NEWS COVERAGE PERIOD FROM JANUARY 29TH TO FEBRUARY 4TH 2017
SENATE BODY INSISTS ON HALTING PIA’S PRIVATISATION
The Express Tribune, January 31st, 2018.
A Senate panel on Tuesday asked the government to halt the privatisation of Pakistan International Airlines (PIA) after Privatisation Minister Daniyal Aziz again insisted that the national flag carrier was still up for grabs, which was contrary to an assurance that the government gave to parliament a week ago.
Aziz’s stance in a meeting of the Senate Standing Committee on Privatisation was different from what Adviser to Prime Minister on Aviation Sardar Mehtab Ahmed Khan Abbasi said in the upper house of parliament.
A week ago, Abbasi emphasised in the Senate that there was no plan to privatise PIA and the management was working hard to restructure the airline and regain its past glory.
Practically, I have no knowledge that any move is being made to privatise the national airline and do not see any process to privatise PIA as the process may take three to five years,” he said.
The biggest concern of the standing committee was that due to paucity of time, privatisation transactions initiated by the PML-N government could not be completed by June this year and the mess would have to be cleared by the next government.
On January 15, Aziz had announced that the government would carve out core functions of PIA within three months to make the air carrier attractive for privatisation. It was aimed at parking over Rs150 billion in legacy loans and non-core assets in a separate company and selling the core business to private-sector investors.
The government may continue the process of separating the core functions, but PIA should not be privatised, said Senator Mohsin Aziz, Chairman of the Standing Committee on Privatisation.
Pakistan Peoples Party and Muttahida Qaumi Movement senators backed him and the lone PML-N senator, Nehal Hashmi, also did not object to the recommendation.
“Under the Pakistan International Airlines Corporation (Conversion) Act 2016, which had been unanimously passed by parliament, I am legally bound to push forward the PIA privatisation process,” said Daniyal Aziz.
He expressed complete ignorance about the statement given by the PM’s adviser in the upper house of parliament. Mohsin Aziz said the government was making contrasting policies as one minister was making long-term commitments to restructure the airline while the other wanted to privatise it in four months. Under the Act, the process of separating PIA’s core and non-core functions has to be completed within two years of the enactment of the law and the deadline is going to end in April this year.
PIA was on the active list of privatisation that Pakistan agreed under the three-year International Monetary Fund loan programme, but the government backed off after opposition parties refused to support the move.
The privatisation minister claimed that the government was close to achieving a breakthrough in its negotiations with National Bank of Pakistan (NBP) and Sui Southern Gas Company (SSGC) on the repayment of loans and arrears by Pakistan Steel Mills (PSM).
Against SSGC’s claims of Rs44 billion, the steel mill put the outstanding bill at Rs31 billion including the late payment surcharge. According to the minister, SSGC has informally agreed to accepting around Rs31 billion. SSGC has not been supplying gas to PSM for the past two and a half years, resulting in closure of the country’s largest industrial unit.
The minister said NBP was also ready to significantly reduce its claim of Rs53 billion. If these issues were resolved, the Privatisation Commission would invite Expressions of Interest for giving the mill on 30-year lease, he added.
He insisted that the government would also settle Rs15 billion worth of liabilities of over 3,500 PSM employees, who would retire in the next five months.
He acknowledged that the privatisation of power distribution companies had been affected by the determination of low multi-year tariffs by the National Electric Power Regulatory Authority.
At these tariffs, the distribution companies could not survive and there was a need to revive the high recovery and low line loss benchmarks.
NEWS COVERAGE PERIOD FROM DECEMBER 28TH TO JANUARY 3RD2015
RAILWAYS OPENS BIDS FOR BUSINESS EXPRESS TODAY
Dawn, December 28th, 2015
LAHORE: Pakistan Railways authorities will open financial bids for the auction of luggage van attached with Business Express on Monday (today).
Auctioning luggage portions and brake vans attached with another eight express trains seems to have become an uphill task, an officer of the railways commercial wing told Dawn.
Two of these trains had been running without luggage vans for the last 10 months or so while earning from the luggage portion of another five trains had been nominal since May this year.
Bids were invited on Dec 21 for the auction of luggage vans attached with Allama Iqbal Express, Awam Express, Millat Express and Pakistan Express, besides brake vans of Tezgam, Karachi Express, Akbar Bugti Express and Karakorum Express. However, none of the 20 potential bidders submitted bids, citing their reservations about the `harsh’ terms and conditions in the tender documents.
Having capacity of 10 tons, the luggage van started running empty from Oct 28 when railway took over control of Business Express after the private company operating it failed to clear more than Rs2 billion (Rs2.2bn) dues, said the officer.
The contract of luggage van was awarded to a leading courier company on Nov 4 as a stop-gap arrangement for 30 days.
M/s Deltex Courier Service paid Rs5.3 million in advance the same day, was allotted offices at Lahore and Karachi Cantt on commercial rates and allowed to charge freight rate at 100 per cent on daily basis with applicable taxes.
The former contractor was paying Rs129,730 per day while under the stopgap arrangement, railways started getting Rs174,000 daily.
Meanwhile, in response to advertisement inviting bids for the auction of luggage van, M/s Pak Afghan Goods Transport Company and Lasani Cargo bought two documents each while Deltex Courier Services, Saif Cargo Service, Chand Sitara Goods one bid document each.
However, only three companies filed single-stage two-envelop bids till 11am on Dec 15.
Through a letter, the railways chief marketing manager informed M/s Deltex Courier Services, Pak Afghan Goods Transport Company and Saif Cargo Service that they have qualified the technical evaluation and the financial bids would be opened on Dec 28 (today).
PIA SELL-OFF: GOVT SET TO MISS IMF DEADLINE FOR INVITING INVESTORS
The Express Tribune, December 29th, 2015.
ISLAMABAD: Pakistan is set to miss the International Monetary Fund’s deadline on inviting investors for the privatisation of the national airlines before the month end, raising fresh concerns about its commitment to sell loss-making entities.
According to a top official of finance and privatisation ministry, the government has delayed a board meeting of the Privatisation Commission for approval of the transaction structure – a prerequisite for the privatisation of the Pakistan International Airlines. “The decision has been taken at the highest level in the government aimed at avoiding opening a new political front,” he claimed.
Under a structural benchmark of $6.2 billion IMF programme, the government is bound “to solicit expressions of interest for strategic private sector participation by the end of December”, according to the IMF and government documents.
The IMF has already extended the deadline for PIA’s privatisation to June next year after Islamabad failed to meet its December 2014 deadline. The lender’s reaction to any change in the government policy on PIA will be critical for Pakistan’s relations with international financial institutions.
If the government does not release an advertisement to invite investors before end of this month, it will have to seek a waiver from the IMF. However, more than the IMF conditions, the deadline will determine whether the government remains serious about privatising its loss-making entities or bows in front of the forces opposing privatisation.
The PC chairman, Mohammad Zubair, was not available for comments.
Earlier, through an ordinance the government had delayed the approval of the transaction structure amid growing opposition. The transaction structure has to be approved by the PC board before its submission to the Cabinet Committee on Privatisation (CCOP).
The PC has not yet convened a board meeting, according to an official, who said the commission has done its work and it is now up to the policymakers when and how they want to proceed with the privatisation front.
Earlier this year, the government appointed financial advisers for working out the transaction structure for private sector’s participation in the core airline business. The government faced a legal hindrance in the shape of PIA Act of 1956 that barred transfer of shares to any other party.
To remove this hurdle, the government repealed the act through a presidential ordinance instead of tabling a fresh bill in parliament, creating uproar. On Monday, PPP’s Senator Saeed Ghani submitted a resolution in the Senate, pleading that the Upper House of Parliament reject the PIA Ordinance. About 51 senators from the opposition parties have signed the resolution.
The government’s privatisation programme has so far been restricted to offloading shares in profitable entities. The PIA is incurring around Rs1.2 billion losses monthly. Just this month, the government approved yet another bailout package of Rs9.4 billion for the ailing organisation.
Insiders believe the government has mishandled the PIA privatisation issue, as it is reluctant to take politically difficult decisions.
GOVT MULLS HALTING POWER SECTOR SELL-OFF
The Express Tribune, December 31st, 2015
ISLAMABAD: The government is considering halting the multibillion-dollar privatisation of all power distribution and generation companies (Discos and Gencos), fearing the sell-off may cost it the next parliamentary elections that it hopes to win following a convincing victory in recent local government polls in Punjab.
Serious thinking is under way in official circles on postponing the politically difficult privatisation transactions till the next elections, according to officials. They said that in order to avert pressure from the International Monetary Fund (IMF), the government would not formally put off the process. Instead, it would slow down its pace to buy time till next June, when the three-year IMF bailout programme nears its end.
In September 2013, Pakistan signed the three-year $6.2 billion IMF programme and privatisation was one of its main pillars.
In a first sign of reversing privatisation of the power sector, the government is going to give a one-month extension in the deadline for inviting Statement of Qualifications (SOQs) from investors for Faisalabad Electricity Supply Company (Fesco) sell-off, said officials.
