The compelling reason for privatisation is to save Rs500 billion which is being spent on subsidising the elephants of the public sector — the Steel Mills, PIA and the Railways — which are very difficult to sell.
Under the cover of these difficult-to-privatise mega public-sector losing units, the government has added 32 more units, many of which are highly profitable and some of which are not in the private sector in any country of the world. This includes the Civil Aviation Authority, the Karachi Port Trust and the National Highway Authority. In no country of the world are airports and Air Traffic Control in private hands, much less sold by auction. Management of seaports is in private hands in many developed countries but not in any developing country. National Highway Authority is a government institution for the supervision of road construction. It can be abolished but cannot be privatised.
Privatisation has a serious negative impact on employment, which is the most serious economic problem of the country. Public-sector units are overmanned and the analysis of privatisation in the last two decades shows that more than one-fourth of the labour force became redundant due to it. The new wave of privatisation will substantially increase unemployment.
The growth of any economy depends, among other things, on the level of investment. At present, Pakistan is investing only 12 per cent of its GDP, whereas the rate for India is more than 20 per cent, and for China it is more than 40 per cent. Privatisation is not investment as it does not add to the capital stock and create new jobs. Instead, it kills fresh investment because instead of pioneering new units which add to the capital, create new jobs and additional taxes for the government, the investors buying privatised units neither add to the capital stock nor create new jobs. Privatisation, therefore, deflects investors to buying old units instead of setting up new ones.
Almost all oil and gas public sector units like OGDCL, SSGPL, SNGPL and PSO, etc. are on the list. No developing country in the world associates the private sector with the oil and gas discovered with public funds. These reserves belong to the nation, which should be the sole beneficiary of these very difficult-to-discover entities. Oil and gas discovered by private parties belong to them. Privatisation Commission pundits estimate that 10 per cent shares of OGDCL will fetch $850 million. The 10 per cent profit will be about $100 million. No buyer will buy assets in strife-torn Pakistan with a payback period of eight and a half years. In the Musharraf era, a lot of units were sold to foreigners. This resulted in a surge of remittance of investment income from $2.1 billion in 1999-2000 to $5.5 billion in 2007-08.
The Council of Common Interests has decided to privatise the DISCOs as they could not collect electricity charges from the users in their areas. If the government with all its administrative and coercive machinery cannot collect electricity charges from the users, then how can a private party do it? The provincial governments very wisely refused to take on this responsibility.
Privatisation is not being driven by national interest but by the IMF to plug holes in the budget and balance of payments. Selling strategic and highly profitable units may plug holes for a year or two, but this would lead to permanent loss and foreign exchange liability till eternity. Privatisation is not the driving force in the outstanding economic performance of China, Brazil, South Korea and recently, Turkey. State capitalism is thriving in many emerging economies. This large-scale auction of public wealth should not appear to be a typical case of crony capitalism in which the ruling coterie doles out favours to their political pals.
Published in The Express Tribune, February 18th, 2014.
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COMMENTS (8)
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When I started reading the article, I came across these lines and I knew then that the article wouldn't make any sense at all.
Really, eh?
I believe the author has never heard of Heathrow Airport in London. Or has he? But does he know the airport is a private company and owned by a couple of shareholders? I recommend all of you to check out this link for tons of international and domestic airports which are private:
Airport operators
I don't know where he got that no seaports are in private hands in developing countries. Here are some of ports operations companies, and many of properties they own are located in developing World, such as Indonesia, Argentina, China, India, etc.
Port operators
Wow, why is he so keen on abolishing a prime national asset? And who has given him a right to dictate that highways cannot be privatized? Does he know that a 100 km expressway in India is privately owned? Approximately 35% of road network in Europe is private? And we have many other examples, here is a link:
Privatized highways
This article is purely based on whims and assumptions of the author. I do believe that he would be a very capable and intelligent gentleman, but one must atleast report the facts as they are. I was able to gather this much data with simple searches on Google. I wish the author had done so too. Frankly, its everyone's right to criticize bad policies of a government, but criticizing merely for the sake of criticizing is something we Pakistanis love to do.
Quite an interesting read. Privitisation is a matter of great debate and it is hard to find all people on the same conclusion. Having lived in the UK for over a decade now, everytime there is a train delay or tube strike or hike in electricity prices, public blame Maggy Thatcher for that. She privitised almost the entire state owned enterprises during her tenure.
Whilst this has had a negative impact somehow on these services, surely the quality and scalability has increased manyfold. Any private company will not allow its employees to not contribute for what they are paid.
It is rather interesting how the author in the first para says "Selling public sector units, especially those that are profitable, has been widely challenged." Whilst you have named all the loss making entities, it would be nice to know which ones are the profitable ones too? Maybe I can keep an eye and acquire the money making ones...
On the matter of oil and gas explored by the state should be owned by the state. Somehow I cannot disagree more with this statement. The British government had laid down the cables across the country for British Telecom (BT) - this has been privitised and now owned by the shareholders. What the government has to do is impose a tax on the enterprise to recover the investment over a long term.
I will conclude with two short stories/experiences I recently had.
Recently had the misfortune of travelling on a Pakistani airline (state owned) from London to Islamabad. The carpets were dirty - to the point that there was a stale smell in the aircraft. The air hostesses were pretty rude and one passenger asked for a blanket to which the airhostess replied "ab itni bhi sardi nahin hai ke app ko kambal chahiye hai (its not that cold that you require a blanket). Do you think an airhostess could keep her job for long with such an attitude on a private airline, like Emirates or VirginAir?
I visited some family friends in karachi who happened to be the chairman of one of these entities you have mentioned above. The state owned entity had provided them with a fleet of 11 cars (yes I kid you not, 11 cars) of which the cheapest car was a brand new corolla. That fleet included a Honda Accord, a Toyota Vigo, Prado and other expensive cars. I work for one of the largest companies in the UK and the CEO here gets a car allowance - not a car - of £9000 a year to cover his motoring costs. This is a company that is making over £700m profits every year. I dont think under private ownership this state owned entity would provide any cars - not 11 for sure - to its chairman who does not have any operational role at the company.
I would like to respond to Dr.Akhtar's lopsided op-ed in a detailed manner. If Express Tribune is interested, please drop me a message, so that I can start writing.
The K-Electric or formerly KESC good be cited a good example. KESC adopted a policy of announcing a loadshedding schedule and gradually minimizing loadshedding in areas where bill collection was thorough and regular. All the areas where bills weren't paid still face long hours of loadshedding.
It is now turning a profit.
I agree with the author regarding civil aviation.
Dr. Khan, this is the very best Op Ed that I have read on the subject of privatization. We have nothing much to support our excessive spending on million man army and perks. No country in the world has this huge army with hundreds of WMD with a tiny economy. Even large economies of the world are cutting down on these non-productive waste as they cannot sacrifice public welfare which we happily do. Sharifs are business men and they would sell anything to make a buck. They have to make a tough decision who to sacrifice civilians or the army? Sir, would you please write something as to the country, its nonproductive waste and negligence of civic needs?