ISLAMABAD, 27 August — Important events of investors’ interest are going to unfold as Pakistan will sell its multi-billion rupee state-owned enterprises, ranging from telecommunications to oil fields and banks, within the next ten weeks. President Gen. Pervez Musharraf has directed the Privatization Commission (PC) to speed up the process of selling state owned enterprises (SOEs) so that these can be profitably run by prospective foreign and domestic investors. In the bargain, the government hopes to get a good price to partly pay off its $38 billion foreign debt, but mainly to free itself from footing the bill of SOEs’ huge losses. Ministry of Finance (MoF) says, the state paid Rs.100 billion losses incurred by SOEs, in fiscal 2001. The amount will go up to Rs.120 billion in the current fiscal 2002, that is nearly two-thirds of the country’s entire budgetary deficit.
Gen. Musharraf has invited foreign investors, particularly expatriate Pakistanis working in the Gulf, Middle East, Europe and North America, to bid for these huge units individually, or if necessary, by forming groups to buy them. A major downsizing exercise is currently going on to trim the staffing of SOEs in order to make them attractive for the prospective buyers.
Altaf Saleem, minister for privatization and head of the P.C. says, “tremendous interest has been generated at home and abroad in SOEs that have been offered for sale.” The units, he says, have attracted 47 expressions of interest (EoIs) from 47 investors, who are likely to bid for United Bank Ltd. (UBL), the huge telecommunication monopoly Pakistan Telecommunications Company Ltd. (PTCL), and nine oil fields.
United Bank is the third largest bank in the country, that also has branches in the Gulf, Middle east, Europe and elsewhere. It is one of the five major banks nationalized in 1974. The government “ hopes to get a good price for each one of the SOEs”, Saleem says. Twenty-one investors have shown interest in buying the UBL, eleven for PTCL, and 15 for the nine oil fields.
“These SOEs will be sold in the next 10 to 16 weeks, as all the spadework in this regard has been completed. The privatization process of all units, including PCTL, will be fully transparent, and there is no question of offering the giant telecom company to any buyer without following the bidding process and meeting the laid down criteria,” he says. Saleem also says, “as we have received 11 EoIs for the PTCL. Why should we give it to anyone without following the set criteria. Whosoever offers the highest price will be given PTCL.” PC plans to sell 18 percent to 39 percent shares of PTCL to a strategic investor and transfer to him the management of the company. But, the percentage of the shares to be sold could go higher even to 51 percent, sources in the PC indicate.
The government now wishes to sell upto 51 percent shares of all SOEs. However, there is a problem that the PC is facing. The prices of telecom companies in the world have gone down in recent years. PTCL’s worth, in mid-1990s, was estimated at around $8 billion. The worst case scenario now is that the telecom company might go for $2 billion only. In 1994, PC sold 12 billion shares of PTCL for $900 million, when its price in the domestic stock market was moving in a Rs.45-65 band a share. It is now down to Rs.15. The government at that time had placed its global depository receipts (GDRs) at Rs.55 a share. “In the very near future, Pakistan State Oil (PSO), Oil and Gas Development Company (OGDC), and Pakistan Petroleum Ltd. (PPL) will also be disinvested,” says the minister. All these are major monopolies in the field of energy, which are attracting “immense foreign interest because of their expected profitability,” PC Officials and analysts say. The energy sector SOEs are expected to get a good price because they generate large profits, globally, as energy will remain in big demand in the years to come.
Next in the line to go on the auctioneers’ block will be another energy giant — the Karachi Electric Supply Company (KESC) operating from Pakistan’s industrial and business hub and port city of Karachi. It also supplies electricity to the southern Sindh province. It generates more than 16 percent of all electricity produced in the country. The PC had set a 13-month time-frame to privatize KESC, but President Musharraf has asked PC to reduce it so that it is sold “as early as possible, and its annual losses are contained,” besides improving its service to consumers, as he put it.
The KESC, for years, has been in the red mainly because of huge “line-losses,” which actually are an outright theft of power, estimated to be more than 30 percent of all electricity it generates. The company is now undergoing a major restructuring and downsizing, under a program prepared by the Manila-based Asian Development Bank, which is financially assisting it. The PC has also been advised by the president to consider selling 5 percent of shares of the state-owned National Bank of Pakistan, the country’s biggest bank, to small investors, and follow this pattern while selling other nationalized banks and SOEs.
At the same time, the state-owned banks are currently undergoing major downsizing and restructuring, under two loans from the World Bank. An estimated 27,000 employees of these banks will loose jobs this year, and more than 600 unprofitable branches of these banks will be shuttered down. Bank staff spokesmen say that 40,000 persons have already been terminated since 1997 and 600 branches closed down, besides the proposed downsizing target to be met by the end of this year.
