PIA will be among half a dozen entities that have to be privatised by December 2014 as part of the IMF condition. PHOTO: FILE.
The government on Thursday approved to sell 26% or more shares of 31 state-owned entities including Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM) – to fulfill a key condition of the International Monetary Fund’s (IMF) $6.7 billion bailout programme.
The list was approved by Cabinet Committee on Privatisation (CCOP), three days after expiry of September 30 deadline set by the IMF for giving a detailed plan for these entities aimed at turning around the loss making firms and reducing the government’s footprints.
Privatisation Commission had tabled a list of 30 items but the CCOP – headed by Finance Minister Ishaq Dar – added Lakhra Power Plant at the eleventh hour. Lakhra’s privatisation would be subject to approval by the Council of Common Interest (CCI), as the plant was not among the 65 entities that the CCI had earlier approved for privatisation and restructuring.
Last month, the Supreme Court of Pakistan had struck down the Lakhra Power Plant’s 20 years’ lease to M/s Associated Group after finding faults in the lease agreement. The apex court had declared the lease as illegal and void and directed the federal government to conduct an inquiry to fix civil and criminal liabilities on beneficiaries in accordance with law.
Among the approved 31 entities are the PIA, the PSM, Pakistan State Oil, Islamabad Electricity Supply Company and Gujrawanala Electricity Supply Company. The government has already announced to sell 26% stakes of the PIA to a strategic partner but the inclusion of the PSM was a surprising one.
Earlier, the government had announced to restructure the loss making entity instead of privatising it after the main opposition party in the National Assembly threatened to launch a country wide strike.
According to a Finance Ministry official, it was not necessary that the government will privatise all the 31 enterprises. He said the approval was given in bundle and after Eid the Privatisation Commission will bring a list of half a dozen among 31 entities that could be privatised on fast track basis. However, the PIA will be among half a dozen entities that have to be privatised by December 2014 as part of the IMF condition.
“The future of the employees and political backlash against the privatisation will be key determinants for reaching a decision of full or partial privatisation,” the official said.
The CCOP directed the Privatisation Commission to ensure that the interests of employees were to be protected at all cost, according to a handout of the Ministry of Finance.
He said it was also not necessary that the government would sell only 26% shares. There was possibility that on case to case basis the government might sell majority shares to the private parties if the strategic partners refused to take management with minority shares.
A federal minister, who attended the meeting, also showed apprehension that the strategic partners might not like to take management control with minority shares.
“However, in case the bidder seeks majority shares, the entity will again be brought in front of the CCOP for fresh approval,” he added. The CCOP approved four-pronged plan for these entities that revolved around off loading shares in the stock market, handing over management control to the private sector, divestment and selling assets where necessary.
The government will offload shares of Oil and Gas Development Company Limited, Pakistan Petroleum Limited, Pakistan State Oil, Habib Bank Limited and Untied Bank Limited, as these entities were already registered in the stock markets.
The CCOP may decide either to handover management control of National Insurance Company Limited or issue Initial Public Offering (IPO) at stock market. Islamabad Electricity Supply Company and Gujrawanala Electricity Supply Company would be offered for strategic partnerships.
“Despite approval for privatisation, there is a possibility that the PSM will be restructured given the opposition to its privatisation,” the officials said.
Published in The Express Tribune, October 4th, 2013.
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@Sexton 47 million Americans on food stamps are number of people and NOT number of households. Take a family 11 on food stamp for example. Atleast they have food stamps that they paid in to through their work? What do you expect Government to keep FEEDING people?
What exactly are you suggesting here? Government run businesses, provide jobs and do every thing for people? Where will the money will come from. Do you understand in Pakistan, the railways, steel mills and PIA are bing funded from debt from IMF and not from private equity.
The budgetary problems in US has nothing to do with privitization. You contine to mix theories and as I said, take a step back and try to get handle on at least one of them. Free markets have allowed the US to actually have most millionairs in the world, a single largest middle class. In free markets, you take risk and you have return, people make poor choices and they pay for it! What it has to do with Privitization? If anything US budget crisis tell us is that Government should totally stay out of private businesses. The european model of semi partial welfare state is miserably failing. See examples of UK's NHS etc.
Long story short, you are really confusing many theories here. Privitizaiton in Pakistan has nothing to do with what is happening in the US. The US economy, where it is today is because of free markets. The Free markets breed competition, the fittest survive and the whole society move forward. When Governments become mothers, run businesses, let people have jobs for eternity, have pensions systems that are unbearable, economy stalls like in Pakistan. Do yourself a favor, get an understanding of free markets. BTW if US economy is such a bad thing, why do most of us come here and stay here?
@H Chaudhry: Dear H Chaudhry, It is quite obvious that you deliberately misinterpret available facts to suit your particular argument, which appears to change quite rapidly, and you ignore other facts if they do not support your changeable theories. For example, you originally stated that not many Americans were on food stamps. Now you are saying that 47 million Americans are on food stamps, but they are not doing too badly. I personally, hope my situation does not get so bad that I have to live on US food stamps. Interestingly, have you been keeping in touch with the current US budgetary problems? Perhaps the problems are due to the fact that America, the home of private enterprise, has a debt level in excess of 60 trillion dollars, and unfunded liabilities well over 200 trillion dollars. In other words, America is broke and cannot pay its bills. However, I will not say any more, because you may accuse me of mixing more economic theories.
