ISLAMABAD — To sell or not to sell the family silver? That’s the question. For the people. “Speed Up Privatization,” on the other hand is what has driven the government to dispose of state-owned enterprises — quickly.
The urgency behind this speeding up is “the government’s conviction that it should get out of business” — fast, says Minister for Privatization Saleem Altaf. But, “it does not mean that the government or the Privatization Commission will sell these enterprises at throw away prices, “ Saleem says in an interview.
Coupled with the fast speed of the privatization process is the objective to secure a good price, even though the domestic investment and capital market environment is not encouraging at the moment. Several potential countries and foreign investors also have recently undergone recessionary situations and faced a discouraging investment climate. The Privatization Commission (PC), in striking deals for State Owned Enterprises (SOEs), as such, has to walk on eggs carefully.
The PC, additionally, has to guard itself against allegations of wrongdoing and finger pointing about improper deals. That has frequently happened during 11 years of privatization in Pakistan. But, that has been the experience in a large number of countries that have, or are, going through the privatization process. The need to ensure transparency, according to international standards and criteria, is imperative indeed.
Nearly everywhere officials entrusted with sale of state enterprises were accused of selling too cheaply, or indulging in buddyism while their successors and the people in general claimed “we would have done better.” Several of those who headed the PC in Pakistan, in the past, unfortunately, did not meet an enviable end. Saleem is moving through this minefield, yet trying to speed up the process of privatization.
PC may get upto $4 billion by selling 51 percent shares of 49 SOEs that are slated for priority privatization and marketing between September this year and June 2002. “The foreign debt retirement with the sale proceeds of SOEs is not the motivation behind speeding up the sale, although the money will be used to pay part of the most expensive commercial foreign debt,” Saleem says. If the PC gets this price it will enable the country to repay only 10 percent of its foreign debts. But, the still more important objective is to save the nation around Rs.100 billion that annually goes down the drain to meet the ever-growing losses of several of the SOEs. In fiscal 2002 the loss will rise to Rs.120 billion.
Footing that staggering bill from the national kitty is an awesome affair. As Zubair Moteewala, president of the Karachi Chamber of Commerce and Industry points out, “the loss at Rs.100 billion, is nearly 25 percent of the total annual federal tax revenues.” Karachi Electric Supply Company, alone, is loosing heavily, he says. KESC should have been quickly disposed off long time ago, in order to stem such rot, “the government should speed up the privatization,” says Moteewala. He also favors disposing off the whole lot of SOEs, but proposes that non-strategic projects may be sold first, to be followed by the “strategic” ones, he says, reflecting the private sector opinion.
Moteewala, and Hafeezuddin, finance minister of the southern Sindh province, quote Argentina’s example where the privatization process was efficiently handled with the private sector’s help. The bidders for SOEs were asked to bid in forex. A bidder who proposed to repay the highest amount of Argentina’s foreign debt, was handed over the enterprise. Some 90 percent of the sale proceeds were used to repay the IMF-World Bank and foreign countries’ debts.
But, what has happened to the units already sold to the private sector? The new owners of a very large number of units, partly or fully sold to the private sector have ended in bickering and litigation. A number of buyers have not paid up the price. Several units have gone from bad to worse, and become “from sick to sicker” as Mian Muhammad Usman, chairman of the Sick Units Committee of the Federation of Pakistan Chambers of Commerce and Industry says. These include Zeal-Pak Cement, Metropolitan Steel and a big fiber unit.
