The government has again backpedalled on the privatisation of Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM) to avoid political backlash, but will go all-out to sell stakes in profitable entities and issue Islamic bonds to raise $1.8 billion for budget financing.
The privatisation of PIA and PSM is now expected to take place in October next year, said Privatisation Commission (PC) Chairman Mohammad Zubair on Tuesday. He was offering about two-dozen state owned entities for investment to international investors at an International Investment Conference in Islamabad.
The deadline to sell a minimum 26% stake in PIA is June 2015. It was for the fourth time that the government has delayed privatising PIA despite clear deadlines set by International Monetary Fund (IMF). The lender had originally set the target of December 2014 for PIA’s privatization.
The government’s backpedalling on PIA and PSM highlights its inability to take tough decisions. Both entities top the list of enterprises inflicting billions of rupees worth of losses on the exchequer due to mismanagement. According to sources in the ministries of finance and privatization, the government is not ready to draw the opposition of Pakistan Peoples Party (PPP) and Muttahida Qaumi Movement (MQM). Thousands of PIA and PSM employees are affiliated with the two parties.
Zubair said that the government would split the PIA’s balance sheet and sell only its core business. PIA’s losses will not be the responsibility of the new buyers, he added.
While the government is reluctant to get rid of lossmaking entities, it has decided to continue with its strategy of selling the shares in profitable entities to raise money for budget financing.
“We are now moving to disinvest Oil and Gas Development Company Limited’s (OGDCL) shares worth around $800 million and the transaction will be closed early next month,” Finance Minister Ishaq Dar told the investors’ conference.
He added that work on issuing International Sukuk for $1 billion was also underway, which will be completed by end of next month. The money raised from these two transactions will be utilised for budget financing.
Both IMF and the government had been pushing for the privatisation of lossmaking entities. Lately, however, the government has opted for alternative strategies to finance the budget. PIA and PSM were not the only entities whose privatisation has been put on the backburner.
The government originally planned to privatise eight power distribution companies and four power generation companies within the current fiscal year. But according to Zubair’s presentation, only three distribution companies, Faisalabad, Lahore and Islamabad, have been enlisted for privatisation in the current fiscal year while the rest are delayed till next financial year.
“If we are able to complete the targeted transactions, the government can easily raise $4.5 billion through privatisation in the current fiscal year,” he said.
Zubair said the Faisalabad, Lahore and Islamabad power distribution companies offer better chance of investment and foreign investors should take advantage of the situation. He said the government’s 42% stakes in Habib Bank Limited will be sold by March next year and $1.2 billion are expected from this deal. He said the Allied Bank Limited’s shares will be sold next month.
“Until the government addresses legal issues, privatisation can never be a success story,” said Ahmer Bilal Soofi, an expert in international law. He said the bureaucracy was also reluctant to take forward the privatisation process, fearing inquiries by National Accountability Bureau, Federal Investigation Agency and audit objections.
“Civil servants should be given indemnity even if they make wrong decisions,” said Soofi. He added that judicial activism has also damaged the cause of privatisation.
Published in The Express Tribune, October 29th, 2014.