons. Closed government entities like PECO in Punjab and Pakistan Steel Mills in Karachi are attractive targets for property developers. Converting these pieces of land, situated amidst industrial estates, into residential colonies would be a disservice. Instead, these lands should be utilized for establishing new industries.