“The deadline for submitting SOQs expires today (Thursday) but it will be extended by a month,” said a senior official from the Ministry of Finance and Privatisation.
Any move to halt the power sector privatisation would give weight to critics who believe the programme was only aimed at selling stakes in profitable blue-chip companies.
The government started reconsidering the decision to privatise politically difficult transactions after it won a convincing victory in the LG elections, added the officials.
PML-N policymakers believe they would be in a position to win maximum seats in the National Assembly from Punjab in the 2018 elections. This would help the party form a government in the centre, and all difficult transactions, including that of Fesco sell-off, would be taken up in the next tenure.
Sources said if the IMF retaliated against the halt of privatisation, the government would have sufficient foreign exchange reserves to make external account payments till 2018.
So far, four national and three international investors have come forward to buy Fesco – one of the profitable and highly efficient power distribution companies.
Four reputable investors have already obtained documents to become part of the process and deposited non-refundable $10,000 processing fee, showing their seriousness. These include the country’s top businessperson Nishat Group’s Chairman Mian Mohammad Mansha, Arif Habib Group, Ibrahim Fibres Group and ZKB Group. British, Chinese and Turkish companies have also come forward to bid for Fesco’s acquisition.
The government has already delayed privatisation of the Pakistan International Airlines (PIA). “A parliamentary committee, constituted by the prime minister, would decide on PIA privatisation,” said Finance Minister Ishaq Dar on Wednesday. He did not respond to a question on whether the government had halted the power sector privatisation or not.
At present, three Gencos and nine Discos are up for sale. The case of Faisalabad, Lahore and Islamabad distribution companies is at an advanced stage.
Under a condition of the IMF, Fesco has to be privatised by June next year. Lahore and Islamabad power distribution companies along with Northern and Jamshoro power generation companies are scheduled to be privatised by September next year.
For Fesco, the government had invited EOIs through media advertisement from bidders. The next step was pre-qualification of firms before formal bidding. With one month extension, the government cannot achieve the June 2016 deadline to privatise Fesco.
CHORUS OF PRIVATISATION FAILS TO DRAW A CHEER
The Express Tribune, December 31st, 2015.
ISLAMABAD: The year posed several challenges for the government on the privatisation front as it tried to run the largest show of the country’s history with an incomplete Privatisation Commission (PC) that also struggled to clear itself from different sorts of allegations.
Despite being touted as among the top most priorities of the PML-N government and conditioned under the $6.2-billion International Monetary Fund programme, the government’s attempt was nothing less than a flop.
It did not fill vacant posts in the commission despite the huge workload. As a result, political commitment to privatisation weakened towards the end of the year. Additionally, reports gathered momentum that the government has decided to postpone the privatisation of power distribution companies – based in Punjab – as it feared backlash in the province.
The government’s dismal performance was evident when after two and a half years it was unable to sell stakes in a single loss-making entity.
However, the PC boasted saving $6.8 million on account of fees that it paid to consultants hired for carrying out various transactions.
In April 2015, the government sold 41.8% stakes in Habib Bank Limited (HBL) to institutional and high net-worth individuals in return for Rs102 billion through stock exchanges.
In August, Mansour Al Mosaid Limited Company of Saudi Arabia acquired 88% shares in its rival National Power Construction Corporation (NPCC) at a cost of Rs2.5 billion.
It also tried to sell Heavy Electrical Complex (HEC) for Rs250 million but the transaction was cancelled, leaving many questions unanswered about the suspicious manner it was handled.
A parliamentary investigation to unearth alleged wrongdoings in HEC privatisation was also launched in 2015. Although the Senate panel could not complete its investigations, it did make some headway by tracing links between the bidder and few PC officials. Although the commission has expelled a first-tier official who allegedly received money, the role of other officials has yet to be determined in selling the HEC for Rs250 million that the government-hired financial adviser valued at Rs1.5 billion.
The government also could not resolve a dispute over outstanding payments of $800 million on account of Pakistan Telecommunication Limited privatisation that Etisalat, the buyer, has withheld for last many years.
The ongoing privatisation plan is the largest programme in the country’s history and there are currently 16 active privatisation transactions that include all the power generation and distribution companies, Pakistan International Airlines and Pakistan Steel Mills.
To handle these transactions, the Privatisation Commission’s sanctioned strength is 125 and more than 30% of these positions are vacant. The government did not make any serious effort to strengthen the commission, which remained under pressure to fast track the privatisation process and faces an aggressive backlash against the programme simultaneously.
A grade 21 officer is the Secretary of the Privatisation Division and the Commission – a post that should be filled with a grade 22 officer. All the four sanctioned posts of grade 20/21 of director generals remained vacant.
The PC management on various occasions took up the issue of filling vacant posts with the Prime Minister’s Office and the Establishment Division.
So much so that secretary in-charge PC publicly aired frustration in a meeting of Senate Standing Committee on Finance. Prime Minister Nawaz Sharif promised to appoint honest professionals in the Commission but not even a single officer has been posted yet, said Ahmad Nawaz Sukhera.
The government missed two deadlines set for PIA privatisation in 2015. It also failed on the PSM privatisation front. The privatisation of these two entities required strong political will that was missing in 2015.
SENATE EMBARRASSES GOVT BY REJECTING PIA ORDINANCE
Dawn, January 1st, 2016
ISLAMABAD: The government faced an awkward situation in the opposition-dominated Senate on Thursday when it adopted a landmark resolution to disapprove the controversial PIA ordinance, which seeks to convert the national flag carrier into a company.
After passage of the resolution moved by the PPP’s Saeed Ghani on behalf of 52 senators from both sides of the aisle, the PIA Corporation (Conversion) Ordinance 2015 promulgated by the president on Dec 5 stands repealed.
Senate Chairman Raza Rabbani put the resolution for a voice vote when no one from the treasury benches, including Leader of House Raja Zafarul Haq and Law Minister Pervaiz Rashid, took the floor to oppose it.
But soon after its passage, Finance Minister Ishaq Dar and former minister Mushahidullah Khan assailed the opposition parties, accusing them of ‘indulging in political point-scoring on an important national issue’.
There were 37 opposition and 23 government members in the house at the time of voting. The resolution was passed through a majority vote.
Meanwhile, the house witnessed a brief verbal clash between opposition and treasury members. But the Senate chairman prevented the situation from worsening by stopping Mushahidullah Khan from passing personal remarks against Saeed Ghani.
An angry finance minister alleged that the resolution had been passed in haste and the opposition had taken advantage of its numerical strength. “We are setting wrong traditions.”
He reiterated the government’s claim that the ordinance was not aimed at privatising the Pakistan International Airlines (PIA) and was promulgated to take the airline out of the control of bureaucracy and to improve financial health of the national carrier.
Mr Dar alleged that some opposition members had misguided PIA employees and incited them to observe protest by telling them that the ordinance had been promulgated to privatise the airline, which would lead to sacking of the employees.
He said that it was deplorable that the resolution had been passed only a day after the National Assembly secretariat had notified constitution of a special committee having representation of all parties to resolve the issue.
The minister said that the government had many other ways to enact the law. “It could have introduced the law in the National Assembly where it has a majority. And after its rejection by the Senate, the government could have taken this bill to a joint sitting of the parliament as allowed by the constitution.”
Mr Dar said that he had always tried not to invoke the constitution’s provision of summoning a joint session despite being asked by the government to do so when the Senate in the past had amended two laws that had already been passed by the National Assembly.
He said the government wanted to take further action in this regard in consultation with opposition parties.
Mushahidullah Khan, in his hard-hitting speech, alleged that the previous PPP government had brought the PIA to the verge of collapse by making out-of-merit appointments and through corruption.
Responding to Ishaq Dar’s remarks, Saeed Ghani said if the law was aimed at improving PIA affairs, why the government had brought it through an ordinance in the darkness of night at a time when the National Assembly was scheduled to meet after two days.
He said the opposition had no regret for its action and would in future also use its constitutional right to oppose the trend of carrying out legislation through ordinances.
“You (the government) also have the constitutional right to get the law passed through a joint session. Go for it.”
Meanwhile, the Senate chairman also refuted the allegation that the resolution had been adopted in haste, saying that prior notices were issued to the minister concerned three days ago.
The resolution was submitted under Article 89(2) of the Constitution. It carried signatures of the senators belonging to the PPP, the Muttahida Qaumi Movement, Awami National Party, Pakistan Tehreek-i-Insaf, PML-Q, Balochistan National Party-Awami, Jamaat-i-Islami and some independents.
The members of the Pakhtunkhwa Mili Awami Party, a partner of the ruling coalition, had also put their signatures on the resolution, which says: “This house disapproves the ordinance titled the Pakistan International Airlines Corporation (Conversion) Ordinance 2015.”
ANTI-PRIVATISATION CONFERENCE HELD
The News, January 01, 2016
ISLAMABAD: Speakers, at an anti-privatisation conference held on Thursday, warned that the incessant push to sell state-owned enterprises (SOEs) would eventually result in a social crisis as more and more basic services would become inaccessible to the mass of the population and the state’s role as primary employer in the country would be completely rolled back.
