PC board refuses to delay privatisation of three firms

Privatisation Commission (PC) board rejects proposals seeking delay in Mari Petroleum, FWBL, Services hotel sell-off

ISLAMABAD: The Privatisation Commission (PC) board on Tuesday rejected proposals of putting privatisation of three companies, part of the active programme, on the back burner as the government faced hurdles in the way of selling its stakes in eight enterprises.

Headed by Minister for Privatisation Muhammad Mian Soomro, the board reviewed proposals seeking delay in privatisation of Mari Petroleum Company Limited (MPCL), Lakhra Coal Development Company, Services International Hotel and First Women Bank Limited (FWBL).

Privatisation Commission officials told The Express Tribune that the board agreed to put on hold only the Lakhra company’s privatisation due to legal and administrative issues.

Relevant ministries were reluctant to support privatisation of MPCL, FWBL and Services International Hotel. This indicates the opposition to privatisation from within the government. The board approved changes to PC regulations, most notably allowing the hiring of financial advisers on a single source basis.

The four companies are among the eight public sector enterprises that the Cabinet Committee on Privatisation (CCOP) in October this year shortlisted for privatisation in the first phase. The CCOP picked these entities out of the 62 originally approved by the Council of Common Interests - the highest constitutional body.

After coming to power, the Pakistan Tehreek-e-Insaf (PTI) government decided to restrict the privatisation programme and removed entities like Pakistan International Airlines, Pakistan Steel Mills and Pakistan Railways from the privatisation list. All these enterprises were consuming huge state funds every year, but the government opted to keep running them.

MPCL

The board considered the request of the Ministry of Energy that recommended the removal of MPCL from the privatisation programme, terming it a ‘well-managed asset’, according to officials.

The energy ministry took the position that being a strategic investor, the government should not privatise MPCL that gave Rs330 million in dividend over the last three years. The ministry argued that dividend distribution was capped at 45% till June 2024 and once the ceiling was removed the dividend could increase to Rs290 million per annum.

However, the board decided to go ahead with the divestment plan as it was one of the three enterprises that could fetch handsome proceeds. The officials have estimated proceeds of roughly Rs30 billion by divesting 18.4% of government stakes in MPCL, according to the officials.

In May 2016, the CCOP had also not approved the delisting of MPCL from the privatisation programme and instead approved, in principle, the divestment of government shareholding either through joint venture partners or stock market. Oil and Gas Development Company (OGDC) and Fauji Foundation, the other two key stakeholders, have already refused to buy government’s shares.

SME Bank

The board decided to go ahead with the privatisation plan of SME Bank and FWBL simultaneously. It did not accept the State Bank of Pakistan (SBP)’s proposal to initiate the FWBL privatisation process after reviewing investors’ response to the SME Bank privatisation. The SBP was of the view that the privatisation of SME Bank should be initiated first considering that a lot of transactional work had already been carried out and the bank’s financial position was consistently deteriorating due to persistent losses. SME Bank is causing around Rs300 million to Rs400 million quarterly loss.

The last PML-N government had also tried to privatise SME Bank. Finca Microfinance Bank, Saudi-Pak Industrial and Agricultural Investment Bank and Lanka Orix Leasing Company had been prequalified but all of them subsequently withdrew. The board decided to review the draft share purchase agreement and Instruction to Bidders document aimed at addressing concerns of the bidders, said the officials.

Lakhra coal mines

The board decided to delay the privatisation of Lakhra coal mines. The CCOP had in October approved the privatisation of Lakhra Coal Development Company as part of the active privatisation programme. The company is the sole supplier of coal to the Lakhra power plant. The commission had expressed its inability to go ahead with the Lakhra mines privatisation due to dispute with the Sindh government over renewal of the lease agreement of the mines.

The Sindh government has declined the request for renewal of the lease that expired in 2015 and the matter is pending before the Supreme Court of Pakistan. Furthermore, as per the Principal Shareholders Agreement executed by and between PMDC, Sindh government and Wapda, in case of exit by any of the parties, the remaining parties have the first right of refusal.

Services International Hotel

The board did not accept the request of the Ministry of Commerce to remove the Services hotel from the active privatisation programme. Both National Insurance Corporation and the Ministry of Commerce opposed the privatisation.

The commerce ministry took the position that due to depressed real estate market conditions, the property might not get a favourable response from investors. 

Published in The Express Tribune, December 19^th, 2018.

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