Privatisation of state units: Drain on resources – the same old reason

Published: December 29, 2013
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Is it possible to have aircraft of only one manufacturer (either Boeing or Airbus) to make it easier to deal with inventory and other related issues like crew and engineering departments?

Is it possible to have aircraft of only one manufacturer (either Boeing or Airbus) to make it easier to deal with inventory and other related issues like crew and engineering departments?

KARACHI: 

We are in for another round of privatisation of state assets. PIA could be the first institution to go. The reason given, for the public, is that it is a drain on the public exchequer.

Well, this reason is not new and has been floated whenever such decisions are made. It is so easy for the government to admit its inability to revive state assets or put in place systems in public organisations. It wants to spin off non- productive state-owned enterprises, without considering who was the sponsor of such institutions?

Unfortunately, the poor who financed these institutions for the rich to use this mode of transport, have no say in this or any other such decision. More than 80% of the population are not supposed to pay any income tax but are forced to pay indirect taxes because the government does not have the ability to tax the rich.

If the loss-making argument holds true, then why we have not heard that all non-performing state departments will be privatised. What are the achievements of Pakistan Customs, Federal Board of Revenue and other departments.

Have we heard that the FBR should be handed over to a private-public partnership. How much public money was spent on setting up the customs department and yet it is a failure. The personnel heading the department have ever thought why there is a gap of more than $5 billion between the books of Pakistan and China in export and import figures.

Finding the reason for this massive evasion is so hard that it is better to hide your head in the sand. It is an open secret as to who have been the beneficiaries of this corruption.

As always, the baboos, along with investors, are trying to portray that privatisation will help the poor as more funds for development will be available. Before taking the decision, did we think what happened when the cement industry was given in the hands of private sector.

It was said that once privatised, efficiency of cement plants would increase and that would lead to a decline in cement prices in the market. However, once it was done, cartels were formed and prices doubled within two years.

It is exactly the same in the case of banks. International practices are only applicable to administrative expenses. No one has time to look into the international practice on the spreads. Privatised banks are making money at the expense of the industry.

In the case of PIA, has anyone thought of reviving this enterprise and what are the reasons for the losses? Can we reduce losses and make this organisation profitable if the hub is shifted to where all the traffic terminates (Lahore). Is it possible to have aircraft of only one manufacturer (either Boeing or Airbus) to make it easier to deal with inventory and other related issues like crew and engineering departments?

Can we have better flight management? For instance, flights going to China and Spain have a stay of more than five days and the airline bears the cost of all crew members for these days.

The same holds true for Pakistan Railways as well. Here again, the private sector is ready to swallow the organisation funded by the poor. Soon, we will hear a cabinet decision that it is imperative to privatise this state asset too.

The government estimates that it spends Rs500 billion to cover the losses suffered by state assets and its financial wizards insist that if such assets are liquidated there will at least be a saving of Rs500 billion. So far so good.

Have they ever thought of adding the cost of their inefficiency in just one department, the FBR. Is privatisation of this department also a possibility since the government has been unable to control the losses?

The writer is an engineer and business graduate and is working in the industry

Published in The Express Tribune, December 30th, 2013.

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Reader Comments (12)

  • Parvez
    Dec 29, 2013 - 11:37PM

    If anything could revive PIA it would have happened over the last 15 years. The only solution is to privatise it……….those who argue against this either have a vested interest or simply refuse to take their head out of the sand.

    Recommend

  • Asad Khan
    Dec 30, 2013 - 12:07AM

    Sorry Author, Can’t accept this Mea culpa, anymore.

    Do the entire workforce of PSM, PIA, Railway ever thought of improving efficiency let alone reaching new heights, minimizing losses let alone balance at break even and for Pete’s sake to do justice with the Nation for which they themselves belongs to?

    NOT A SINGLE penny to any loss making corporations, Privatize FBR too, if it is worth a shot.

    enough is enough.

    regards,

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  • optimist
    Dec 30, 2013 - 1:21AM

    I agree with author’s honest intentions but disagree with the arguments.
    .
    State should have as few things to run as possible and should focus on law and order and governance. State should privatise any loss making industry first. As far FBR, that is not an additional business, it is part of state and having no worries about Steel Mill, PIA etc will help govt to make its departments work better.

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  • unbelievable
    Dec 30, 2013 - 1:34AM

    Privatization makes sense – what has never made sense is govt running steel mills, airlines, or other industries which can be handled better by private industries (as demonstrated throughout the World). Govt should stick to the basics – security and basic infrastructure – with less distraction maybe the govt can start doing a better job on the basics.