Organised by the Awami Workers Party (AWP) and its labour front Pakistan Trade Union Federation (PTUF), the dialogue brought together trade unionists, journalists, students, intellectuals and progressive political workers opposed to the ongoing attempts of privatisation of SOEs such as the electricity supply corporations (formerly known as Wapda), OGDCL and PIA under the conditionalities of loan agreements made with the IMF.
Addressing on the occasion, AWP Chairman Fanoos Gujjar said that all mainstream parties in Pakistan, as well as successive military regimes had all acceded to the dictates of the IMF and its sister institutions through privatisation and the liberalisation of trade and financial markets.
He noted that this process was initiated in 1988 under the so-called Structural Adjustment Programmes and had continued unabated ever since, and it was only left-wing political forces and intellectuals that had consistently opposed this slide towards ‘free market’ dictatorship because the state must provide basic necessities to all of its citizens irrespective of class, ethnicity, religion, gender and so on.
Fanoos Gujjar pointed out that the disunity of the labour movement had resulted in the sale of major SOEs like PTCL and KESC, and if all pro-labour forces did not close ranks then more of the ‘commanding heights’ of the economy would be de-nationalised.
Labour leaders Malik Nasir Awan (PIA) Hammad Qureshi (PTCL labour union), Malik Maqbool (PTCL Line staff union) Javed Baloch (Iesco), Aqleem Khan (OGDCL), Malik Ismail (ZTBL), Akram Bunda (PWF), Muhammad Ejaz (Radio Pakistan), Nooreen Farooq (Pakistan Steel Mills) and Afzal Butt (President PFUJ) said that it had been ten years since PTCL and KESC were sold off by the Musharraf military junta with patently devastating impacts.
The workforce in both organisations has been slashed by more than 50 per cent while service quality has scarcely improved. They noted that the ordinance recently passed by the government to provide legal cover to the selling of shares in PIA exactly mirrored the PTCL experience whereby 26 per cent of shares are to be floated on the open market while the management will be handed over to the private sector.
They rejected Finance Minister Ishaq Dar’s claims that this does not amount to privatisation by pointing out that under private management the public interest is never a matter of priority.
Other speakers included trade unionists from a number of private companies who narrated harrowing tales of the complete lack of protection under corporate laws, as well as a number of students and hospital workers who warned against the dangers of privatising health and education services.
It was also observed the natural resources such as water and forests are also being privatised indiscriminately with irreversible ecological effects. The conference closed with a call for immediate withdrawal of the ordinance to sale 26 per cent of PIA’s shares and all stakeholders presented agreed to organise token and then more wide-ranging strikes in all SOEs slated for privatisation until the point that the government withdraws its plans to sell major public assets.
PML-N’S PRIVATISATION AGENDA
The Express Tribune, January 3rd, 2016.
One hears contrasting views whenever one pontificates over the policies and performance of the PML-N government. There is one view that harps on about the increase in foreign exchange reserves, while the other shrugs off the accumulation as tainted with the burden of debt.
The government’s supporters applaud the country’s macroeconomic stability, improved GDP growth and a narrowing current account deficit, while the opposition continues to focus on falling exports, low levels of investment, the high cost of doing business and the perennial power crisis.
But very few among the government’s supporters like discussing in detail its privatisation agenda, preferring to treat this area as the backyard no one tends to, but cleans up whenever guests — in this case international lenders — announce a visit.
When the government signed the three-year $6.2-billion Extended Fund Facility with the IMF, it promised restructuring and/or privatising of loss-making, state-owned entities. Since no one in their right mind would want to jump in to manage the affairs of liability-ridden companies, restructuring became a packaged deal of the privatisation process.
This meant the government would need to do some work, i.e., restructure and reform companies before looking to sell its stakes in them to potential investors. But with half its tenure over, restructuring still remains on the to-do list. It has only managed to sell its stake in entities that were already profitable — commercial banks — with PIA, the Pakistan Steel Mills (PSM), and power distribution and generation companies awaiting both restructuring and privatisation.
While the affairs of PIA have seen some improvement — helped by falling fuel prices that form the bulk of its operational cost — the government’s resolve to initiate reforms in other entities has been missing.
The Privatisation Commission chairman admitted that the PSM is a “nightmare”. It has seen years of corruption, inefficiency and neglect. Meeting fierce opposition from Sindh, trying to find a buyer for PSM could only have landed the government in further trouble. Hence, whatever plans it may have had to sell it off, have failed to see fruition.
The proposed privatisation of PIA saw every ‘patriot’, who thought the airline should always remain a national asset, spring into action, never mind its management’s complete inability to turn its fortunes around for the past many years. There were some concerns regarding its privatisation that can be regarded as legitimate, such as whether in private hands the airline would continue to operate on less profitable routes and end up being unable to cater to a wider segment of society. The government insisted it was not selling its entire stake, with the president promulgating an ordinance to pave the way for its privatisation. A few rumours and weeks later, the Senate has passed a constitutional resolution to “disapprove” the PIA Corporation (Conversion) Ordinance 2015.
The PML-N has not been pleased by this since PIA was the one entity it had actually tried to restructure after coming into power.
Maybe it was hoping that PIA’s sell-off would make it look good in the IMF’s eyes, compensating for the postponement it is planning in privatising power sector companies. After holding tons of meetings with the private sector and inviting interest in the privatisation of these companies, it is now considering putting off the entire process, seemingly for one reason alone — preserving its vote bank.
Most Pakistani governments don’t plan too far ahead. But the PML-N apparently does and it deserves ‘praise’ for its ‘long-term’ strategy. In postponing the power sector privatisation, the party is hoping to keep its supporters happy. Since most of these companies are based in Punjab, and massive layoffs might have ensued had they been privatised, it made little sense for the PML-N to pursue this policy.
But it did nevertheless because it wanted the IMF to believe that it has sincere intentions, which means billions of dollars keep flowing in. These recent developments might confuse most citizens. But one word is enough to describe the reason behind them — politics.
NEWS COVERAGE PERIOD FROM DECEMBER 21st TO DECEMBER 27th 2015
PIA EMPLOYEES PROTEST AGAINST PRIVATISATION PLAN
Dawn, December 22nd, 2015
KARACHI: A large number of PIA’s employees held a demonstration here on Monday in protest against the government’s plan to privatise the national flag carrier.
The demonstration and a sit-in was organised by a joint action committee of PIA’s employees at the airline’s head office, which left most of its functions suspended throughout the day.
Addressing a press conference during the demonstration, action committee’s chairman Sohail Baloch urged the government to withdraw a recently promulgated presidential ordinance for changing the status of Pakistan International Airlines from the corporation to a company.
He called for the setting up of a judicial commission to investigate wrongdoings in the PIA’s affairs.
He said that the prime minister at a meeting held with PIA employees a few days ago had assured them that the airline would not be privatised.
But, a communication issued by the aviation division the next day tried to portray as if the employees had agreed to PIA’s privatisation. “The employees have not and will never agree to the PIA’s privatisation,” he added.
He said the first board meeting of the newly formed PIA company was scheduled for Monday at the head office, but it could not be held because of the employees’ protest. Now this meeting had been rescheduled for Tuesday, but the employees would continue their protest so that it could not be held, he added.
He said all PIA employees were united and would not allow the government to privatise the airline. He warned that if the government did not withdraw its decision the employees would launch a movement as they had done a couple of years back when the PIA was entering an agreement with a foreign airline.
Sohail Baloch said the employees were now registering their protest peacefully. But, if the government ignored their demands they would consider `other options’ that might disrupt the flight operation.
The protesters included pilots, engineers, cabin crew, ground staff and members of various trade unions. Prominent among them were Safdar Anjum, Hidayatullah, Ubaidullah and Latif Qadri.
NEWS COVERAGE PERIOD FROM DECEMBER 14th TO DECEMBER 20th 2015
PRIVATE SECTOR MUST HAVE ROLE IN PRODUCTION OF DEFENCE GOODS
The Express Tribune, December 14th, 2015.
ISLAMABAD: Competition Commission of Pakistan (CCP) Chairperson Vadiyya Khalil spoke at a seminar organised by the Khyber-Pakhtunkhwa Chamber of Commerce and Industry last week and said competition law enhances economic efficiency and creates a level playing field.
Her argument was that the law was meant to create the best possible conditions for consumers, investors and innovative entrepreneurs while the main objective is to enhance economic efficiency and create a level playing field.
Enforcement of competition law is a must for economic growth, she said, adding “the Competition Act 2010 is pro-competition, pro-consumer protection, pro-growth and therefore is pro-business. The law protects you, the businesses, from any anti-competitive or deceptive behaviour of other entities or competitors.”
Situation on the ground, however, is altogether different for the private sector. There are many areas where private investors complain of monopolies in businesses. Defence hardware and software production is one such area.
The Defence Export Promotion Organisation (DEPO) held a seminar on public-private partnership last week to discuss the opening of the area of defence production and exports for the private sector.
But no terms of references (ToRs) were offered to the participants, which were not associated with DEPO, for engagement in production and export. No private sector businessman of the country engaged in the same business was invited to the event.
