Privatisation Commission board refuses to back cabinet

ISLAMABAD:

Members of the Privatisation Commission (PC) board have refused - for the second time in a week - to own a decision of the federal cabinet on giving Roosevelt Hotel on lease for a joint venture and instead decided to first get third-party advice.

The PC board, which met on Wednesday, also deferred decisions on transaction structures for divestment of 10% shares each in two blue-chip companies - Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL) - due to unfavourable market conditions.

Headed by Privatisation Minister Mohammad Mian Soomro, the PC board also deferred a decision on divestment of 18.39% government stake in Mari Petroleum Company Limited (MPCL).

The PC board discussed the issue of Roosevelt Hotel, New York, in detail primarily to review whether the board should accept the federal cabinet’s instructions or get opinion of the financial adviser for determining a suitable mode of hotel’s privatisation, according to PC sources.

They said the board members were of the view that the cabinet’s decision that the hotel may be given on lease for a joint venture limited the scope of work for the financial adviser. The lease is one of many privatisation modes.

The board decided that it would not give its stamp of approval to the cabinet’s decision and instead would wait for recommendations of the financial adviser that would be hired.

The PC board’s decision would save it from any possible investigation in future as under the Privatisation Ordinance and regulations, the mode of privatisation transaction had to be initiated by the board.

In case of Roosevelt Hotel, the Cabinet Committee on Privatisation (CCOP) on July 2 recommended to the federal cabinet that the “Privatisation Commission should initiate the process of appointment of financial adviser to undertake the envisaged lease of Roosevelt site for setting up a joint venture project for prospective mixed-use development, through the best suited mode of privatisation, as delineated in the PC Ordinance 2000”. The federal cabinet on July 7 ratified the CCOP decision.

“While targeting lease as the mode of privatisation, we are preparing terms of reference to hire the financial adviser but the board will review whatever recommendations the adviser gives about the mode of privatisation and then will take decision,” said Samreen Zehra, the PC spokesperson.

“The board was informed about the status of appointment/hiring of financial adviser on part of the Ministry of Privatisation in light of the cabinet decision,” according to a PC statement issued after the meeting.

Last week, the PC board had also discussed the privatisation of Roosevelt Hotel, an entity owned by Pakistan International Airlines Investment Limited (PIAIL) that was profitable till 2019.

The board had been informed that PIAIL refused to upgrade the valuation study despite a decision by the CCOP on July 2. PIAIL in July last year had engaged the services of Deloitte Transactions and Business Analytics LLP for conducting a feasibility study.

In November last year, the CCOP set up a cabinet task force for privatisation of the hotel but it had to de-notify the task force on July 2 as it was in violation of the Privatisation Ordinance 2000.

Other matters

The PC board considered legal and other impending issues in relation to the privatisation of Pakistan Engineering Company Limited (PECO) and deferred further action till August 20, keeping in view the commitment of resolution by the Ministry of Industries, according to the PC statement.

The PC board also considered a proposal for attracting investment from international exploration and production (E&P) companies in OGDC by increasing the divestment of government shares up to 10% compared to the earlier decision of up to 7% by the CCOP.

The board deferred the OGDC transaction status until market conditions improved. Due to low oil prices in the international market, there is no appetite in the market.

The board also gave due consideration to the recent stability in crude oil prices in the international market, the OGDC share price trend and its higher dividend yield.

Soomro stressed that matters regarding subject transactions should be completed steadily to avoid unnecessary delay in the completion of these transactions. He further added that the resultant cash flow will help the government in debt retirement.

The Petroleum Division also informed the board that recent per share value of OGDCL is far below the earlier offered divestment price of Rs216 in 2014. They also expressed that, “being the administrative ministry of OGDCL they feel it incumbent to request that the PC may review the ongoing process and not resort to selling the GOP’s 7% share in OGDCL at this stage”.

The Petroleum Division wanted instead of 7%, about 10% shares may be offered to a strategic investor company, preferably a well versed oil & gas sector exploration & development (E&P) company. However, the board members did not endorse the views due to depressed market conditions.

Historically, OGDCL share has seen highest value of Rs276 in December 2013 and post December 2014 has not exceeded Rs200 mark. It dipped to Rs77 at end of March this year and was traded around Rs115 this month.

The board also deferred the PPL transaction decision about offloading 10% stakes in the market. The last government had divested 5% shares of PPL in June 2014 at a share price of Rs219. In March this year, the share was traded at Rs69 and was around Rs87 at end June 2020.

There was also no decision about offloading 18.39% shares of Mari Petroleum. The Fauji Foundation had concerns about losing management control in the process of privatisation of MPCL. There was also an issue of removal of cap on dividends payments by the MPCL, which is capped under an agreement.

Published in The Express Tribune, July 30^th, 2020.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.