Energy giant: Bid to privatise OGDC raises questions

Published: December 1, 2013
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According to the financial results, OGDC made a profit of Rs90 billion in the last financial year and contributed Rs129 million in taxes to the national exchequer. PHOTO: FILE

According to the financial results, OGDC made a profit of Rs90 billion in the last financial year and contributed Rs129 million in taxes to the national exchequer. PHOTO: FILE

KARACHI: The government looks determined to implement the ‘reforms’ programme associated with the fresh loan agreement with the International Monetary Fund, in which putting privatisation on a fast track is a key part.

After signing a structural adjustment programme in the late 1980s, the privatisation of state-owned enterprises, though, had been the priority of successive governments, the pace of privatisation had remained very slow in recent decades. Now, the PML-N government, which is widely believed to be business and investment-friendly, is committed to privatising some loss-making enterprises along with profit-earning giants like Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL).

Apart from poverty alleviation and clearance of state debts, the prime objective of privatisation is to earn profit. So people ask why the government is initiating the process of selling the major oil and gas producer, OGDC, which is the most profitable organisation in the public sector.

According to the financial results, OGDC made a profit of Rs90 billion in the last financial year and contributed Rs129 million in taxes to the national exchequer. Similarly, it contributed Rs5 billion to the state budget. Keeping this in view, can we justify the privatisation of OGDC.

The second argument in favour of privatisation is that the change in ownership from the government to the private sector will bring improvement in the efficiency of the profit-making organisation. This may be true anywhere in the world, but in this country it is fraught with concerns.

Corruption is a major cause of mounting losses in state-owned enterprises, so the government may go for tackling corruption, instead of privatising the companies.

Not only this, corruption also occurs during the process of privatisation. The decision of the Supreme Court cancelling the privatisation of Pakistan Steel Mills, where the value of the entity’s land was higher than the privatisation bid is one of the examples, showing that the privatisation process could lead to corruption.

The government has opted for an easy way out – selling state assets by privatising the oil and gas industry players to repay the country’s debts and reduce poverty. Instead, it should improve its fiscal conditions by increasing revenue collection. Why not the government steps up efforts to generate more taxes?

The privatisation of the oil and gas sector is also opposed in the context of global scenario as some experts argued in newspaper reports two years ago that three quarters of the world’s oil reserves were held by state companies and two of the 10 biggest oil companies were state-owned because securing access to natural resources was a fundamental pillar of national security.

The analysts agreed, while quoting a story published in The Economist, that ownership in a capitalistic economy was irrelevant to profit generation.

Pakistan is facing multidimensional challenges on the economic front in an era where the slogan of globalisation is considered a tactic to take control and exploit the resources of the developing world. In this regard, focus must be on the national and financial security of the state before going for privatisation of profitable state-owned enterprises in global capital markets.

The writer hosts business talk shows on FM 101 and Radio Pakistan and is pursuing M Phil degree in Economics

Published in The Express Tribune, December 2nd, 2013.

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Reader Comments (6)

  • khi wala
    Dec 1, 2013 - 8:39PM

    Wr were these bashers when 10-12% of State Owned Entities (SOEs) were handed over to employees during ppp govt? Author should do some math and understand a simple Secondary offering with max 10% divestment will bring how much to the national kitty. I am up for divestment in profitable entities and stake sale with magt rights for loss making cos ofcourse with the exception of strategic assets.

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  • Dec 1, 2013 - 9:39PM

    Wow, this government is horribly stupid.
    Instead of creating transparent audit bodies to examine why are these companies going in loss, they are selling them off.
    These are state-owned enterprises PML-N, they are the controlling assets of the country. If a private enterprise starts owning the state-assets; it would mean that the respective enterprise has the authority to REGULATE the functioning and distribution of the owned entities. In affect, it means we are practically handing over the control of government to corporates who know nothing of philanthropy or public affection.
    Now, my people, understand the consequence of privatization, please!
    If an energy giant owns OGDC, the corporate head of that company will OWN Pakistan’s power and resources. Under the capitalist law he can turn off, bully all the other dependents.
    I cannot even begin to fathom the stupidity and lack of foresight of this government. I am bogged down and almost desperate now, seeing that even someone such as myself who has started a career, with absolutely NO background in politics, public policy and governance can see through the consequences of these moves and these dull creatures cannot.

    My people do you think someone living in a mansion in Israel/US will care even if our poor people are driven to slave labour or organ sale? No. He will only care about profits.

    I apologize to the PML-N supporters, but there are nothing but deeply harsh rooted words for these foreign-lobby controlled puppets. My people? Why are we not dragging them by their necks out of their castles and throwing them to rot in caves? Do you not see what they are doing to us? It is treachery against us, high treason far above military coups, only if you understand.

