National assets and national interests are intertwined
About two months back or so, the city of Lahore was buzzing with end of season sales. That is the time when retail businesses cut down their profits to clear stocks and make way for fresh arrivals. The public is lured by attractive discounts and the market witnesses a healthy buying spree. This trend is followed all year round.
This shopping frenzy led me to think that there is a somewhat similar situation when state assets are offered en-masse for sale in the name of privatisation. The common primary object between retail sale and privatisation is to get rid of the old stock that has no or little value left and its retention would be an unwanted burden for the business. Some may call it asset cleansing.
The news of privatisation attracts buyers, investors, opportunists, commission agents, kick-back specialists, you name it. Everyone who knows someone in government gears up to grab a share. Companies are formed, joint ventures and mutual collaborations are inked. Investors show their economic muscle and regulators their soft bellies. The matters become worse when those believed to be very close to the government, those who on account of their influence and affiliation openly set national economic agendas and dictate monetary policies, those who, despite their shady pasts, claim to present the fiscal face of the government, start to show keen interest in buying such assets. This is called illegitimate enrichment.
The news of privatisation attracts buyers, investors, opportunists, commission agents, kick-back specialists, you name it
Yes, there are genuine fears that the ongoing privatisation is merely a façade whereas the real intent is to oblige a lucky few by disposing off even profit making Public Sector Enterprises (PSEs), such as Oil and Gas Development Company Limited, at below par prices. Even government shares in HBL have been divested at a low price to a “strategic investor” and that too at a discount. Shares of a profitable entity sold for a discount? Is this not a clearance sale of national assets, concerned citizens pose this disturbing question. The government, however, denies any wrongdoing as is customary after every wrongdoing.
For many Pakistanis, privatisation is just another way to oblige near and dear ones as was done in the old days when monarchs freely distributed estates and wealth at their sweet whims to anyone they liked. Cases like privatisation of Muslim Commercial Bank Limited, Pakistan Telecommunications Limited and the Pakistan Steel Mills Limited do offer support to general scepticism about the entire privatisation process. There are reports that Heavy Electrical Complex is now being offloaded to a single bidder without any competition or bidding at a very low price.
A few words on OGDCL. This state institution has been making profits for the past few years. There have been dips in the earnings but the company has remained profitable. OGDCL’s Half-Year Results FY2015 (Jul-Dec 2014) show net profit of Rs47.828 billion after taxation for the said period, translating into Earnings Per Share of Rs11.12. Why is OGDCL being privatised? Is this a fair decision?
It is true that the present government is hard-pressed as far as revenue generation is concerned. Reports are that the tax base has further shrunk resulting in decline in tax collection, the primary source of government earning. Law and order situation and crippling energy crises have stifled economic progress. On the other side, the government’s internal borrowing has touched new highs. The budget deficit is increasing. The balance of payment situation is quite disappointing. External debt and payments to international lenders have further squeezed the government’s options. PSEs that consume billions of rupees every year without any positive output further disturb the economic equation.
So the net effect – government’s kitty is empty. There is no money to run its affairs and it wants to sell national assets to raise money to meet some ends while other ends would be met by more borrowing. This crude national macro-economic reality is dubbed as a robust justification for ongoing privatisation.
Does privatisation alone hold the solution to the economic difficulties faced by the government? No. The Privatisation Commission from 1991 to June 2013 privatised through different modes, around 167 PSEs generating a combined revenue of approximately Rs465 billion. Where has this money gone, your guess is as good as mine. What is the present state of majority of these privatised PSEs? The Privatisation Commission does not know or care. Did privatisation improve the economic well-being of all or a majority of these PSEs? Again, no one has answers. Did these privatised PSEs contribute towards employment creation and revenue generation and actively participate in the national economy, serve public interest, as they were supposed to do?
Well the facts suggest otherwise. Privatisation of PTCL and KESC (Now KE) can be cited as stories with unhappy endings. Sadly, the privatised PSEs or PSEs under privatisation are like an unwanted child for the government, one who longed for paternal attention but was constantly ignored and who was wed off at the earliest to someone from an unknown, far flung area, not to be seen or heard of again.
At present, state interests, assets, businesses and operations in 32 PSEs including sectors such as oil and gas, banking and finance, power, industries, transport and real estate are offered for privatisation. The government has already divested its shares in UBL (241 million shares) PPL (70 million shares) and ABL (131 million shares) to strategic investors. Upcoming major projects include privatisation through transfer of management control of PIA, LESCO, FESCO, IESCO, Northern Power Generation Company (Thermal Power Station) and secondary public offer of shares in HBL.
The rationale given is that most of these selected PSEs are a heavy burden on the national exchequer, they have become the proverbial white elephants and that funds generated from the privatisation of these assets would help the government in bridging the budget deficit and retirement of debt. Whether this is camouflaged economic prowling or genuine financial prowess, only time will tell.
A simple question that comes to mind is that how did these PSEs transform into white elephants. This tragedy owes its existence to corruption, inefficiency, mismanagement and unchecked political interference. The responsibility for this malaise rests exclusively with successive governments of the past as well as present times who deliberately used these PSEs for political motives, destroyed their corporate fabric, clogged their performance and made them a cesspool of political appointees, turning them into worthless loss causing entities only to be disposed off at the hands of ravenous corporate ragmen at dog cheap prices.
This state institution has been making profits for the past few years. There have been dips in the earnings but the company has remained profitable
National assets and national interests are intertwined and all efforts must be made to protect both. The option to privatise should be exercised cautiously and once exercised, should not be used as a means to minimise or remove government control only. The process while conforming to the set standards of transparency, reasonableness and fairness, must ensure that privatised PSEs become a vital part of our economy and contribute effectively towards national growth and public service, creating employment and healthy revenues.
Moreover, the privatisation process must not end with privatisation of the PSEs. There should be a constant vigilance of the new management/owners of PSE to ensure that they diligently pursue their promised business or revival plans. Periodic reporting and remedial regulatory actions, where required, in this regard should be made mandatory. The role of the Privatisation Commission should not be confined to an auctioneer but it must also ensure and monitor sustained growth of the privatised PSE.
It is hoped that the government will not make undue haste in achieving its privatisation goals. The only way out of troubled waters is to improve the law and order situation, set energy emergency, shun corruption, introduce structural manpower and leadership reforms in PSE, develop conducive and attractive investment environment for local and foreign investors, promote competition as well as our local industry, enhance the tax base and cut taxes and tax rates, encourage new entrepreneurs to enter markets through soft fiscal policies, remove discriminatory and inequitable business, trading and commerce barriers, accept and adopt advance technological developments in communications, manufacturing and trading.
There is no race to be won and no line to be crossed. We are in this for the long haul. The government would be well advised to follow a planned route rather than embarking on an adventurous journey. The Council of Common Interests and media should be taken on board on all matters involving privatisation of national assets. Internal systems of checks and balances and constant monitoring at all levels will ensure successful completion of the privatisation program. The only motive, however, behind this program from start to conclusion should be the welfare of the state and people of Pakistan.