Sexton you are again wrong! you continue to mix several concepts here and I am quite sure you have no clue what this "Truth" you are speaking of. What happened in 2008 Mortgage backed Security crisis is nothing to do with discussion here. Pakistan has long way to go before a Wall Street sort of incident happen and even in that incident many people made millions while the people who wanted quick rag to riches by owning huge homes paid the price. It was simple risk and return, some too huge risks and paid price but all of this has NOTHING To do with Government Run Vs. Privatization. It is really basic economics. The rise of middle class of BRIC countries is only due to privatization.
BTW 47 million Americans who are on food stamps are still better off than most people in Pakistan and are able to get Food Stamps because at some time they had jobs in the private sector and contributed/paid in to these programs through FSA taxes etc. It is due to economic cycle and again nothing to do with Government run vs. Privatized businesses.
Any ways, I suspect there is not much to discuss here since you apparently are mixing many theories. Take a step back and educate yourself on basic economics and free markets instead of giving out of context and irrelevant examples in the name of so called truth.
@H Chaudhry: Dear H Chaudhry, I am not absolutely certain what you consider to be a small percentage in regard to food stamps. However, 50 million Americans on food stamps seems a high percentage to me. I will not go further into your other inaccurate statements, but would point out that the derivatives disaster perpetrated by the US banking system is a clear example of private enterprise falling down on the job. I could give further examples, but I have a feeling you cannot handle the truth, or do not wish to.
@Sexton You are absolutely wrong about every thing in your last post! Not huge percentage of people are on food stamps here in the US rather a low percentage including a majority of Mexican/Latino immigrants. You are mixing privatization with capitalism! I suggest getting a basic idea on both will be a good start. Governments by its very nature are not suited to compete in business world. No where in the world a government run business competed a private organization with out government subsidies.
Add to this the inefficiencies Government bring! These inefficiencies due to its very regulatory nature of government are inherent to every government, a driving force behind inefficient government run businesses. The government by its virtue can not and should not run businesses because it will never be able to make those "Tough" decisions that only true businessmen can make. People who are not productive need to be laid off, jobs are not supposed to be forever, unions are bad etc etc and all of this is something only true private businesses are able to tackle.
What PMLN is doing is a good step forward and it should be done quickly with steel mills, railways, and every other entity that is a business should be run by those who are able to generate profits and make tough decisions.
For those who think privatization is bad - can you name anything that the Pakistan govt is currently running that works well? You can't produce sufficient energy because you set rates low to get votes, don't collect fees, and don't maintain the infrastructure. Your railroads, steel mills, and airlines are lousy and generate enormous losses. The real issue over privatization is getting the govt completely out of the picture - selling off 26 percent makes no sense.
Well done! PMLN is doing what its known for, instead of improving efficiency, it's all set to sale even the profitable entities. They are only interested in the efficiency of the companies owned by the Sharif family, they give a cows dung about Pakistan and its interests.
Ask IMF how much can they pay if whole of Pakistan is put on sale as it may still not be enough to run the country ?
PRIVATIZATION I am sorry to give a reality check about privatization being good for the economy, but it is not necessarily so, and there are factors for and against it with a mixed economy being the best, because it provides a balance, Basically, the private enterprise system is one which is designed to make a few people extremely wealthy and the rest very poor or just getting by. If one looks at the Sub-Continent I would hazard a guess that 90% of the population in all countries are just getting by, which is what the private economic system is designed to do. Even if one looks at the US, which is touted as being the wealthiest country in the world, most of the manufacturing jobs have been transferred off-shore to low wage countries. As a result a huge percentage of Americans are either on food stamps, the dole, unemployed, or in low-income jobs with a resulting drop in their standard-of-living. The problem is that most people in Western type economies have been conditioned from childhood through college/university that full private enterprise is the only way to go. I personally have noticed many fine countries with mixed economies, which provided a balance, become harder to live in once they were fully privatized and/or the controls taken off. I could go into the mathematics of macro and micro levels of economics by using differentiation and calculus. However, it is hardly necessary to give a mathematics lecture to the average person in order to explain that bills are greater than his income or reducing his standard-of-living. Best of luck Pakistan, and start taking note of all the new millionaires/billionaires who will emanate from the new crop of private industries as result of the largess from their buddies in Government
There is a typo: United Bank is written as Untied Bank.
@ Ch. Allah Daad
If Government job is only to provide even playing field, then why did Punjab gov poke into petty Metro Bus service...........when everything on sale and subsidy is been removed why does,nt Metro bus is privatized?
Will Pakistan allow Indian companies to buy some of these 31 public entities that will be privatised? What will be the FDI from India allowed?
Sexton Blake is dead right. Privatisation is a curse for the people. Everyone is fed up with privatised services. The quality goes down and the prices go through the roof. I and Sexton Blake are talking from our experiences and experinces of millions of people who endure the prils of privatisation. What more can be the proof of what we say as the IMF imposes it on reluctant governments. Do we not know what IMF stands for. Grow up those who do not know it. The only solution to the problem is worker participation and efficient management. Everywhere in such establishments workers must be made aware of the fact that they are in employment only because they are working hard to make the organisation sucessful.