    Recommend

  • Asad Khan
    Dec 2, 2013 - 6:48PM

    @The Failed Rebel:
    …relax Bud, This “Hair Transplanted Shareef” thinks he got fresh grey cells now.

    See, this is the reason when one starts its political career in Dictatorship and spoon fed in its business through undue favoritism all along. He is now addicted to power.

    Now, I am not against Privatization at all BUT I am not an advocate for loot sale. OGDC & PPL should not be privatized wholesomely (never will) only 40 %to 45% privatization should be allowed in these organization so that they can gain capital for exploration of new sites.

    Honestly, I don’t think that Khahkis will let Sharifs sell OGDC & PPL. completely (These are strategic organizations)

    While PIA & PSM are no a threat to our country as such as along as they remain in friendly country hands. (I.e PIA for Turks and PSM for Chinese).

    New Zealand Airways is now owned by Qantas. There was much hue & cry in Zealand about this when it was initiated but all calm & profitable now.

    There is no harm in completely privatization PIA& PSM, the sooner the better, but if there is another way to but these into profit making other than privatization, then I don’t mind it.

    regards,Recommend

  • Dec 2, 2013 - 7:38PM

    @Asad Khan:
    Buddy, what do we lack that we have to resort to privatization? We have the brains, we have people with vision. Unfortunately they are not allowed to come to power.
    My family does active business with PIA, Railways etc. Let me tell you the only reason these organizations are going down is because of blatant corruption from top to bottom;
    from procurement to pilots and drivers.
    IK might have personal flaws, everyone knows them, but he is honest towards his commitments. Yet again, media and elite lobbies are aligned against him.
    For me, it’s hard to be a party to the way Sharif is lying to my people. He has no sympathy for the poor. Already I hear of news where a father has to sell his kidney for food. People donating blood for money.
    Shame on the PML-N voters who brought this menace upon us.
    Asad, when you know things that I know, it’s hard to relax.
    Let me give you a glimpse:
    1. Crime will become rampant in the country due to the deteriorating conditions of the economy. Robberies, rapes, human trafficking, drug sale, extortion and prostitution will prevail.
    2. Do you know SBP is privately owned? Most people think that .GOV.PK means it is completely owned by government. It is NOT. Which means at anytime the share holders of SBP can make the inflation shoot 3 times within 2 months. (ZA Bhutto nationalized the SBP, but it was later given autonomy under Benazir Bhutto, then again under Nawaz. Do pay close attention how this happened AS SOON as the parties had established power. Says a lot about who was funding their election campaigns and what they wanted to achieve. Bankers control Pakistan just like they control most of the economies of the world. Makes me wonder who supported Zia from abroad to take Bhutto down.)
    3. The effect of all the monetary policies currently being pursued by PML-N government are engineered to decimate the middle class and keep a poor and elite class only.

    Usually, I abstain from disclosing all this to normal people because their lack of understanding gives rise to serious skepticism, and those who do realize start plucking their hair off.
    Do not compare NZ to Pakistan, our alliances and objectives are different.

    Also just food for thought, if Pakistan has about $4 trillion worth of reserves, why are the rulers not excavating them?
    Okay, there is no peace in KP and Baluchistan. Who is creating the unrest? Radical factions of TTP? Why do the bodies of several killed TTP convicts portray characteristics of Non-Muslim males? Why are the funding sources of TTP from RAW/CIA? Can people who cannot even build roads be a threat to USA which is in another continent altogether. Why does Bush family have close oil business ties with Saudi Bin Laden Group?
    Rest of the stuff is redundant, you can find it on my blog. Open your eyes ;)

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  • roadkashehzada
    Dec 2, 2013 - 9:36PM

    so here is the deal, if govt sells loss making units like pak steel, it will obviously bring little money owing to huge debt and accumulated losses on balance sheet. but public and judges will measure that by land owned regardless of loans and losses owed.
    and if governemnt sells profit making entities, we ll start labelling it corruption regardless of getting into details.
    OGDC is the biggest company in karachi stock exchange and is only 15% listed (including 12% foreign investors). if govrnment sells another 10% or 20% it will still have the more than 50% holding, still contribute same amount of tax and 20% lesser to national budget. so basically we ll trade off 1bn (20% of 5bn) with 20% sale and will probably get in the range of USD1-1.5bn from privatisation (just a guess)
    for God sake, dont scare international investors by media coverage/party affiliation. they are still recollecting their confidence in pakistan

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  • Asad Khan
    Dec 3, 2013 - 12:20AM

    @roadkashehzada:
    …golden rule of Privatization.

    Do not sell golden egg lying goose. (OGDCL, PPL)

    Tension is the commodity to sell, not to buy. (PSM, PIA)

    regards,Recommend

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