NEWS COVERAGE PERIOD FROM MARCH 23RD TO MARCH 29TH, 2020
GOVERNMENT UNLIKELY TO ACHIEVE TARGET OF PRIVATISATION OF PSES
By MUSHTAQ GHUMMAN on March 26, 2020
The government is unlikely to achieve the target of privatisation of public sector entities as per commitment with the International Monetary Fund (IMF) due to current spread of coronavirus and subsequent restrictions on travel.
The federal government set a target of Rs 150 billion from privatization proceeds in 2019-20 through divestment of shares of six entities i.e. Mari Petroleum, SME Bank, Guddu Power Plant, Services International Hotel, Lahore, and 27 government properties which are unrealized.
Recently PC shared update on 11 PSEs in the active privatization program and is aiming to complete the initial phase within a period of 12 to 18 months. These PSEs include: (i) RLNG-based power plants of National Power Management Co Ltd; (ii) Nandipur Power Plant; (iii) PPL (up to 10 per cent divestment); (iv) SME Bank Limited; (v) divestment of government of Pakistan’s residual shares in Mari Petroleum Company Limited (MPCL); (vi) First Women Bank Limited; (vii) HBC; (viii) Pak Reinsurance Co. Ltd (20 per cent divestment); (ix) State Life Insurance Corporation (up to 20 per cent divestment);(x) revival of PSM; and (xi) sale of 27 properties.
Background interviews with the officials of different ministries reveal that the government has come to the conclusion that subsequent to Covid-19 these targets are no longer achievable. However, Privatization Commission’s spokesperson said that “we cannot say the process of privatization is derailed as the government is making all out efforts to achieve the targets. We are taking things ahead with the help of video conferences and other mode of electronic communications but there are issues relating to inability to physically inspect sites of the entities which is a mandatory requirement of due diligence process,” she added.
Different countries placed restrictions on travel prior to Pakistan’s decision to suspend flights operations, she continued citing the example of RLNG plants which the government had made operational but one investor team hailing from Malaysia which had shown an interest in the plants, was not able to travel to Pakistan because Malaysia imposed travel restrictions on its citizens. However, keeping in view the situation, Minister for Privatization directed the official to start interaction with investors through video conferences for due diligence. The management of National Power Parks Management Company (Pvt) Limited (NPPMCL) which owns RLNG power plants remained in contact with all the interested investors through video conferences. However, there are delays because whatever activity had been planned for the last week of March did not go ahead as per the plan but no transaction is halted due to the current scenario.
“Whatever situation unfolds due to Coronavirus, we will continue to adjust. We have actually stretched our privatization schedule through video conference. We cannot predict things but are taking things ahead with all possible effort,” she maintained. On March 24, 2020, the Privatization Commission did pre-bid conferences for 747 MW Guddu Thermal Power Station and Jinnah Convention Centre through video link. However, inter-ministerial consultation is almost nil due to Coronavirus epidemic. Financial Advisors of different transactions are also home restricted.
She further stated that transactions like OGDCL whose shares are to be offloaded in the capital market have been affected because of current volatility as this raises several questions for further line of action. “Our schedule of each transaction has been impacted due to Coronavirus syndrome which is a fact and we cannot deny it. We will also bring all aspects to the notice of the Cabinet Committee on Privatization (CCoP),” she said, adding that as the situation normalizes, PC will again proceed as fast as possible.
Updating on revival of Pakistan Steel Mills (PSM) on PPP mode, sources said a team of M/s Sinosteel China was already in Pakistan. The team was in Karachi to visit the site and gather data but it returned to Islamabad as the situation worsened in Sindh due to Coronavirus spread.
However, the team again visited Karachi to get some technical information about the plant and jetty. The PSM team and Sinosteel held discussions on Monday through video link and also submitted a preliminary report to the PC. All the technical aspect of PSM will be discussed in the next meeting to be presided over by the Prime Minister’s Advisor on Finance and Revenue, Dr Abdul Hafeez Shaikh. PSM has also been asked to complete spadework on human resource, legal and financial issues which the management is doing.