Privatization,
It is interesting to note all the doubtful put-downs on my previous missive in regard to the privatization of electricity in the country I am currently living in. I mentioned in so many words that I am currently paying Rp240,000 per annum as a result of privatization, and many subscribers criticized me. In particular H. Chaudhry.who suggested I was stupid.. However, if H. Chaudhry wishes to give me his post-office box number I would be pleased to give him a copy of the invoices I receive from my current electricity supplier. If any other person wishes to discuss the upside or downside of privatization I am perfectly willing to discuss it. Unfortunately, ET gets a little upset when I try to discuss the downside of world hegemony. Incidentally, I have lived in Europe, USA, UK, Australia so I have some idea of prices, and what the downside of privatization can be.
@Khan: What a typically ignorant statement. That was not what he was saying at all. Please learn how to argue before making stupid remarks. Stick to the topic.
Privatization is good for the country as long as national assets are not given away for nothing to people like Mansha.
Our goverment should atleast try to fix the problems of these enterprises. But now it is clear that they don't have the skills to do it themselves and the short cut and simple way is to sell off. What is the difference between previous government and this government is that previous one was just living with the problems and doing nothing about it and this government is selling the problem to private sector. I am sure people will lose their jobs upon privatization.
This is one good thing IMF has demanded !!!! I am only a layman in economics but my mind still boggles on the successful business of Ittifaq Foundries and the state of affairs in Pak Steel Mills !!! the difference of AirBlue and PIA and so on ...
PMLN always pulls this propaganda, when it wants to throw away national assets to their buddies, and front men. Like MCB to Mian Mansha in 1990s. This time its bigger fraud. 75% discount. You pay only 25% of the price, and it is yours. I see dollar signs in the eyes of PMLN leaders.
PMLN has been the strongest proponent of privitization in Pakistan. They pioneered the process in 1992, made it part of their manifesto with detailed plans but now the media is telling the public it is being done for IMF!!!
@Khan: @H Chaudhry: @Sexton Blake: Agreed. Privatization is healthy for the entire economy with the presence of strong regulators (CCP, SECP) and backed up by strong commercial laws to settle disputes, check pricing policies, administer and supervise the workings of the markets, arbitrate where desirable instead of lengthy court cases. In the absence of an omnibus commercial law and strong regulators, the corporate entities off the list will be money minting machines for the owners. In the absence of educated regulators and a juridical system, the privatization will be another item off the IMF agenda and take the citizens for a ride (KESC privatization). Salams
@Ch. Allah Daad: Dear Ch. Allah Daad, Where I am currently living electricity has recently been privatized, and my bill has almost trebled in a very short period of time. My monthly invoice now comes to $200.00 per month, which I understand is approximately Rs20.000 per month in Pakistan. I have great difficulty in paying my bill. From what you indicate Pakistanis living in Pakistan do not mind paying this amount of money, which would suggest they are more affluent than I so congratulations. I am very envious of you people.
@Sexton Blake: What else is left to drop off? Maybe a plane dropping off the sky.
@Sexton What you said is entirely wrong and quite pathetic! Some of us who happen to live in western world or have lived can chime on easily that what said is totally wrong. Privitization breeds competition, businesses compete for consumers on either price frontiers or comfort frontiers. It is really basic economics and nothing else. Get your head out of this stupidity.
@Sexton Blake,
I dont know which country you are referring to, but the countries I have visited(almost all of Europe) privatization has been hugely succesful. If something as you say occurs its the failure of of the govt dept of competition and fair play (dont know the exact name) as also mentioned by Ch. Allah Daad.
@Sexton Blake: In India privatization, which was not restricted o sale of public sector nits but also the government vacating monopolies in sector after sector to allow private sector to operate led to reduced costs due to increased competition, reduced shortages (and associated corruption), increased choice and improved service levels.airline industry, telecom, television broadcasting, steel making (where except for a hundred year old Tata factory which was grandfathered, there was no private sector representation are just some examples.
In any case @ch.Allah Daad says government has no business being in business. Instead of providing subsidies o elite services such air travel it should invest that same money in education and healthcare.
Get ready for national assets to be looted by overseas bankers like they did in all third world countries. Best of luck to economic managers hiding behind politicians and doing dirty work for banksters overseas.
@Ch. Allah Daad: Then why govt. promise jobs to its voters and privatise when come into power utter nonsense
@Secton Blake If every business was run by US govt. the whole country would have gone into shut down mode right now! Privatization enhances competition and improves services yes prices may go up but so do performance and profitability. The country like Pakistan who actually forks out money to run those state owned agencies is better off without those white elephants. Governments should just govern the country and and implement the regulations and build strong regulators.
@Sexton Blake: Your comment is highly regrettable. Its not government's job to do business. Government's job is to provide even playing field for all competitors.
Privatization is occurring, or has occurred in all the Western countries. When it happens service drops off and prices go through the roof.