Though a couple of Turkish businessmen were present, they too sought the ToRs. The only participant from Pakistan was Almas Hyder, Senior Vice Chairman of the Lahore Chamber of Commerce and Industry.
Speaking to The Express Tribune about the seminar, Hyder said, “Efforts to invite the private sector to this field were only rudimentary. Unpreparedness on the part of organisers was evident; it was the beginning and it should not have been that poor. Now it is up to the private actors to determine how much space they (the monopolist state actors) allow them in business.”
The CEO of a company, which deals with the Ministry of Defence Production and is the largest supplier of equipment, accessories, kits and material, said “the monopoly of the state organisation leaves this sector in critical need of capacity for acquiring advanced technology and increasing exports.”
He added the private sector had a bitter experience of dealing with the ministry’s branches as they withheld payments while over-pricing of products was made possible in connivance with the private actors. “This is a monopoly that acts against the state exchequer,” he remarked.
The monopoly of the state in defence production and exports has restricted the development of the sector, which has never been exposed to competition. The defunct monopoly control authority had no history of challenging this monopoly.
An expert in the engineering sector, who gatecrashed into the seminar, had something to say: “A key feature of the seminar was low quality of products.”
According to the expert, marketing results are best achieved by private actors who are in a position to hire best professionals and are better aware of market forces. But they are kept out of business. Highly capable marketing professionals are in abundance and the private sector has access to potential buyers and markets of defence products.
He pointed out that the manufacturer and end-user/buyer in this case were actually one organisation with no competitor. “It is impossible to achieve economical and quality production in such an environment.” The absence of significant export orders is a proof of the lack of competition.
A Turkish delegate at the seminar remarked, “it is important to know who needs whom – the Ministry of Defence Production needs the private sector or the private sector needs the ministry.”
Elaborating how the model of engaging the private sector in defence production worked in Turkey, he said the sector operated in coordination with various chambers of commerce and industry and there existed clusters for receiving input for initiating a project.
The writer has worked with major newspapers and specialises in analysis of public finance and geo-economics of terrorism
NEWS COVERAGE PERIOD FROM DECEMBER 7TH TO DECEMBER 13TH, 2015
GOVT HAS BROKERED DEAL TO SELL PIA TO UAE RULERS: PPP SENATOR
The Express Tribune, December 8th, 2015.
ISLAMABAD: The government has brokered a deal through a close relative of Prime Minister Nawaz Sharif to sell Pakistan International Airlines (PIA) to Abu Dhabi rulers, Senator Saleem Mandviwalla, former finance minister, claimed on Monday, terming the on-going privatisation process a facade.
In a statement issued on Monday, the Pakistan Peoples Party (PPP) senator claimed that the motive behind issuing a Presidential Ordinance to privatise the airline was to facilitate a deal that the government has already struck with the Sheikhs of Abu Dhabi.
Mandviwalla remained finance minister for a brief period during the last PPP tenure and currently heads the Senate Standing Committee on Finance and Revenue.
The government on Monday also increased PIA’s authorised share capital from Rs30 billion to Rs54 billion after it converted the Rs23.6 billion loan to the airline into equity.
“This deal has been brokered by Chaudhry Muneer, a relative of PM Nawaz Sharif and Shujaat Azeem, Special Assistant to Prime Minister on Aviation,” claimed Mandviwalla.
He said the Supreme Court of Pakistan has questioned the appointment of Azeem as a special assistant to the PM, ordering to remove him. He requested the apex court to take a suo motu notice of the privatisation plan and give a stay order.
The senator’s statement may give a new twist to the PIA privatisation, which could undermine the government’s efforts to sell the airline by June next year under a condition of the International Monetary Fund.
He gave the statement just 48 hours after the government promulgated an ordinance to remove the legal hindrance to PIA privatisation.
He said the ordinance is an indication that the government was feigning transparency in the privatisation process. He urged that a judicial commission should conduct an audit prior to privatisation.
Furthermore, he pressed political parties as well as workers’ unions to protest against the on-going deal, as he contends that it goes against the national interest and there was no representative of labourers present to oversee the deal.
Mandviwalla claimed that the government has already struck a deal with a Gulf airline. “In my view, the privatisation transaction has already been done and rest is just formalities,” he said while talking to The Express Tribune.
He said the government has already unofficially conveyed this to the financial advisers hired for carrying out the transaction.
Privatisation Commission Chairman Mohammad Zubair was not available for comments
Dawn, December 9th, 2015
THE whole debate on the merits and pitfalls of privatisation is about to begin anew as the government moves to put PIA up for sale.
The start of the deal, which has been delayed at least three times already, has been marred by allegations of poor management as the government mysteriously chose to get the ball rolling with a presidential ordinance designed to convert airline corporate structure and prepare for strategic sale.
The choice of promulgating an ordinance to repeal the PIA Act of 1956 is somewhat puzzling, since ordinances are meant to be used largely in special circumstances.
The privatisation of PIA has been part of the agreement with the IMF since 2013, but the government appears to be moving in haste now as the Fund has demanded a fresh commitment to advancing the process and completing it by March.
The opposition parties are right to argue that the use of the ordinance in such a large exercise is objectionable, and the government ought to explain why it is choosing to bypass parliament in making changes to a legislative act.
As the government moves the process along, the debate surrounding the entire exercise will surely grow.
Whereas the opposition parties are correct to object to bypassing parliament where required, one can only hope that the debate does not remain confined to the technicalities of the process. Important questions are at stake, and parliament must play its role to ensure that the transaction does not damage any public interest.
The airline badly needs to benefit from private-sector efficiencies and management acumen, and past experience with privatisations shows that these can sometimes come at the cost of public interest.
The banks are an example. Private management here has certainly streamlined operations and improved the balance sheet, but the central function of any bank — mediating between savers and investors — is sorely lacking as the private management of these banks prefers the easy money at minimal risk that comes from lending to government.
Likewise, K-Electric has successfully turned the city’s power utility around, but largely by diverting the city’s scarce electricity to its elites, leaving the rest to bear the burden of load-shedding.
As the government moves to deliver on its commitments to privatise the large behemoths that have been eating up the state’s scarce budgetary resources, the ensuing debate should avoid taking potshots and ask more specifically about what the public interest is in each case of privatisation, and how the government intends to safeguard it.
In the case of PIA, maintaining flights to underserved destinations is a clear example. Will a private party agree to continue flight operations to Quetta and Peshawar, Sukkur and Multan, Gilgit and Skardu?
The answer must be yes, and parliament must ensure that any deal safeguards this.
PUBLIC-PRIVATE PARTNERSHIP IN DEFENCE PRODUCTION
The Express Tribune, December 9th, 2015
At a recent seminar in Islamabad,the president made a convincing case for the virtues of engaging the private sector in defence production. The Minister for Defence Production was equally enthusiastic about a close relationship developing between the public and private sectors.
Serving and retired senior military officers also endorsed this viewpoint and General Tanveer, who recently retired as secretary of Defence Production, read an elaborate paper on the merits of this partnership. It is heartening to know that there is a major shift from the mindset of the past and a growing realisation regarding the advantages of this partnership.
I distinctly recall that as chairman of the Pakistan Ordnance Factories Board and later as secretary of Defence Production, there was a lot of resistance from the top brass with respect to involvement of the private sector in defence production. There was a mistaken belief in the military hierarchy that by involving the private sector, it would lose control over state-owned defence installations. To some extent, that impression still persists.
Indeed, Pakistan has come a long way in indigenous defence production, considering that at the time of Partition, it did not have any defence industrial units. All the defence industries built by the British to serve their war machine were located in India.
To add to the challenges of a young nation, we had practically no civil industries either, apart from a few sugar mills and textile spinning units. The technological and industrial base was extremely weak and the military was dependent on weapons and equipment inherited from the British or imports from Western sources.
But soon after the major skirmish with India in Kashmir in 1948, Prime Minister Liaquat Ali Khan decided to set up an ordnance factory to produce small arms. Initially, it was located in Rawalpindi, but later shifted to Wah where it has developed into a huge complex. Over the years, Pakistan’s defence industries have grown significantly and boast of a wide range of military hardware.
This includes major weapon systems, such as armoured fighting vehicles, fighter and trainer aircraft, frigates, patrol boats, cruise missiles, intermediate range missiles, electronic and optronic devices and communication equipment. Pakistani products command the confidence of our military and have also found limited markets abroad. However, there are still major challenges that confront defence production.
The most glaring weakness of our leadership is that it lacks a clear vision regarding the integration of the private sector as a partner. Pakistan clearly needs an internationally competitive private sector participation to ensure a reliable domestic supply of technology and systems, and to contribute to the country’s overall industrial and technological development. Involvement of the private sector will also help in sustaining political support for defence production.
Pakistan’s military industrial complex needs to work more closely with the private sector and build on some of its strengths. That would include employing a more rigorous methodology in production processes, as well as better costing, accounting and budgeting methods. This should be accompanied by stronger oversight and quality assurance and a concentrated effort to translate best practices into the makings of a more export-oriented defence production sector.