In reply to another question, she said that a Korean company, M/s Comrador, has also shown an interest in PSM and a decision has been taken to further meet up with the company working level. On February 25, 2020, CCoP had expressed its concern over the slow progress on the privatization program and observed that a lot of time is being wasted unnecessarily on petty issues. The CCoP further observed that with current pace, desired result from privatization program cannot be achieved. There is a dire need to resolve all issues related to privatization program expeditiously in order to make it a success. The CCoP has directed Privatization Division to expedite due privatization process of entities on the active privatization list, for ensuring their privatization within given timeframe.
Copyright Business Recorder, 2020
NEWS COVERAGE PERIOD FROM MARCH 09 TO MARCH 15TH, 2020
IMPACT OF PRIVATISATION ON PUBLIC WELFARE IN PAKISTAN
By SHAKEEL RAMAY / Hania Shah Published: March 9, 2020
ISLAMABAD: International financial institutions (IFIs), with the help of liberal scholars, are selling privatisation as a great remedy for economically troubled and debt-ridden developing countries.
Although the first example of privatisation comes from a fascist regime of Italy, today it is a favourite tool of IFIs. Proponents always highlight efficiency, higher productivity, better management and in some cases debt retirement. Unfortunately, there is less debate on the welfare impact including income distribution, poverty, job loss, wages, etc.
Literature also suggests that privatisation has numerous negative implications on the economic, social and welfare fronts. The main impacts are highlighted in the form of constricted job markets and income inequalities.
A similar trend can be seen, for instance, from the experience of Brazilian privatisation, which resulted in a huge fall of 26% in wages for those employed in the newly privatised enterprises.
Argentina suffered on multiple fronts, especially from the privatisation of services-sector enterprises. In the first wave of privatisation, 110,000 people lost their jobs whereas 369,000 people became jobless due to de-industrialisation. It led to the surge of informal sector, which introduced yet another whirlpool of issues.
With focus on privatisation since 1988, it has been observed that Pakistan also went through similar experience but with less severity. Unfortunately, it created joblessness and further burden on the government.
According to a report by Dr Pervez Tahir titled “Economic and Social Consequences of Privatisation in Pakistan”, the country has seen a decline instead of a positive impact on the economic, social and political indicators. The most prominent evidence in the form of economic cost was the huge debt stock and fiscal deficit, which interestingly were the main culprits the privatisation was targeting.
It seems quite contradictory and against the pragmatic approach that the International Monetary Fund (IMF) has again prescribed a recipe to Pakistan in which privatisation has been given a huge weightage despite the disappointing past experiences.
Under the Extended Fund Facility (EFF) of the IMF, the authorities have approved the privatisation of seven companies on the basis of good prospects.
The government seems to be in a mood to go for privatisation at any cost and as a first step Pakistan Steel Mills has been withdrawn from the China-Pakistan Economic Corridor (CPEC) framework. The withdrawal will have implications for Pakistan on multiple fronts.
First of all, it will once again shake the confidence of Chinese government and will give the impression that Pakistan does not have any clear policy or consistency in its policy, which is prone to change at any time. Consequently, China will become more conscious in future while dealing with projects under the CPEC umbrella. Secondly, the offer was very good as it would have given less control to the private sector.
The government needs to rethink its strategy and policy. The decision should be analysed with a broader spectrum. Efficiency, debt retirement and management should not be the only criteria.
Debt retirement is a very common element in the privatisation strategy. However, it is not true in many cases including that of Argentina, Pakistan, etc. Therefore, the government needs to ponder on a few areas before deciding the future of privatisation.
First, how the non-tax revenue gap will be filled if state-owned enterprises (SOEs) are sold as these enterprises are a permanent source of income and employment given that they are managed properly and in accordance with market requirements.
