The last minute halt in the much-anticipated sale of state shares in the Oil and Gas Development Co Ltd (OGDCL) was prompted by an unlikely source – the International Monetary Fund (IMF), said a report by foreign news agency Reuters on Wednesday.
The IMF has been encouraging Pakistan to reform the energy sector, expand the tax base and privatise loss-making state industries by making those conditions for a $6.7 billion bailout of the economy.
Those terms led the government to put up for sale a 7.5% stake in OGDCL in September, seeking to raise about $815 million in what would have been the largest offering from a local company in almost eight years.
Last week, however, the IMF indicated that a $1.1 billion loan was no longer contingent on the stake sale, five Pakistani officials told Reuters, giving the government a get-out clause from a deal that had failed to pique significant investor interest.
“The IMF indicated it would overlook the postponement of the deal as long as the overall privatisation process remained on track,” said a senior finance ministry official who declined to be named as the cancellation details remained confidential.
The IMF could not be immediately reached for comment.
Pakistan’s top privatisation official this week said the sale had been postponed indefinitely due to weak investor interest triggered by falling oil prices.
But just one hour after the board of the Privatisation Commission approved the OGDCL stake sale last Saturday, Finance Minister Ishaq Dar told the cabinet the transaction was cancelled, several officials said. They all declined to be named as the details of the cancellation remained confidential.
“Dar gave the Privatisation Commission board his nod and even gave recommendations on what to do next,” a central bank official privy to Saturday’s meeting told the news agency. “But an hour or so later, he signed into the cabinet meeting on Skype from Dubai and said the deal was off.”
Dar was in Dubai at the time for negotiations with the IMF on a three-year Extended Fund Facility (EFF).
The source also said Dar had told the IMF he would make up for the lost revenue through other means, such as a planned issue of Islamic bonds worth $1.5 billion by December and fast-tracking the sale of other state companies including State Life Insurance Corporation of Pakistan Insurance and Murree Gas.
UNANIMOUS DECISION?
The OGDCL deal was due to close on Friday. By that deadline, investors had only bid for just over half of the shares on offer, the sources said. Despite the weak showing, the Privatisation Commission board unanimously agreed on Saturday to go ahead with the sale, the sources added.
“Not going ahead was not even an option, it was just not on the table,” a member of the board said. “Most people sitting at the table were in shock when Dar announced the cancellation.”
Asked if the finance minister had overruled the board, Privatisation Commission Chairman Mohammad Zubair said the decision to scrap the deal was unanimous. He also denied the IMF had any bearing on the process.
“We take our decisions based on our national interests,” he said. “We decide what will be privatised and on what timeline. The IMF doesn’t tell us what to do.”