Privatization
in Pakistan
Bilal Akbar
The author is a student of LL.B-III. He is a
very hard working student. He has devoted his best efforts towards QLCian.
Privatization is
the act of reducing the role of government, or increasing the role of private sector,
in an activity or in the ownership of assets. Privatization has been prescribed
as a means of improving the efficiency and profitability of public enterprises,
which are not performing well. The privatization of government owned
enterprises is nowadays a large-scale process for the transfer of state owned
enterprises to the private sector. Privatization, as an instrument for
development is finding significant currency in industrial and developing
countries throughout the world and is one of the important components of
socio-economic reform programmes being implemented around the world. The major
aim of this policy is to reduce the drain on the government resources, caused
by the persistent losses of public enterprises, and to create greater opportunities
for private investors to expand and modernize these enterprises with the aim of
liberalizing the economic environment for rapid industrialization.
The concept of
privatization is not new to the policy makers of this country. It may be traced
as back as in 50s, when Pakistan Industrial Development Corporation (PIDC) was
established in 1952 to boost up the industrial development in the country. This
premier Corporation established over 50 industrial undertakings in the length
and breadth of the country and after their successful operation and management;
these units were transferred from the public to the private sector. The tide of
nationalization, which swept the whole economy in the first half of 70s, was
reversed in 1977. The privatization of State Owned Enterprises (SOE) became an
important instrument of economic policy of the government in late 80s. However,
it was in 1991 that privatization process in Pakistan became effective.
The
privatization process in Pakistan
has passed through different phases and it has been very instrumental to
redefine the relationship of private and public business with the government
institutions. A large-scale privatization effort was launched in November 1990,
the government declared privatization as its primary economic policy objective,
when the Disinvestments and Deregulation Committee was established to identify
the enterprises to be privatized and to make recommendation on how this process
should take place. The agenda of privatization announced by the Government covered
a wide spectrum of fields like industries, banks, development finance
institutions, telecommunications, energy sector, and electricity and
infrastructure facilities for the stimulation of private sector.
In the early
phase of privatization, the programme was unsuccessful with few bidders for the
targeted firms. Since privatization was a cornerstone of the government's
economic policy, the government revised its strategy and accelerated the
process. It improved the legal and administrative procedures, and while it had
decided initially to adopt the policy of offering only few units for sale at a
time. Attempts were also made to make the entire privatization procedure more
transparent and effective, that is why the creation of Privatization Commission
on January 22, 1991 .
The Commission was required to pinpoint and identify the industrial units for
sale purpose. It identifies 115 units in three phases:
l All the nationalized Banks and Insurance
Company were to be privatized.
l In addition to banks, many other units,
which were the monopoly of the Public Corporations, were to be privatized.
l It included power generation, Transport
(aviation, railways, ports, shipping, road construction), Pakistan Steel Mills,
Oil & Gas and Telecommunications etc.
During January
1991 to June 2005 the Commission completed 151 transactions for Rs 177.328
billion. In the financial year 2005-2006, the Commission has successfully
completed privatisation of 8 transactions including privatisation of PTCL, CTI,
KESC, UBL (IPO), United Industries Limited (additional shares), Bolan Textile
Mills Ltd., Mustehkam Cement and Pak American Fertilizers for Rs.196.231
billion, which is 356% higher than the previous year. The Commission, during
the year, has remitted Rs. 97.259 billion to the Government of Pakistan for
debt retirement and poverty alleviation program and Rs. 24.540 billion to
entities whose shares were sold1.
Banking Sector: Privatization is
expected to lead to a sounder and more efficient banking system with the
capacity to mobilize savings and allocate them to the most economically
productive uses. Private banks facing competition are likely to more closely
respond to customer needs, improving the quality of services and introducing
needed new financial products.
l National Bank Of Pakistan: Divestment of
13.2% shares of National Bank of Pakistan for Rs. 1.386 billion.
l Bank Al-Falah: Divestment of 30% shares of
Bank Al-Falah for Rs. 620 million.
l Habib Bank Limited: Sale of 51% of GOP stake in HBL for Rs.
22.409 billion.
l United Bank Limited: Sale of 4.22% shares of UBL through Capital
Market for Rs. 1.040 billion.
