The government scrapped the sale of 10 per cent of its stake in the Oil and Gas Development Company (OGDC), after investors subscribed to only 52 per cent of the total shares on offer. This was a severe blow to the government’s ambitious privatisation agenda, as well as the implementation of reforms that would have allowed Pakistan to keep its commitments made to the IMF. Finance Minister Ishaq Dar said that, “under the circumstances, it was not appropriate and feasible to go ahead with the divestment plan”. The circumstances he was referring to included the stiff opposition to the offloading of shares by the opposition parties. This clearly scared potential investors. Pakistan has committed to the IMF that it would steer the economy forward by “reforming public sector enterprises through restructuring or privatisation”, among various other steps that the ruling party promised to undertake.
In more than 14 months since this commitment was given, the government has not made giant strides. The privatisation plan has hit snags on numerous occasions in courts, with certain quarters being of the opinion that as the OGDC is a common property of the federation and the provinces, the federal government alone cannot take the decision to privatise it. The unpopularity of the decision to privatise has clearly unsettled investors, who were unwilling to risk huge amounts in even a profitable entity like the OGDC. Failing to conduct privatisation smoothly goes to show how weak the ruling party is at the moment. While the investment climate may have improved slightly, the government has had to tip-toe to take even the smallest of steps forward. It formed a Tax Reforms Commission, decreased PIA’s losses and even conducted the spectrum auction. But given the history as to how employees are treated after privatisation and the PML-N’s current popularity graph, it was easy to create an atmosphere that made the OGDC’s privatisation a contentious issue.
Published in The Express Tribune, November 12th, 2014.
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I am appaled at the poor quality of this editorial. The editorial completely misses two very important reasons for the share offloading not going forward:
Decrease in global oil prices which decreased the stock price of all oil companies around the world.
The insistence of the Govt to set a high floor price at PKR 216 which was too high given the shift in the fundamentals.
The atmosphere in the country and the pointless litigation by KP Govt could hardly affect this transaction as it was a straightforward share sale.
@cautious: But oil prices are not low or below market price. It is above that level.
I think the Editor can't see the Elephant in the Room. Why would anyone want to buy a minority interest in an enterprise where the sales price of the product is controlled by govt which has a vested interest in keeping oil price low/below market?
I think this article is highly biased. The reason the OGDC sale was not successful is definitely due to lack of investor interest. However, the reason for lack of investor interest is as follows:
1) Foreign investors have been dumping oil stocks globally due to plummeting oil prices. Please note that the entire oil sector is Pakistan was down over the last month - and that had nothing to do with OGDC
2) Large pensions funds (Sind pension fund for example) were forbidden by the provincial government from buying OGDC in order to purposefully sabotage the transaction
3) The Government was offering a whole lot of supply of a share that is fully and fairly valued at the 220-235 range. There are better opportunities out their than OGDC at the price at which the offer was being made.
The transaction did not fail due to Government weakness.