The best and successful examples can be quoted from China as its SOEs are profitable and resilient. These SOEs even sustained the economic shock in the past three decades.
Second, Pakistan needs to analyse what would be the impact of privatisation on the job market? How the government will compensate people? This question is important because of the greater youth bulge, which is in dire need of job opportunities.
As a matter of fact, the private sector will focus only on those opportunities that will be based on cost minimisation and profit maximisation. It is a basic ingredient for the private sector, then who will take care of the social aspects?
Will only taxes be enough to meet expenditures? Will private sector be happy to pay high taxes? The government also needs to analyse the difference between tax revenue from these SOEs if they are privatised and their earnings potential if efficiently run by the government.
Third, the government will lose a major chunk of its already shrinking revenue to compensate for the laid-off staff. What would be left to pay back the debt or bear the debt servicing cost?
At present, privatisation is being presented as a remedy to deal with the loss-making SOEs and to retire debt. It is part of the argument that “we do not have enough financial resources and we have to pay back the debt” and “SOEs are bottomless holes and we cannot fix them”.
A deep analysis suggests that privatisation is a short-term solution with long-term negative implications. Moreover, it is not a wise strategy to sell assets instead of fixing problems.
If we buy the argument of the government that SOEs are not efficient or do not have good management, then what would be the excuse for the bad governance or mismanagement at the government level.
Should we hand over the government to the private sector too? Or we should rent the country to someone who has better experience or skills? Answer would be no, then why it is yes in the case of SOEs.
The wise strategy would be to go for comprehensive reforms and look for better models. For example, China’s SOEs are making huge profits and contributing to welfare of the country.
One of the reasons is that China introduced competition among the SOEs by establishing more than one SOEs in the same sector like mobile phone services. SOEs are competing to secure profits and benefits.
Pakistan can also look at Malaysia, how it turned its SOEs into profit-making companies. During the 1980s, Malaysia hired private sector CEOs and asked them to revive the SOEs.
Although all the CEOs were not successful, many turned around the SOEs. From 1994, Malaysia has introduced the concept of government-linked companies. It included the private sector with government being a major stakeholder.
Pakistan can also learn from the experience of Turkey as to how it implemented the IMF programme and revived the economy.
Lastly, this argument should not be taken against the private sector. There is no second opinion on the importance of private sector, but it should not be mixed with privatisation or the role of SOEs.
The private sector is an important player but SOEs are more important in the context of state and people. This difference can be judged from the experience of educational and health sectors where the status of people changes from being ‘citizens’ to ‘customers’ due to privatisation.
Shakeel Ramay heads the China Study Centre at the Sustainable Development Policy Institute (SDPI) and Hania Shah works as Research Associate at SDPI
Published in The Express Tribune, March 9th, 2020.
NEWS COVERAGE PERIOD FROM MARCH 02 TO MACH 08, 2020
PPP WON’T ‘ALLOW’ PRIVATISATION OF SOES: BILAWAL
By RECORDER REPORT on March 5, 2020
Pakistan Peoples Party (PPP) Chairman Bilawal Bhutto said on Wednesday that the PPP would not allow privatization of state owned entities (SOEs) by a puppet government, saying that selected rulers have preferred to sell national assets whenever they came into power.
The SOEs carry the blood and sweat of labourers and we would not let anybody to compromise on it, he added. Bilawal was addressing a labour seminar organized by the Peoples Labour Bureau at a local hotel. He said the government was claiming that the economy was on the right track and both the Moody’s and other international institutions are admiring it but then the government starts compromising on the economic rights of labourers in its talks with the IMF.
He said the judiciary is independent and it would not let anyone privatize the national institutions. “We would not let this puppet government to sell SOEs like we did not allow Musharraf,” he said and added that the PPP would protect the rights of labourers.
He said the time has come to join hands for the protection of the rights of labourers. The only one way to avoid financial murder of labourers is to constitute a people and labourer friendly government.
Copyright Business Recorder, 2020