Industry: The
vast majority of industrial companies on the privatization programme are making
losses. Keeping them afloat requires fiscal support in the form of loans and
bonds, or frequently, explicit or implicit guarantees. The sale of such
companies will stem the fiscal hemorrhage. Even when companies are profitable,
such as Pak-Saudi fertilizer, National Refinery Ltd and Kohat Cement etc.
l PakArab Fertilizer: Sale of shares of Pakarab Fertilizers Rs.
14.125 billion.
l National Refinery Limited: Sale of shares of
National Refinery Ltd for Rs. 16.415 billion.
l Rohri Cement: Sale of Associated Cement, Rohri for Rs. 255
million.
l Thatta Cement: Sale of Thatta Cement for Rs. 794 million.
l Mustehkam Cement: Sale of Mustehkam Cement Limited for Rs.
3,205 million.
l Kohat Cement: 10% additional shares of
Kohat Cement for Rs. 40.8 million.
l Bolan Textile Mills: Sale of Bolan Textile
Mills for Rs. 128.0 million.
l Sale
of Carrier Telephone Industries for Rs. 500.0 million.
l Sale
of International Advertising (Pvt) Limited for Rs. 5.117million.
l Kohinoor Oil Mills : Sale of shares of Kohinoor Oil Mills Limited
for Rs. 80.7 million.
Oil, Gas &
Energy: The privatization of oil and gas companies will attract private capital
and management and result in higher production of oil and gas, as well as
improve the quality and coverage of services. the Government keeps part of its
shareholding in companies such as OGDC and PPL, the likely higher profits of
the privatized company will benefit the Government both from its share of the
profits as well as from the enhanced tax revenues.
l Sui Southern Gas Limited: Sale of 10% shares of Sui Southern Gas
Limited for Rs. 1.734 billion through Capital Market.
l OGDCL: Sale of 5% ordinary shares of Oil & Gas
Development Company Limited (OGDCL) through Capital Market for Rs. 6.851
billion.
l Pakistan Petroleum Limited: Sale of 15% shares of
Pakistan Petroleum Limited (PPL) through Capital Market for Rs. 5.5 billion.
Power
Generation: There are two main goals to privatize the power generation
companies that are:
1. To bring
good management and new investments that are necessary to provide a reliable
supply of electricity for now and the future and
2. To stop
the fiscal bleeding caused by mounting financial losses, stemming in part from
very high line losses. International experience has shown that the new
investors will bring in improved management that will quickly be able to reduce
line losses and the corruption associated with it.
l KESC:
Sale of GOP
share holding in KESC for Rs. 20.240 billion.
l Sale of 20% shares of Kot
Addu Power Company through Capital Market for Rs. 4.604 billion.
Telecommunications:
The main goal of the PTCL privatizations is to bring in management and new
investment that will be more responsive to consumer demands, especially with
respect to increasing the speed with which new lines are installed and to
meeting the burgeoning needs of information technology. To protect consumers
and abide with the WTO Agreement, the Pakistan Telecommunications Authority
commits to eliminating PTCL's monopoly on fixed lines after 2002 and to
ensuring effective regulation the Government. A private company operating in a
competitive market with the oversight of a regulatory authority is likely to
provide better service to customers and to keep prices competitively low. The
Government is contemplating initially selling up to 26% percent of the company
along with the transfer of management control to Etisalat-UAE company for $
2.59 billions. The balance could be sold subsequently in the stock market at a
higher price.
l Sale of 26% shares of
PTCL for Rs. 155.0 billion ($ 2.59 billions).
Large units
likely to undergo privatization process, as WAPDA, KAPCO, WASA, PSO, PIA
(Pakistan Air Lines), the Pakistan Steel Mill, and Pakistan Railways. It has
also been the stipulation that new projects like airports, infrastructure,
roads, seaports, insurance companies and shipping etc.
The pivotal role
of the private sector is to act as engine of economic growth. Corollary to it,
privatization is to be vigorously pursued as an economic creed. Obviously
privatization would greatly assist in the development of capital markets for
mobilization of domestic savings, resulting in greater efficiency and foster
quality and quantity in an atmosphere of competition. But too much attachment with
the privatization is likely to land the country into mire, which seems a real
danger. A transparent and purposive privatization process would help revive
animal spirits. Private investment would be attracted to labor-intensive
activities in which our economies have a comparative advantage and would thus
promote growth and alleviate poverty.
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