Privatisation losing steam

By Ihtasham ul Haque

http://epaper.dawn.com/ArticleText.aspx?article=09_07_2007_606_004


THE privatisation proceeds, officially categorised as foreign direct investment, dropped to $133 million in ten months ending April 2007 compared to $1538 million in the same period of the previous year.
The slow down can be attributed to the growing complexities in privatisation including a politically charged environment and the recent Pakistan Steel Mills case.
The “nationalists” within the govern ment are also against strategic assets being given under foreign control. While the government is strongly committed to push ahead with its privatisation policy, the main hurdle in further progress is, however, stated to be lack of funds to offer terminal benefits to employees of enterprises on the privatisation bloc. In some cases, issues related to the land titles of the entities have yet to resolved.
As it appears politics is now in command. It is said that transactions concerning the oil and gas(mainly SNGPL and SSGC) have once again been delayed on the advice of the ruling PML(Q)leaders who do not want any political unrest on the eve of the elections.
Except for Services International Hotel to be privatised on July 26, no other transaction is at hand with the officials of the Privatisation Commission (PC) to be completed in the immediate future. The PC had sought Expression of Interests (EOIs) for Republic Motors and is believed to have been told by bidders to keep the transaction on hold till the uncertainty relating to general election, the president’s re-election and the Chief Justice Iftikhar Mohammad Chaudhry’s case comes to an end.
The privatisation of Hazara Phosphate company is being planned once again but the investors have not shown much interest in it. The PC officials thought that they would at least put up for sale Pakistan Machine Tool Factory (Karachi) but its land is under the name of PIDC; besides other problems have to be taken care of.
There are cash problems in the disinvestment of Heavy Electrical Complex (HEC) and units of the State Engineering Corporation. The government has already withdrawn Heavy Mechanical Complex (HMC) from the privatisation list.
Insiders maintain that the government has decided not to touch the mega transactions like ports and shipping, airports etc., and wants the new elected government to take up sale of such enterprises. The pace of privatisation slowed down, particularly after the controversial Steel Mills’ transaction that was declared invalid by the Supreme Court as it was conducted in inde cent haste and in a non-transparent manner.
.The privatisation of Pakistan State Oil (PSO), delayed many times, is creating suspicions about transparency. The transaction of Pakistan Petroleum Limited (PPL) is pending since last over two years due to the differences between the Centre and the Balochistan government.
President Musharraf had announced that a good share of profit of the company will be given to the provincial government before the finalisation of the sale deal. However, two of the potential bidders MOL of Hungary and OMV of Austria are reportedly losing interest in the PPL transaction due to the delays.
Generally, it is believed that there could be some acceleration in the privatisation process once the PC was reconstituted after the new elections and its terms of reference framed afresh to lure the local and foreign investors who were discouraged by the cancellation of the Steel Mills’ deal.
The Minister for Privatisation, Zahid Hamid told Dawn last week that the government has decided once again to privatise Pakistan Steel Mills. "But this is not in the offing as the lead manger of Mills is still to work out its terms of reference after which it will be sent to the mills's management for approval. Then the Pakistan Steel has not completed its balancing, modernisation and replacement(BMR) for which the federal government had approved Rs6.6 billion", a source said.
He said that the most important issue is the reference price of the mills which has not been finalised. Every thing relating to the mills has to be reflected in the reference price and this time we will have to share this price with the new owners to avoid various problems witnessed in a deal scrapped by the apex court in August last, the minister added.
"Except for GDR of OGDCL and UBL, there has been no significant privatisation indicating that the process has slowed down", an insider said.
It has also been proposed to refer various issues to the Inter-Provincial Coordinating Committee to speed up the privatisation process with the help of the chief ministers. Some people within the government believe that strategic assets should be defined so that certain procedure could be developed about various entities and their reference price.
"The issue of assets and liabilities is also needed to be resolved so that new owners are clear about the financial health of any organisation", a former senior government official said.
He said the investors should be clear about the inventory of any state sector enterprise along with the issues concerning "future payments" that had been made in some transactions.
These are the issues which concern transparency and should be sorted out if at any meaningful privatisation is to be carried out. Only by giving the list of transactions being planned means nothing as is invariably done by the Privatisation Commission.
However, when approached, the Minister for Privatisation Zahid Hamid disagreed that the privatisation process has slowed down or facing transparency issues. "It is unfair on the part of analysts who say that nothing is happening on the privatisation front", he said.
He said that the government earned Rs120 billion against the target of Rs75 billion on account of privatisation in 2006-07 and this is the highest ever amount collected in the past.
"If there are delays they are due to vertical and horizontal integration, third party access and fixation of tariffs", he said adding that there are some complicated issues causing delay in some transactions. "But it had nothing to do with transparency", he said when asked about the criticism being made by some quarters in this behalf.
The minister referred to new GDRs which helped the government to collect sizable funds both from local and foreign investors.