Research and development is another critical area that the defence sector has ignored or given scant attention to. It is a short- sighted approach to merely rely on transfers of foreign technology and base the entire indigenous production on drawings and specifications supplied by foreign countries.
The most critical areas for domestic research and development are communications and related equipment, explosives and propellants, the manufacture of specialised materials (such as carbon fibre, exotic alloys and hardened steels), avionics, electronics, lasers and computation.
Strategic vision demands that our leaders comprehend the importance of the defence economy in the context of the national economy and exploit its potential. This, however, would only be feasible provided our defence organisations undergo a major restructuring, become more quality sensitive, financially cost-conscious and fully utilise the potential of the private sector, which can play a major role in introducing the latest technologies, modern management practices and contemporary financial management.
The private sector should also benefit from a cross-flow of technologies from the public sector defence industries. The military spends precious foreign exchange to acquire cutting-edge technologies or spends considerable state resources in generating them in-house. Most of these technologies have common usage, but remain quarantined and the civil sectors of the economy fail to benefit fully from them. All this is only possible if there is a change in mindset in the military bureaucracy, wherein the private sector is treated as an equal partner.
Current procedures for participation of the private sector are archaic and a major revision is necessary. There are several countries that have integrated the private sector in defence production and have institutionalised interaction at regular intervals.
The US, Sweden and Germany are classic examples of the success of the private sector. In these countries the private sector is producing highly sophisticated weapon systems, making these nations leaders in research and development. Singapore, Malaysia, Indonesia and India also have robust defence industries, producing fairly advanced military hardware and software.
Most of these foreign firms are producing both military and civilian products and thereby optimising their output and reducing overhead costs. The defence economy should be directed in a way that it becomes the engine of growth rather than a drain on the already emaciated national economy.
Another major weakness in our system has been that at times, the top postings in defence production entities have not been on the basis of individuals’ suitability, but more so as a parking place before retirement.
This practice, obviously, has had a corrosive effect on the organisations. I am confident that the present military leadership fully realises the key role defence production and procurement plays in strengthening national defence.
Career prospects of civilian technical and administrative cadres in Pakistan’s defence industrial establishment also need to be revisited. Many of these civilians are highly professional and have devoted their lives to defence production. Recognition of their merit will attract better talent to defence establishments.
The future of Pakistan’s defence industrial and technological capability lies in addressing these multiple problems satisfactorily, so that we can move towards maximum self-reliance.
NEWS COVERAGE PERIOD NOVEMBER 30TH TO DECEMBER 06TH, 2015
PPP WILL RESIST MOVE TO PRIVATISE PIA, PAKISTAN STEEL: BILAWAL
Dawn, December 1st, 2015
KARACHI: Pakistan Peoples Party chairman Bilawal Bhutto-Zardari on Monday pledged to accomplish the mission of making Pakistan a welfare state and announced that he would resist all moves aimed at privatising Pakistan Steel and Pakistan International Airline.
Addressing a large gathering in Malir on the 49th founding day of the party from a truck, the PPP chairperson told them that they would find him amongst themselves just like his slain grandfather and slain mother in the struggle to build a peaceful and prosperous country.
Despite a security threat, Mr Bhutto-Zardari removed his security guards as he arrived in Memon Goth and reached the stage amid slogans of Jiye Bhutto, Jiye Shaheed Benazir and Jiye Bilawal after taking an aerial view of the massive gathering in a helicopter. Seated along with other party leaders Nisar Khuhro, Sherry Rahman, Akhunzada Chattan and Faisal Karim Kundi, the PPP chairperson was presented a traditional Baloch turban by Salman Abdullah Murad, son of slain PPP leader Abdullah Murad.
In his 30-minute speech, Mr Bhutto-Zardari said Pakistan needed a new approach, courage and enthusiasm which only the youth could provide. “I would like to tell political orphans that the struggle that was launched by Shaheed Zulfikar Ali Bhutto continues today. No one succeeded in the past nor will they succeed in future to make the PPP give up its ideology.
“They allege that the PPP has given up its ideology, but the political orphans should know that martial law, whippings, hangings and imprisonments, dividing people on the basis of sects, ethnicity and forming alliances of all PPP opponents failed to divert the party from its ideology,” he said, reiterating that the struggle against oppressors and terrorism would continue till the last terrorist was eliminated.
With the portraits of Zulfikar Ali Bhutto and Benazir Bhutto in the backdrop, Mr Bhutto-Zardari then raised the slogan: “Friends of terrorists and enemies of Pakistan are traitors”.
He said the PPP had been founded when interests of Pakistan were being bargained over and the war that Pakistan had won was being turned into a defeat, the poor people were deprived of their rights and their fate used to be decided by capitalists and feudal. These were the circumstances when the people responded to the clarion call of Zulfikar Bhutto by chanting the slogan of Jiye Bhutto. “Even today workers and oppressed and crippled classes looked towards PPP as the party that represents their aspirations,” he said, adding that the struggle for the rights of workers, women empowerment, and skilled youth would continue.
Earlier Sherry Rahman said Karachi was a bouquet of the country. “The PPP has achieved success in the interior of Sindh and now will also win the polls in Karachi. Those who say that the PPP has been restricted to Sindh only, should understand that PPP is the only force of the federation’s unity,” she said.
Nisar Khuhro, Mian Rashid Rabbani, Sajid Jokhyo, Najme Alam and Akhunzada Chattan also spoke.
US WANTS TO PROMOTE PRIVATE INVESTMENT IN PAKISTAN: OLSON
Dawn, December 4th, 2015
WASHINGTON: Richard Olson, the new US Special Representative for Afghanistan and Pakistan, has assured Islamabad that the United States intends to promote new private sector investment in the country’s energy sector.
In his address to the US-Pakistan Clean Energy Business Opportunities Conference in Washington, Mr Olson emphasised the need for addressing Pakistan’s energy crisis in a fast and effective manner.
The conference was one of the first outcomes of the US-Pakistan Clean Energy Partnership, which Prime Minister Nawaz Sharif and President Barack Obama announced in Washington in October.
The two-day conference focused on the tools available to help the private sector further unlock Pakistan’s energy potential.
“Under this partnership, we intend to promote new private sector investments in Pakistan’s clean energy generation, transmission, and distribution,” Mr Olson said. This would help address Pakistan’s critical energy needs and support Pakistan’s efforts to mitigate climate change, he added.
Mr Olson, who served as the US ambassador in Islamabad from Oct 31, 2012 to Nov 17, 2015, said that during his three-year stay in the country, he personally witnessed the country’s energy crisis.
“I am convinced that clean energy solutions — including renewable sources like wind and solar, geothermal, hydro, and natural gas — are not just the best hope for resolving Pakistan’s energy crisis, but also for ensuring that our children can enjoy a cleaner and healthier future,” he said.
Unlocking Pakistan’s considerable clean energy potential could enable it to play a leadership role on global environmental issues, he added.
Mr Olson noted that several US companies were now investing in clean energy projects in Pakistan and hoped that this would encourage other American investors to come forward.
He recalled that two years ago, the US and Pakistan held a trade fair in Houston, which resulted in millions of dollars in deals, including import of LNG.
“Project developers and investors seek a predictable business environment, where tariff levels are transparently notified and approval processes are timely,” he said.
The United States will continue to work with Pakistani authorities to streamline and improve the project application and approval processes, he added.
“Now is the moment to build on the progress that has been made by strengthening the regulatory environment and expanding the space available to the private sector in the energy sector,” Mr Olson said.
Mr Olson announced that the next bilateral Energy Working Group would be held in Washington in 2016.
NEWS COVERAGE PERIOD NOVEMBER 23RD TO NOVEMBER 29TH, 2015
PRIVATISATION PROCEEDS TO BE USED TO CLEAR OFF DEBT
Dawn, November 28th, 2015
ISLAMABAD: The government informed the National Assembly on Friday that it planned to clear off its debt liabilities by selling public sector enterprises (PSEs).
In an otherwise lacklustre session, a parliamentary secretary claimed that PML-N had received people’s mandate on its election manifesto that included privatisation of national entities.
Finance Minister Ishaq Dar said in a written answer to a question that the total domestic debt stood at Rs18,093 billion at the end of September and Rs1,304bn was spent on debt servicing during 2014-15.
He said the government wanted to enhance its debt repayment capacity through resource mobilisation, by increasing the tax-to-GDP ratio from 11 per cent to 13pc by 2017-18 and repaying expensive domestic debt with concessional external loans. He said the government was trying to boost economic activities, increase foreign exchange reserves, restore international investors’ confidence and achieve fiscal discipline.
“Furthermore, privatisation of various public sector enterprises is under process — 90pc receipts of privatisation will be used for debt retirement,” Mr Dar said.
He said the fiscal deficit was expected to drop to 4pc of Gross Domestic Product in 2016-17 from 5.37pc recorded in 2014-15.
The enhanced fiscal space will reduce the government’s borrowing and augment its repayment capacity.
