Govt to divest shares in four entities

The government has decided to shelve a plan to privatise four public sector companies and instead divest the shares in the four state-run entities to the private sector.

Sources told The Express Tribune that the cabinet had amended an earlier decision of privatising the four state-run entities working under the administrative control of the Ministry of industries and Production.

During the meeting of the Cabinet Committee on Institutional Reforms (CCIR), it was informed that the federal cabinet placed four firms on the privatisation list/transfer to Sarmaya-e-Pakistan; namely Southern Punjab Embroidery Industries, Khadi Crafts Development Company, Leather Crafts Development Company and Spun Yarn Research and Development Company, which had controlling shares by private sector.

The industries ministry had sought the guidance of CCIR regarding the fate of such organisations. The CCIR had observed that the option for transfer to Sarmaya-e-Pakistan was not tangible. Therefore, it decided to divest the shares of these companies to private sector shareholders. It further decided to seek opinion of the Securities Exchange Commission of Pakistan (SECP) in this regard.

Furthermore, in these four organisations, the private sector had controlling shares (more than 51%). Therefore, these organisations cannot be treated as public sector companies under the Companies Act, 2017.

Hence, the government was not in a position to decide unilaterally. The privatisation of these companies would require approval of their board of directors, majority of who were private investors. Therefore, the proposal of transferring these organisations to Sarmaya-e-Pakistan seemed a plausible option.

The matter was also placed before the cabinet for approval. The cabinet chaired by Prime Minister Imran Khan decided that shares of those companies would be divested to the private sector where the shares of the government were less than 50%.

Earlier, the Ministry of Industries and Production had informed CCIR that the federal cabinet approved merger of the following organisations with Pakistan Industrial Development Corporation (PIDC). These companies included Karachi Tools, Dies & Mould Centre, Furniture Pakistan, Technology Up-gradation & Skills Development Company, National Industrial Parks Development & Management Company, Gujranwala Business Centre and Industry Facilitation Centre.

The Ministry of Industries and Production further informed that the cabinet further approved privatisation of the following organisations and placed them on the list of privatisation/Sarmaya-e-Pakistan in March 2020.

These companies included National Fertilizer Corporation of Pakistan Private Limited, State Engineering Corporation, Morafco Industries Private Limited, Pakistan Automobile Corporation, Pakistan Steel Fabricating Company, Pakistan Chemical & Energy Sector Skill Development, Pakistan Steel Mills Corporation, Southern Punjab Embroidery Industries, Khadi Crafts Development Company, Leather Crafts Development Company and Spun Yarn Research and Development Company.

The Ministry of Industries and Production apprised that the Cabinet Division directed all ministries/divisions to examine the cases, approved under the scheme of “Re-organising the Federal Government” regarding executive departments/autonomous bodies and merger, transfer, winding up and liquidation of organisations, which involve litigation and, accordingly, place them before the CCIR.

The companies approved for merger were registered, under Section 42 of the Companies Act, 2017 (not for profit companies); whereas Pakistan Industrial Development Corporation (PIDC) was registered, under Section 32 of the Act ibid (for profit company).

To ascertain the legal viability of merger of a company registered under Section 42 of the Act ibid, with a company registered, under Section 32 of the Act ibid; Industries and Production Division consulted SECP and the Ministry of Law and Justice.

Both the SECP and Ministry of Law & Justice were of the opinion that merger of a Section 42 company, with a Section 32 company, has legal complications, under the Act ibid.

This created a condition of logjam for this Division, as far as implementation of the decision of the cabinet was concerned. In addition, the decision of the cabinet, regarding privatisation/transfer to Sarmaya-e-Pakistan, of the organisations was also ambiguous.

It was not clear whether these organisations were to be privatised or to be transferred to Sarmaya- e-Pakistan and, accordingly, which Division, either Finance Division or Privatisation Commission, would deal with their fate.

During the discussion, the Ministry of Industries and Production secretary stated that merger of not-for-profit companies with PIDC a for-profit company had legal implications due to divergent governing laws.

Special Assistant to Prime Minister on Petroleum Nadeem Babar had suggested an alternative option that PIDC could acquire assets of not-for-profit companies resulting into their closure.

However, Planning Commission deputy chairman had argued that assets of not-for-profit entities already approved for privatisation by the cabinet could be transferred to other not-for-profit entities. The Law and Justice Division also endorsed the views of planning commission deputy chairman.

Published in The Express Tribune, December 6^th, 2020.

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