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  • Tariq Zafar Rasheed
    Dec 30, 2013 - 5:04AM

    With all due respect, the author does not know what he is writing about. I am on a PIA plane which was supposed to take me direct from London to Islamabad. Instead, we have been forced to make an unscheduled stop in Paris to collect passengers from another PIA flight which has suffered a technical fault. We have been sitting on the tarmac for the past four hours. Not only has the staff been incapable of seating everyone and transferring the luggage from the other plane, but chaos has broken in the aisles as the exhausted passengers are demanding some redress. I doubt this flight will leave for another two to three hours. The state of this airline is pathetic. Not only is it overwhelmingly expensive (I would have paid the same on Emirates), but the planes are antiquated, the service is terrible and clearly the flight schedule is not adhered to. Anyone who thinks this airline can be fixed whilst being in public hands is either ignorant, deluded or has some vested interests.

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  • Faisal
    Dec 30, 2013 - 10:58AM

    Whatever the author says maybe true and even if these organizations can be turned around through strong and skilled management, how will these institutions be protected from political interference and appointees? Other profit making institutes are also being destroyed (Port Qasim, KPT, etc.) or have already destroyed (Pak Steel) within a span of few years.

    If the government has the will, it can at-least appoint professional regulators in each of these industries, pre privatization, to ensure a fair and competitive field for the local players. SBP is a classical example on how to turn around a regulator through sheer brilliance of one man i.e. Dr Ishrat who is now doing a similar magic in IBA.

    Wish there were more foresighted individuals in other regulatory bodies like CAA, PTA, etc.

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  • Shaheryar
    Dec 30, 2013 - 11:02AM

    I dont agree with arguments put forward by the author. PKR 500 billion annual savings, through sale of sick SOE’s to the private sector is a very valid reason to off load these entities.

    Take the exmaple of Pakistan Steel. Had this orginazation been sold to Saudi investors—in 2007-2008, the accumulated losses figure of over PKR 50 billion would have been saved today.

    Another argument for selling SOE’s to private sector is the banking industry. Ever since the privitization of banks in early 90’s & issuance of license to private banks, the sector has grown tremoundsly over the past two decades & has grown to all most 11,000 branch network.During this period, banks have contributed billions of taxes & have generated jobs to the tune of tens of thousands—without seeking any assitance from the government, a sharp contrast to SOE’s like PIA & Pakistan Steel, who have to seek government support often, just to pay salaries to their politically inducted work force.

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  • Ali
    Dec 30, 2013 - 12:43PM

    The biggest problem we have with SOE is political interference. The PPP has absolutely destroyed these institutions by stuffing them full of their appointees.

    The first step isto get rid of excess workforce in SOE. The PPP will fight to save their minions using the similar arguments to those made by this author.

    We all know PIA has far too many employees. But vested interests prevent any lay offs.
    Privatisation would have prevented this in the first place.

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  • meekal a ahmed
    Dec 30, 2013 - 9:11PM

    @Ali:

    It is not only the PPP here who are to blame; they have all stuffed their toadies into the PSE sector. All PSE’s suffer from the same malaise.

    One thing the author did not mention: fuel costs. While the 747 may have been finally retired (except for Hajj?), the A-310 and Being 737-300 fleet, great gas guzzlers by today’s standards, need to go! Let them go gracefully.

    Choosing only one fleet-type is a no-brainer for a small carrier like PIA. Many airlines do that for the reasons adduced.

    But it has to be a package of measures. Not just tinkering on the edges.

    Recommend

  • Mohammed
    Dec 30, 2013 - 10:55PM

    All public sector businesses are stuffed with crooks(appointed by the PPP and PML) who have no interest in developing the business but looking to steal as much as they can.

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  • the-realist
    Dec 31, 2013 - 1:10AM

    The author should understand this:
    The chronic mismanagement and inefficiency that plagues our state enterprises and its functioning units cannot be rooted out instantly and all at once.Corruption is a tradition of decades here.
    The best thing then is to privatize institutions,that are a burden on the exchequer instead of philosophizing over the causes and remedies of their dismal state.
    States are not corporations.Their job is not to run businesses but to control the Executive and govern the country.
    I agree with the author that we should at least give a thought to the factors that led to this condition of these enterprises.However the costs and benefits associated with managing them should also be given weight and in case of PIA, railways etc.It is quite evident that state cannot run these due to decades of political postings and a culture of “mast mahol te meethay chawl”

    Recommend

  • Jan 1, 2014 - 12:08AM

    Sorry author, I’m not agree with your stance in case of Banking industry. Banking industry witnessed growth by manifold since its privatization. MCB Bank and UBL are two examples, they’ve done wonders in term of profitability, efficiency, etc.
    As far as supervision is concerned, SBP is watching all the time and it has introduced many reforms like minimum saving rate etc.Recommend

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