In reply to another question, he said the government had received $18bn foreign loans by Sept 30. These included $3.5bn bonds and $4.77bn received from the International Monetary Fund. He said the budget estimates for repayments were prepared on the basis of the schedules agreed under the loan agreements.
The IMF loan is meant exclusively to build foreign exchange reserves and has not been used for budgetary support needs. The amount is shown as part of
the reserves (currently $19.92bn) with the State Bank being the custodian.
Replying to a supplementary question asked by the PPP’s Nafisa Shah, Parliamentary Secretary for Finance Rana Muhammad Afzal Khan said the government had decided in principle to privatise public sector entities — both running in profit and making losses.
“Privatisation was part of our election campaign and people have voted us into power. Hence questioning the government over its privatisation policy doesn’t make sense.” Rana Afzal said the Pakistan Steel Mills had been a profitable concern but today everyone is aware of its state of affairs. Other PSEs would also be sold, he added.
PROTEST HELD AGAINST PRIVATE SCHOOLS BILL IN BALOCHISTAN
Dawn, November 29th, 2015
DERA MURAD JAMALI: The Pakistan People’s Party (PPP) held a demonstration here on Saturday in protest against the passage of the Private Schools Regulations Bill by the Balochistan Assembly.
On the call of the party a strike was also observed in the city in protest against the legislation.
A large number of PPP workers and supporters led by the party’s Balochistan chapter president, Mir Mohammad Sadiq Umrani, marched on different roads and gathered at the DC Office Chowk.
Mr Umrani and Private Schools Association president Mir Mohammad Ibrahim Khoso said that the bill passed by the assembly in the name of introducing reforms in the private schools system would damage the standard of education in the province.
They said the government of Chief Minister Dr Abdul Malik Baloch had failed in bringing any betterment to the state-run schools. They alleged that a large number of government school teachers did not perform their duty.
The urged the government to review the bill.
NEWS COVERAGE PERIOD NOVEMBER 17TH TO NOVEMBER 22ND, 2015
DEMAND FOR LONG-TERM LOANS SURGES 20.6%
The Express Tribune, November 17th, 2015.
KARACHI: Notwithstanding the newspaper headlines screaming otherwise, official data suggests private businesses are increasingly willing to borrow money for long-term investments.
Long-term loans that private-sector businesses obtain in order to make fixed investments in physical assets are considered a true reflection of the investors’ sentiment.
According to the State Bank of Pakistan (SBP), the outstanding position of loans taken out by private-sector businesses was Rs1.05 trillion at the end of September, up 20.6% from a year ago.
This means the outstanding credit to private businesses for long-term, fixed investment increased by almost Rs181 billion in 12 months to September, which reflects a major improvement in the investors’ sentiment. After all, no private business borrows money to purchase or upgrade assets like machinery, buildings and technology unless it expects good times ahead. Businesses within the manufacturing sector increased their outstanding credit position for fixed investments by almost 22% over the 12-month period, SBP data shows.
According to Bilal Khan, senior economist at Standard Chartered Pakistan, investment is finally showing signs of improvement in a few sectors of the economy after remaining weak for about five years.
He noted that the import of machinery increased for the second year during 2014-15, particularly in the energy sector. While these imports declined marginally in the first quarter of 2015-16, he added that energy-sector imports remained positive.
Within the electrical machinery and apparatus segment, the year-on-year rise in the outstanding loans was 28.5% at the end of September.
The net increase in the outstanding loans taken out by businesses in the electricity, gas and water supply sector remained 5.4%.
“We believe these are likely to pick up further because of planned expansion in the energy sector,” he said in the bank’s latest report on the economy of Pakistan. Khan said his bank expects “some expansion” in sectors that cater to domestic demand, such as motorcycles and cement.
Banking-sector data also points to increasing credit uptake in these sectors. For example, construction businesses had Rs35.4 billion outstanding credit for fixed investments at the end of September, up a massive 57.5% from a year ago.
In particular, the comparable increase in the infrastructure category was colossal: outstanding long-term credit extended to private businesses engaged in the infrastructure sector increased 183% over the 12-month period, SBP statistics show.
The benchmark interest rate is at an all-time low (6%), which means investors should ideally have access to cheap credit. However, Khan believes structural reforms, rather than the price of credit, are important for investment growth.
“We believe monetary easing has been supportive. However, supply-side constraints continue to limit investment growth,” he said while referring to energy shortages and inefficiencies in state-owned enterprises.
Speaking to The Express Tribune, Invest & Finance Securities CEO Muzammil Aslam said although the benchmark interest rate is at the lowest point in history, the cost of credit is still very high in Pakistan.
“There was a time (in the 2000s) when the yield on treasury bills was lower than even 2%, which is not the case anymore,” he said.
Interest rates have not come down as much as the SBP’s benchmark rate because of heavy government borrowing, Aslam says. Fiscal deficit used to be relatively smaller in the mid-2000s, which meant limited borrowing needs for the government. This resulted in surplus cash with banks and the subsequent lower yield on treasury bills, according to Aslam.
But now the government’s appetite for money is in excess of Rs1.5 trillion per annum, he says. This means money generated in deposits is invested heavily in government papers while the private-sector credit growth remains muted, he adds.
“Banks are not comfortable lending to the private sector. The latter hasn’t been too eager to borrow either because of the high cost of finance,” Aslam noted.
REVAMP OR LIQUIDATE: PSM FATE A $100M QUESTION FOR PM
Dawn, November 18th, 2015
ISLAMABAD: The prime minister has been asked a hundred-million-dollar question: either to liquidate Pakistan Steel Mills with Rs8.1 billion or approve a Rs9.3bn plan and let it run as a going concern until its privatisation by June next year.
If the prime minister opts for the first option, the country’s largest industrial complex would not be privatised, according to a summary sent to the prime minister on Tuesday and seen by Dawn. In both cases, the total debts and liabilities have gone beyond Rs350bn and would need to be taken care of by the government.
The prime minister has also been requested to sell, mortgage or lease tens of thousands of acres of PSM’s land to generate Rs8.2bn to meet employees-related liabilities such as pension, gratuity and medical.
The liquidation would, however, have larger and additional ramifications “entailing serious social, political and legal issues”. Around 17,000 employees are already without salaries for four months now, a situation which can explode at any time.
In view of prolonged closure (since June 10 this year), lack of clear direction and government support, auditors are not ready to consider PSM as a going concern, which means a business that functions without the threat of liquidation for the foreseeable future, normally 12 months.
In order to move forward, “we are left with liquidation and going concern options”, reported the PSM to the prime minister.
The prime minister has been told that to make the company a going concern but running on a business-as-usual basis would need Rs8.08bn until June 2016 — the deadline for its privatisation. This would include Rs1.44bn for salaries for three months until now and Rs6.64bn for other expenditures including salaries from November 2015 to June 2016. In this case, however, blast furnaces would not be able to be revived and the unit would not remain a going concern.
The prime minister has been requested to approve a Rs9.3bn plan to operate the plant till June 2016. This would require immediate restoration of natural gas pressure by paying the bills in advance by the government amounting to Rs1bn and plant operation till privatisation by June 2016.
Besides gas bills, salaries from August 2015 to June 2016 would require Rs5.28bn and another Rs3bn to clear National Bank of Pakistan’s default to order raw material in the next month. This would enable the PSM to run on 40 per cent capacity utilisation and remain a going concern.
It has been reported that the plant achieved 65pc capacity utilisation in June this year when gas pressure was reduced due to non-payment of bills worth Rs18bn and late payment surcharge of another Rs18bn.
The company has also reported that auditors have raised the going-concern issue due to poor financial health of the corporation. To resolve the issue and make privatisation possible, it was imperative to inject Rs9.3bn to secure a “going concern certificate from the auditors”.
It said the talks, offers and counteroffers for restoration of gas pressure by the Sui Southern Gas Company Ltd (SSGC) was not going forward despite involvement of all the ministries concerned. It said the mill had achieved 95pc capacity utilisation between 1991 and 2008, when its staff peaked at 27,000. The number has now come down to around 15,000 as capacity utilisation has fallen below 65pc over the past eight years.
Interestingly, the handpicked but headless board of directors of Pakistan Steel is also meeting today to approve the business plan. Finance Minister Ishaq Dar had told the International Monetary Fund that PSM had incurred heavy losses due to global recession in 2008 as the government put a slow paddle on accountability process, leading to the mill’s downfall. The commitment for appointing a professional board has yet to materialise.
The current situation of the mill is that it suffers from losses and liabilities of around Rs350bn. The plant is virtually at a standstill since the last five months due to reduction in pressure of natural gas supply by SSGC. The employees have not been paid salary for the last three months. The retired employees have not been paid gratuity dues since April 2013 and provident fund dues since June this year.
Huge payments of suppliers and dealers are also held up. Urgent repairs are required to restore the technical state of the plant and equipment, which cannot be undertaken at present due to paucity of funds.
Since April 2014, when the Economic Coordination Committee approved a bailout package of Rs18.5bn, the PSM has suffered further losses to the tune of Rs40.2bn.
Informed sources, however, said there was no visible effort to check and control the avoidable expenditures. Employees were being paid operation allowance, hazard allowance, shift allowance, etc, when the plant is at a standstill since the last five months.
