Privatisation after-effects: To compensate layoffs, govt seeking $400m ADB loan

First $150m tranche expected in 4QFY15; will be approved if conditions are met.

ISLAMABAD:

The government is seeking a $400-million loan from the Asian Development Bank (ADB) to meet the upfront cost of privatisation, which includes giving golden handshakes to employees of state-owned enterprises who will be laid off as a result of privatisation.

The loan is being negotiated to introduce reforms in those public sector entities that have been shortlisted for early privatisation, according to sources in the Ministry of Finance and Economic Affairs. They added that credit is expected to be disbursed in three tranches and the first $150-million tranche may come in the last quarter of the current fiscal year 2014-15.

The $400-million Public Sector Enterprises Reforms (PSER) programme is part of a new three-year Country Partnership Strategy (CPS) that the Manila-based lending agency will approve soon. However, the PSER loan tranches will be approved later by ADB’s Board provided the government meets conditions attached with each tranche, said sources.



They added that the requirements of offering the Voluntary Separation Scheme (VSS) to public sector employees have yet to be worked out. The $400 million will be a paltry sum when compared with the huge upfront payments requirements, including cost of layoffs of the surplus staff, they added.

The ADB’s proceeds can also be used for retiring loans of the privatised entities and equity injection to improve their balance sheets before privatisation.

The spokesman for the Ministry of Finance, Economic Affairs and Privatisation, Rana Assad Amin did not respond until the filing of this report.

The $400-million loan will come on the heels of $20 million PSEs project loan that the ADB is expected to approve next month. This loan is being sought by the government at the name of PSEs Reforms project that it has already conditionally approved.

As much as 75% of the total cost or $16.9 million (Rs1.7 billion) will be set aside for paying salaries to consultants hired for the project. The sources said the consultants will conduct studies for determining cost of labour retrenchment, the implementation of privatisation plan and other pre- and post-privatisation issues. These consultants will be hired in the ministries of finance, water and power, petroleum and natural resources and the Privatisation Commission.

The Pakistan Muslim League-Nawaz (PML-N) government has come under pressure to improve its governance and introduce reforms in the state-owned enterprises, as it has so far failed to stop haemorrhaging in these entities.

Hesitant decision making

So far, the government’s focus remains on selling stakes in profitable entities, as it shies away from taking difficult decisions like privatisation of loss-making entities – namely Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM).

It has already postponed the privatisation of PIA and PSM, which according to the revised plan had to be done by June next year. The fresh date has been revised to October.

The sources said the Privatisation Commission has taken a back seat on privatisation transactions that are politically sensitive. They added that the timing of these transactions will be decided by Finance Minister Ishaq Dar and Prime Minister Nawaz Sharif.

Privatisation Commission Chairman Mohammad Zubair has already publicly stated that he had asked political leaders to take opposing political forces into confidence aimed at making the privatisation programme successful.

In the current fiscal year, the government has targeted to sell the Faisalabad Electricity Supply Company (Fesco), Lahore and Islamabad power distribution companies. However, the Fesco transaction is expected to be completed, resulting into layoffs of surplus staff that will require money to pay golden handshakes.

For the next fiscal year – in addition to PIA and PSM – the power distribution companies of Gujranwala and Hyderabad are listed for privatisation.

Published in The Express Tribune, November 15^th, 2014.

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