Don’t privatise OGDCL

Earlier this month, the Cabinet Committee on Privatisation took steps to issue convertible bonds for the Oil and Gas Development Company Limited (OGDCL) and other companies — all steady workhorses of the state budget — and to privatise the Heavy Electrical Complex on a public-private partnership basis by transferring 26 per cent of its shares along with management rights to the successful bidder. We say, in this article, that this is a terrible decision that will harm the state budget and welfare of the working people. We expose the flawed rational for privatising state companies, argue against privatising the OGDCL and give an indictment of the public-private partnership programme, using PTCL as a case study.

Trojan horses of a discredited regime spearhead privatisation. They base its rational on myths and mantras. The Privatisation Commission’s website says privatisation is necessary because “worldwide experience has demonstrated private companies to be more efficient than public ones.” It results in “improving technology, improving competitiveness and thus leaving more funds with the company. This, in turn, is likely to result in increased employment opportunities.” Officials argue that business is not the business of the state, and therefore, state companies should be sold to state companies of other countries, just as PTCL was sold to a UAE state company.

The website also says that privatisation is a “matter of principled ideology rather than a matter of expediency.” It should add that its laissez faire ideology is found only in textbooks and in the minds of our economic policymakers! As HSBC’s chief economist says: “Western governments have used the methods of state capitalism for hundreds of years in their bid to shape the world around them. The idea that market forces alone led to the West’s success is nonsense.” Official claims about privatisation are a fundamental misrepresentation of reality. Even The Economist (November 13) admits that the ownership of a business in a capitalist economy is irrelevant. State capitalism is surging — state companies account for a fifth of global stock market, twice more than 10 years ago. Thirty nine state-supported French companies are in Fortune’s list of top 500 global companies, while two of the world’s four biggest banks are state-owned.

Industrial policy or government support for national industry is frowned on by our economic policymakers, conveniently ignoring that the policy was used even during the time of Walpole to subsidise British exports, and more blatantly in the Opium Wars against China — a lesson that China has learned too well. France used it to create ‘national champions’ in strategic sectors, including transportation and energy. Industrial policy created the miracle economies of Japan and East Asian countries, and brought about China’s industrial transformation.

Three quarters of the world’s oil reserves are owned by state companies and two of the 10 biggest oil companies are state-owned because securing access to natural resources is a fundamental pillar of national security. This alone should suffice as a strong argument against privatising the OGDCL and other resource-based state companies. Also, the corporation contributes in a major way to the state budget: Last year, it gave Rs80 billion to the state budget and Rs86 billion in 2009, i.e. its annual contribution to the state budget is about as much as the amount ($1.08 billion) to be raised by privatising it. In the current year, the surging oil price will swell the OGDCL’s profit. No wonder its share price is skyrocketing to over Rs169 from Rs105 in July. Last year, the increase in average price of oil by $6 per barrel raised the OGDCL’s revenue by Rs68 billion. A likely further increase this year in the average price to $80 will add Rs23 billion to the revenue. Higher expected prices of gas, liquefied petroleum gas and sulphur will swell the windfall revenue — a golden opportunity for visionary, hustling and thuggish oligarchs to make unheard-of fortunes from the OGDCL’s privatisation!

Published in The Express Tribune, February 27^th, 2011.