Some members of PSM’s trade union are getting outstation allowances while they are physically present in Karachi. These allowances are applicable only to those who are posted at Makli Limestone and Jhimpir Dolomite quarries.
PRIVATISATION COMMISSION CLARIFIES
The News, November 19, 2015
ISLAMABAD: The Privatisation Commission is actively engaged in providing information about the progress of the privatisation program to all of its stakeholders with the aim to ensure transparency and promote a factual knowledge about the transaction process.
It is therefore important to clarify an article titled ‘Borrowing Deep’ published in ‘Money Matters’ in The News on 16 November, 2015.
In this article, the writer refers to an alleged statement of Secretary Privatisation Commission, in which he was quoted that the International Monetary Fund’s (IMF) expressed annoyance with the government extending bailout packages and expenditure based financial support to those public sector entities, which are under the active privatisation plan.
He is also quoted for conveying IMF’s dissatisfaction with regard to the delay in the privatisation process.
The Privatisation Commission would like to strongly emphasise that such statements have never been made by the secretary, as he neither attended the IMF review meeting recently held in Dubai nor is privy to any such statement by the IMF.
Rather, the writer extracted the statement from an incorrect news-item published on 6 November, 2015 in a newspaper, about the meeting of Pakistan Steel Mills’ (PSM) board of directors.
Following the publication of the incorrect news items, the management of PSM immediately responded by issuing a news clarification the following day, rebutting the alleged statement. Since PSM has already clarified the factually incorrect statement of the Secretary Privatisation Commission, it is extremely disappointing to see wrongly attributed statements used as reference without being carefully verified by the author.
GOVT URGED TO RUN ENTITIES UNDER PUBLIC-PRIVATE TIE MODE
The News, November 22, 2015
LAHORE: The Lahore Chamber of Commerce and Industry (LCCI) on Saturday demanded of the government to run all public sector enterprises (PSEs) under the public-private partnership mode as majority of public entities have failed to deliver desired results.
The LCCI President Sheikh Muhammad Arshad, in a statement, said government would have to devise an ‘extraordinary’ plan to control heavy losses of Rs600 billion to the national exchequer. “Business community is the ultimate loser as these loss-making PSEs are being run through the duties and taxes imposed on the trade and industrial sectors,” Arshad said.
LCCI office bearers said though “salvage plan” is well on the way as far as Pakistan Railways and Pakistan International Airlines are concerned but situation in the other PSEs is quite disappointing.
They suggested formation of a committee of experts from public and private sectors to revisit strategy and adopt methods, which provide a new impetus to the PSEs.
They said the committee should go deep into the broader political philosophy and vision under which the PSEs will be required to play their role in the new competitive environment.
They said that it is necessary for the government to increase its efforts for the revival of the PSEs.
Greater autonomy and non-interference in their functioning have to be guaranteed so that the country can fully reap the benefits of PSEs. They said PSEs are for short-term economic and commercial gains and are also national assets.
“Cut in political interference, training of staff members and cost cutting measures could control the losses of the airline and streamlining of flight operations will lead to sustainable revenues to the PIA,” said the statement.
FOR SURVIVAL: LCCI WANTS PRIVATE SECTOR ROLE IN LOSS-MAKING PSES
The Express Tribune, November 22nd, 2015.
LAHORE: The Lahore Chamber of Commerce and Industry (LCCI) has suggested that the government convert failing state-owned enterprises to a public -private partnership model, a move aimed at helping loss-making companies perform better.
LCCI President Sheikh Muhammad Arshad, Senior Vice President Almas Hyder and Vice President Nasir Saeed said the government will have to resort to ‘some extraordinary plans” to control heavy losses amounting Rs600 billion to the national exchequer.
“Business community is the ultimate loser as the loss-making PSEs are run through duties and taxes collected from the trade and industrial sectors.”
They were of the view that a “salvage plan” would work for Pakistan Railways and Pakistan International Airlines (PIA), but situation in the other PSEs was disappointing.
“Considering the massive losses PSEs are causing, government shall take immediate measures to make these organisations profitable or consider their privatisation,” said the LCCI office bearers.
“In advanced economies, role of PSEs is minimal and private sector is the most important instrument of socio-economic prosperity,” they said
“Being the most employment and capital intensive organisations of the country, PSEs’ significance cannot be overlooked,” they added, suggesting the formation of a committee comprising experts from public and private sector to revisit strategies and adopt methods that provide new impetus to PSEs.
“The committee shall scrutinize the broader political philosophy and vision under which PSEs will play their role in the new competitive environment,” they said.
SHIFTING PRIVATISATION DEADLINES
Published in Dawn, Business & Finance weekly, October 12th, 2015
IN its quarterly report on Pakistan’s economic performance, the IMF made public a delay of at least six months in Islamabad’s privatization programme. This schedule would be too close to the conclusion of the fund’s 36-month, $6.4bn programme.
To be precise, the final tranche of Extended Fund Facility is due for disbursement in August 2016, while almost all privatisation transactions have been delayed until end-June or end-September 2016. This would mean that the fund would have little influence at the time to push authorities to end the bleeding of public sector entities
For example, the divestment of shares in PIA, KotAddu Power Company, Mari Petroleum and Pak-Arab Refinery have been postponed until end-June 2016 instead of December 2015. Similarly, the strategic sales of electricity supply companies of Faisalabad, Islamabad and Lahore, as well as the Northern Power Generation Company Ltd, have been delayed until end-September 2016 instead of their previous deadlines of December 2015 to June 2016.
Only the schedule of the easier 10-15pc divestment of the government’s shares in the State Life Insurance Company Ltd has been advanced by three months to March 2016.
“Following delays in the planned privatisation of public sector enterprises, follow-through on revised privatisation plans and a commitment to restructure key loss-making enterprises will be essential,” the IMF has warned.
The fund also seemed to be putting too much hopes on the China-Pakistan Economic Corridor (CPEC) to spur economic growth in the country, even though its focus appeared on limiting public sector development investment to keep the fiscal deficit within manageable limits.
Meanwhile, the power sector’s poor performance remained stubborn, as the IMF noted no reduction in system losses and a 1pc fall in recoveries and a higher stock of circular debt. This was based on Finance Minister Ishaq Dar’s report that the total circular debt stock had increased by about Rs33bn between end-March and end-June to Rs648bn.
In its previous quarterly review, the IMF had noted an easing of risks. But it reported that downside risks had increased after June 30. Some key downside risks included slippages in policy implementation, legal challenges to power surcharges, and the still-challenging political and security conditions, which could affect economic activity and undermine fiscal consolidation.
Despite some slippages in meeting targets, the IMF appreciated the authorities for making significant progress over the programme’s period in addressing fiscal imbalances and building forex reserve buffers, supported by lower oil prices and lower untargeted power sector subsidies.
However, the public debt remains high; the tax-to-GDP ratio is (despite some recent progress) among the lowest in the world; private investment is still well below desired levels; and exports have declined from an already low base.
In addition, the appreciation of the real effective exchange rate has been eroding competitiveness.
The IMF said strong reform implementation will be needed to reinforce the recent gains in economic stabilisation and to sustainably raise growth, and it asked the authorities to be prepared to take measures as necessary to keep the fiscal programme on track.
“In the event that projections at the time of the ninth review show a fiscal gap, planned tax-base broadening measures should be pulled forward and implemented promptly,” the fund said.
“Power sector reforms should be swiftly implemented,” it added while releasing the $504m tranche recently. It noted that securing reliable and continuous supply of electricity, improving the system’s efficiency, and moving the sector to cost recovery will be critical for growth and continued fiscal consolidation.
Swift reduction in losses and improved recoveries will unlock existing idle generation capacity and reduce the potential drain from such arrears on public resources, said the IMF.
The lender also believed that the CPEC will initially connect western China (Kashgar) with the south of Pakistan (Gwadar) through a series of infrastructure and energy projects. It envisages an investment of $33.8bn in energy and $10.6bn in transport infrastructure.
The CPEC will cover the period till 2030 and will be reviewed for investments as it progresses beyond 2030. All transport infrastructure projects are expected to be completed by 2017-18, while priority energy projects — which will add about 10GW to overall capacity — are expected by 2017-18.
The fund noted that while transport infrastructure projects will be exclusively financed through government-to-government long-term loans on concessional terms, they will be executed within the overall envelope of the public sector development programme.
Energy-related projects will be based on foreign direct investment, financed by commercial loans from Chinese financial institutions to Chinese investors, who, in collaboration with Pakistani partners, will undertake the construction of all projects. And the Pakistan government will guarantee energy sales through power purchase agreements.
SINDH’S DECISION ON PSM OFFER AWAITED, SAYS ZUBAIR
Dawn, October 15th, 2015
ISLAMABAD: Chairman of the Privatisation Commis¬sion Mohammad Zubair said on Wednesday that the federal government expected a decision by the Sindh government in a few weeks on the issue of taking over the Pakistan Steel Mills (PSM).
“On our part we have completed the process, and now are waiting for the Sindh government to respond to the federal government’s offer,” he said at a press conference.
