PHOTO: PEHUB
ISLAMABAD: The Privatisation Commission – largely mandated to save public exchequer money from wasteful spending on inefficient and loss-making state-owned entities (SOEs) – has not privatised any such entity in the last three and a half years, though the priority list has 31 companies.
The commission has not plugged even a single rupee loss that has been burdening public finance.
It is not to suggest that the Privatisation Commission has not earned any revenue from its transactions in these three and a half years. In fact, it has realised Rs172.9 billion in four capital market transactions and one strategic sale.
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These capital market transactions included UBL (Rs38.2 billion), PPL (Rs15.4 billion), ABL (Rs14.4 billion) and HBL (Rs102.4 billion), whereas the strategic sale of National Power Construction Company fetched Rs2.5 billion.
There is one common feature in all five transactions – none of these companies were making a loss.
The banks and the petroleum sector company have been in sound financial condition with or without privatisation and the power construction company had over $800 million worth of successfully delivered projects since it was created in 1974.
But as a rule even these transactions should be acknowledged as a success as the opportunity cost of not doing it may still be quite high.
It seems that the big holes created by SOEs such as Pakistan Steel Mills (PSM), Pakistan International Airlines (PIA) and some power generation and distribution companies have been placed on the back burner.
Guarantees
In a recent meeting, the finance minister actually approved additional guarantees for the ailing national airline and once again approved payment of outstanding salaries of employees of arguably Pakistan’s largest (non-functional) industrial complex – PSM.
PIA got a new bailout package of Rs10 billion through enhancement of bank guarantees that the government underwrites.
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In fact, Planning Minister Ahsan Iqbal is on record saying that the privatisation of power distribution companies has been deferred as it is likely to bring uncertainty in the sector at a stage when the power sector is receiving record inwards investment.
As a matter of fact, the finance minister believes that the decision to defer the transactions of PSM and OGDC would pave the way for economic growth of the country and also improve financial health of the entities.
Thus, in essence, as far as the major mandate of plugging losses of SOEs is concerned, the Privatisation Commission has nothing to report. Not only that it cannot take the credit of saving even a single rupee, it has also failed to promise it in the foreseeable future.
Prime Minister Nawaz Sharif brought Muhammad Zubair as the chairman of Privatisation Commission from the corporate background, hoping that he would bring in the desired level of efficiency in the privatisation programme.
Notwithstanding his hard work on the desk, and his tireless appearances on electronic media for defending the premier, the results are far from encouraging.
It should not be hard to understand why. By law, when the cabinet includes an entity in the privatisation list – PIA and PSM were included in that list 20 years ago in 1997 – it places the control of such entities in the hands of Privatisation Commission.
In practice, however, the line ministries retain the influence and power over these entities. The Ministry of Defence controls PIA and the Ministry of Industries controls PSM in practice. Their own interest lies only in making the privatisation programme a failure.
Also, it is very difficult to imagine that the Privatisation Commission can actually allocate management resources to take any meaningful managerial decisions for the SOEs, over which it has a theoretical control.
Real power
It leads us to conclude that while the chairman of the Privatisation Commission can be seen as fairly active running the complicated processes, he does not have the real power and mandate over the fate of his own agenda. The real force can only be with the prime minister or the finance minister.
However, the prime minister has arguably stopped taking the privatisation programme seriously and the finance minister is only interested in creating more cash – albeit through capital market transactions. As the chairman of privatisation programme reports to the finance minister, this sums up the whole process.
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The most important yardstick of successful privatisation is plugging losses in loss-making SOEs. It is clear that this has not happened to any degree in the last three and a half years. It is unclear if it is even a priority of the current administration.
As the election season sets in, the probability of tough decisions will only decrease. We might actually observe more bailouts in the future, thus derailing the entire programme.
The writer is founder and executive director of PRIME Institute, an independent economic policy think tank based in Islamabad
Published in The Express Tribune, February 20th, 2017.
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