Going ahead: Government elaborates privatisation methodology

Future revenue of public entities to be included in price determination.

ISLAMABAD:

The government has decided to consider the future revenue streams of public entities in the price determination methodology for privatisation purposes, as heavy losses incurred by the Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM) have reduced chances of getting a good price if reliance was only made on traditional benchmarks.

The government will not use a simplistic evaluation methodology for determining the prices of entities which will be offered for privatisation, as it will also consider future streams of payments, said Minister of State for Privatisation, Engineer Khurram Dastgir while addressing a news conference. He added that the government has the requisite expertise for evaluating public entities for privatisation.

It was for the first time that any senior government functionary openly appeared to sell the government’s privatisation policy in a bid to address increasing concerns about the prospects of selling about three dozen entities, and the future of their employees.



The accumulative losses of PSM and PIA have increased to Rs358 billion, said the minister. PIA’s accumulative losses are Rs250 billion, while the PSM’s accumulative losses stand at Rs108 billion, he added.

Dastgir said the government does not have the resources to make the necessary investment in PSM and PIA.

“These institutions cannot be run in the present condition, and, if the bleeding continues, the coming governments will not have resources to meet social obligations,” said Dastgir, while reiterating his government’s commitment to the privatisation policy.

He said that the Council of Common Interests (CCI) had in the past years approved 65 entities for privatisation.  The government has identified 10 to 12 entities that will be offered either for strategic partnership or be taken to the capital markets in the first phase, said Dastgir.

He said these entities will be placed before the CCI again and a meeting will be called shortly. Dastgir said the first phase of privatisation will be completed within a year.

In response to a question, Dastgir maintained that CCI’s past decisions were legally intact unless the newly-constituted CCI decides to revisit them.

The Privatisation Commission (PC) Board will decide to hire financial advisors in the next month for the identified entities, said the minister. These advisors will be responsible for evaluating each entity, said Dastgir, but added the board could disagree with their evaluation and ask them to work out the base price again. He said the appointments of financial advisors and commitment to reforms were critical for the success of the privatisation process.

The IMF has also imposed a condition on the government to appoint six financial advisors in this fiscal year.

He said the government decided to transfer 26% of the shares along with the management control of the entities where applicable. “It is not privatisation but a public private partnership to stop hemorrhaging,” he added.

Dastgir said the availability of liquidity in any particular sector will determine the numbers of transactions in that sector.

“The IMF’s interest was not what steps the government takes rather it were concerned about whether the government was taking right steps to make sure that Pakistan returns its loans on time”, he added.  He said the IMF has found the PSE’s losses to be the largest black hole in the budget.

Published in The Express Tribune, November 20^th, 2013.

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