Mr Zubair said the Privatisation Commission ensured transparency in every transaction. But, he added, the Cabinet Committee on Privatisation was not empowered to offer the mill to the Sindh government.
Nevertheless, the offer had been made in view of the provincial government’s desire to take over the mill, he said. It was similar to the offer made to the Khyber Pakhtunkhwa government about taking over the Peshawar Electric Supply Company (Pesco). Pakistan Tehreek-i-Insaf Chairman Imran Khan had proposed in 2014 that Pesco should be handed over to the KP government and, in response, Federal Water and Power Minister Khawaja Asif had offered to the provincial government to take over the company.
Mr Zubair said the PSM had incurred losses of Rs120 billion till March 2015, including taxes of Rs33 billion. But the mill management has not informed the commission about the losses.
The offer has drawn criticism from political leaders and legislators. Mr Zubair responded to the criticism made by Senator Saleem Mandviwala and urged legislators and politicians to avoid giving unprofessional advices and, instead, praise the government’s decisions.
“As many as 180 million people are looking towards us and we all equally share the responsibility,” the minister said.
He said the commission, its members and the transaction committee were working efficiently and the commission had received an international award for outstanding capital market transactions.
He said it took four to five years to complete a transaction and the challenge was to complete a transaction in a transparent way.
“Since the beginning of the privatisation process in the country, difficult transactions have been left with us but we are committed to adhering to the timeline,” Mr Zubair said.
He said the commission was currently working on 25 important transactions.
The Cabinet Committee on Privatisation has approved the transaction structure of the Faisalabad Electric Supply Company and the commission has started the process of divestment.
‘PRIVATISATION PART OF PML-N’S REFORM AGENDA’
The News, Thursday, October 15, 2015
ISLAMABAD: Pakistan is not privatising the public sector entities under the pressure of Breton Woods system, but “Privatisation is the essential reform agenda of the Pakistan Muslim League-Nawaz government”, and the government is ensuring complete transparency in its privatisation deals.
Privatization Commission Chairman Mohammad Zubair said at a press conference after the commission came under criticism from the opposition Pakistan Peoples Party senators in the parliament.
Zubair dispelled the impression that Pakistan is privatising the public sector entities on the demand of the International Monetary Fund (IMF) and World Bank. He asked the critics that instead of indulging in rhetoric they should come out with concrete proposals to improve the process.
There are four forums for privatisation, including evaluation committee, transaction committee, board of directors, and cabinet committee on privatisation, which look into the deal, he added. The process of privatising an entity normally takes two to three years to complete, which exceed to three to four years in some cases like Habib Bank Limited and Pakistan Telecommunication Company Limited (PTCL). There are around 25 entities on active list.
Zubair said that Faisalabad Electric Supply Company (FESCO), Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM), transaction structure has been approved. While, the Cabinet Committee on Privatisation has approved the transaction structure of FESCO and the marketing for this company has also started.
Talking about the privatisation of Pakistan Steel Mills, minister of state said that the federal government was waiting for the Sindh government’s reply to buy the mills. The CCoP had decided to offer the PSM acquisition to the Sindh government, as the province showed interest in it, he remarked. Further progress would be made after a response was received from the Sindh government. “History will be written by privatising the PIA and PSM”, he added.
He said that the government wanted to privatise the Heavy Electrical Complex (HEC) in order to reduce the financial burden on the national kitty. “This is the fourth attempt made by the government for the privatisation of the HEC, as the earlier ones were made by the Musharraf government, PPP, and another by the incumbent government.”
He also clarified that the Privitisation Commission wanted to transfer Rs33 billion contingent assets to the buyers of PSM.
In the meantime, Chairman Senate Standing Committee on Finance, Revenue and Privatisation, Senator Saleem Mandviwalla of the PPP suggested that the government should work on reviving national strategic institutes like the PSM and PIA, instead of going on a single track policy of privatisation to please the IMF.
Organisations like the PIA and PSM are national assets and can be revived if there is political will. Some forces want to destabilise the public sector enterprises (PSEs) to make the process of privatisation smooth, he said.
Mandviwalla demanded that a full-fledged enquiry should be held into the affairs of the PIA from 2005 to 2015. He asked for an investigation against the forces behind the two strikes PIA faced.
Senator Mandviwalla revealed that after the strike in 2011, the union leaders in a joint statement had said that if the government accepted their demands of cancelling the Turkish agreement and removal of then MD, PIA will become profitable in six months. But now the very same forces are saying if that arrangement between PIA and Turkish Airlines had materialised, PIA would have been in a better position.
He said, “It is time we investigate and identify those forces responsible for bringing PIA to this state, irrespective of the fact whose lobby they belonged to. If they were appointees of our (PPP) government or those supported by the then opposition (PML-N), we must bring all to account for their misdoings.”
“If this task is given to the Senate Standing Committee on Finance, Revenue and Privatisation, we will investigate this in six weeks and bring the facts to the people of Pakistan. The Committee will indentify the forces responsible for bringing the PIA to the present situation,” he said.
The senator further added, “I firmly believe that PIA can still be made a profitable organisation. Anyone can show profits in a booming business. What we want to hear is how an organisation that is sinking can be revived.”
It is shocking to see that advisors of the government who claim to be champions of the corporate world are suggesting selling the organisation, he continued. “I appeal to the PM to take immediate initiative and give this task to the senate finance committee,” Senator Mandviwalla added
He said that the Finance Minister was constantly borrowing from the IMF to build up Pakistan’s foreign exchange reserves and giving a false impression of economic revival, “all he is doing is overburdening the national exchequer so that the next government is bogged down with these loans”.
PURSUING PRIVATISATION AT A COST
The Express Tribune, October 26th, 2015.
By Dr Fahd Rehman
The writer is an Assistant Professor of Economics at Lums
LAHORE: The case of electricity corporatisation and now privatisation is being pursued with much zeal on the notion of market liberalism. The push for these microeconomic reforms came externally under the influence of ‘Structural Adjustment Programs’ of multilateral donor agencies since the early 1990s.
The so-called promises are that electricity privatisation would promote competition, bring the cost structure down, ensure reliability of electricity network and attract investors towards electricity generation, transmission and distribution. It is highly unlikely that any of these promises would deliver.
The proponents obstinately argue that reforms are heading in the right direction. However, the process is frequently halted owing to political interference. They urge that there is a need to deepen structural reforms by completing the half-implemented process. Once the reforms are completed, it would yield long-lasting dividends since the ideals of competitive market will be achieved.
The proponents are pushing hard to achieve the ideals of competition, but they brush aside another market structure ie natural monopoly. Research studies in the field of microeconomics show that natural monopoly is a complex market structure which also entails welfare gains, though it is difficult to quantify them.
The case of Water and Power Development Authority (Wapda) is instructive in this regard. It used to be an integrated natural monopoly till the early 1990s. Despite all odds, it was delivering affordable and reliable electricity. Electricity generation, transmission, distribution and billing were integrated and well-coordinated.
Then came the era of microeconomic reforms when integrated monopoly was disintegrated on vertical and horizontal lines. The vertical integration of generation, transmission, distribution and billing has been dismantled into Power Generation Companies (Gencos), National Transmission & Despatch Company (NTDC) and Power Distribution Companies (Discos) under the umbrella of Pakistan Electric Power Company (Pepso). Similarly, each of these components is being disintegrated on horizontal lines. For instance, the geaneration has been disintegrated by the introduction of Independent Power Producers (IPPs), Wapda (hydrel) and Gencos. A new mantra of selective privatisation of Discos is in vogue nowadays.
An integrated natural monopoly yields economies of scale and scope. It is achieved through the integration of generation, transmission, distribution and billing which provides efficiency.
However, a few economists argue that transmission, distribution and billing provides a natural monopoly by excluding generation since they are of the view that generation should be in private hands. An economy of scope is achieved if two different activities are performed efficiently by the same company. For instance, transmission and distribution are two different activities which can efficiently be performed by a single company.
The prices of generation vary with fuel cost, inflation and exchange rate in case of IPPs, while the prices remain fixed at the end of consumers. In a system where billing and generation functions are separate, both face considerable price risk. In the absence of subsidy (a kind of hedging) from the Government of Pakistan, the ultimate price would be borne by consumers. That is the reason prices of electricity have increased manifold in the last seven years.
Is the current system reliable? The answer can be sought by looking at the pattern of load-shedding.
Historically, electricity load-shedding has been much lower than what it is now. It was hovering around two to three hours in peak hours back in the 1980s. It was between 10 to 12 hours in the previous regime and came down to seven to nine hours in the current.
Fortuitously, lower international oil prices played an important role in increasing generation of electricity in the last one and a half year which brought a slight improvement in the situation. Similarly, if we ask exporters, what is the problem with the electricity? It is expensive and unreliable.
In a nutshell, the current system of vertical and horizontal disintegration of electricity is neither affordable nor reliable. This system contradicts the economies of scale and scope, which makes the economy uncompetitive. This entails huge political cost and the previous regime has already paid the price. Let’s see how things unfold in coming years.